In early 2003, I joined the Australian Treasury where I was immediately introduced to the Department’s “Three P’s” framework, which effectively argued that Australia needed to: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living standards.
Being a young fella at the time, and fairly green in my thinking, I didn’t think too much about the framework and accepted it more or less as gospel.
Now in my late-30s, and arguably wiser, I have come to realise that only one of the Treasury’s pillars (raising productivity) is highly welfare enhancing, one is somewhat enhancing (lifting participation) and one (endless population growth) can be downright deleterious to living standards.
Life is all about trade-offs. Working more hours (increasing participation) can mean that less time is available for other pursuits, such as relaxing or meeting-up with friends. So while working more will, other things equal, raise incomes and GDP, it can also take away from the other pleasures in life, reducing its benefit.
No such problems occur with lifting productivity, which allows more goods/services to be produced (consumed) from less effort, and is the only real driver of rising living standards over the longer-term.
By contrast, population growth’s impact on living standards is highly questionable. While it certainly does raise headline GDP (more inputs equals more outputs), there are significant doubts over whether it raises per capita GDP, while also placing greater pressure on the environment, pre-existing infrastructure and housing, and Australia’s fixed endowment of mineral resources (see here for a detailed run-down of the issues).
Indeed, Katharine Betts, an Adjunct Associate Professor of Sociology at Swinburne University of Technology, has found that that data from 32 OECD countries show no statistically significant association between productivity and population growth:
Dr Betts has also called on Treasury to reduce the trifecta of the three Ps to a duo of productivity and participation:
…the deep shortcomings of GDP as a measure of well-being are now all too well known; for example the misery that commuters experience stuck in traffic shows up as a positive for GDP (more petrol consumed, more costly wear and tear on vehicles), and the GDP takes no count at all of the drag that the congestion imposes on productivity. In contrast the State of Australian Cities report predicts traffic congestion in the major cities will cost Australians A$20.4 billion a year by 2020 and stories of its ill effects on productivity are commonplace…
High immigration may have no effect on productivity, as the figure above shows, or as the Australian experience suggests, may reduce it. And it can be irrelevant to participation.
Thankfully, Australia’s policy makers finally seem to be heeding the call.
Back in March, current Treasury secretary, John Fraser, provided a lukewarm assessment of population growth via immigration [my emphasis]:
In recent years, Australia’s population growth has been amongst the fastest in the developed world, driven by migration.
A growing population can be a source of dynamism for the economy.
It provides a larger domestic market for business, increases the size of the labour force and facilitates the injection of new ideas.
But it also places additional demands on government budgets in areas such as infrastructure, health and education.
I have seen this firsthand in the United Kingdom where the results are very sobering.
And last month, RBA Governor Glenn Stevens took a veiled swipe at Australia’s high immigration program, endorsing a shift away from quantitative measures to boost growth, such as high immigration, to qualitative measures that improve productivity and living standards on a per capita basis.
Today, the National Reform Summit released its final statement, which included an entire section on the need to boost productivity and participation, but excluded any mention of the need for population growth (immigration) in order to improving living standards.
Hopefully, this omission represents a belated acknowledgement from Australia’s leaders and policy makers that high immigration is not an economic bonanza, and is in fact just as likely to damage the nation’s productivity and living standards.
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I joined Treasury a few years after you, and was introduced to the 3 Ps as part of my induction. My thoughts on their value are exactly the same as yours – population growth is a completely nonsensical way of targeting improved living standards (though it does do a good job with headline GDP – which is the figure our pollies love to quote).
I love that they induct everybody in to the house ideology upon commencement… wouldn’t want any heterodox ideas popping up, could make for some uncomfortable meetings.
Spot on. I took up graduate employment at Commonwealth Treasury as well a few years ago, and realised early on you didn’t get genuinely rewarded for thinking differently.
– population growth is a completely nonsensical way of targeting improved living standards.
Yes, but…. It gives the impression of doing so, GDP gets a shove, lots of activity generated .
Besides it is a lazy ,easy way to go ,so it is in the capability of our policy makers. You are not meant to notice the crowding, high RE prices & loss of amenity & social cohesion .
No such problems occur with lifting productivity, which allows more goods/services to be produced (consumed) from less effort, and is the only real driver of rising living standards over the longer-term.
this is quite questionable: since early 70s productivity in USA tripled while median household income barely moved. It’s even worse in some sectors like manufacturing where productivity more than doubled while sector wages fell in real terms.
Not only that lifting productivity is not always improving living standards, but also when coupled with rising inequality it reduces living standards by making productive “losers” depressed, affecting their health, relationships ….
Well stated.
respectfully concur doctorX. Therein lies the problem.
h/t skippy http://www.epi.org/publication/ib330-productivity-vs-compensation/
“I have seen this firsthand in the United Kingdom where the results are very sobering.”
I suggest that, every time our leaders make a statement espousing the benefits of population growth, they be required to spend a Fri/Sat night in their local hospital emergency ward and police watchhouse and spend a day at their local sewerage treatment works and a day cleaning rubbish trucks at the dump.
That’s an observation or subjective perception, i.e. it’s making a subjective correlation, presenting as causation, but there is no objective evidence to make a correlation let alone a proof of causation?
For example, a native population, excluding temporary immigrants, that is both ageing and being overserviced has no correlation with increased use of health services?
Or are you suggesting that young temporary ‘immigrants’ are parasites who ignore the law, all drive cars causing congestion, create too much of a load for health system, produce too much rubbish and go to the loo too much…. while the native population does not have any impact? (by native I do not mean indigenous, but the predominantly white ‘native’ (pardon the pun) population of citizens who have right to vote, access and receive govt. services).
It’s hard to disagree with the idea that a rapidly-increasing population will dampen per capita GDP ( or GNH (Happiness)). However, we may need to think beyond Fortress Australia/Europe/USA because there are millions of people living in counties that are war-torn, under-developed and poor but who consume Western media which is designed to tell us how rich and happy we are. The flood of migrants into Europe at the moment is testimony to the fact that, until there is a more even distribution of wealth and fewer Western-led wars, the desire of these people to move to a rich country will continue.
So, unless we get much poorer, or we help them get richer, migration will continue to drive population increases in the rich nations.
We cannot stop the tides, just ask King Canute, well, he isn’t around anymore, but you know what I mean. All we can do is manage our response.
Sure. However, the overwhelming majority of migrants coming into Australia are not refugees or asylum seekers, but rather economic migrants.
All good, but we have stopped the boats and our NOM is 33% down from its 2009 peak. NOM has been decreasing, not increasing.
https://www.border.gov.au/ReportsandPublications/Documents/statistics/regional-nom-2004-05-2017-18.pdf
“For the year ending March 2014 Australia’s NOM is estimated by the Australian Bureau of Statistics (ABS) to be 231 500. This estimate is below its peak of 315 700 for the year ending December 2008.
The current NOM estimate more closely aligns with the current total permanent migration program intake of 204 000 compared to the NOM peak in 2008.”
https://www.border.gov.au/ReportsandPublications/Documents/statistics/nom-sep-2014.pdf
This also details ‘where’ they (NOM) are going…
https://www.border.gov.au/ReportsandPublications/Documents/statistics/report-migration-programme-2013-14.pdf
Japan today, China tomorrow (i.e. 2035-2040) – Australia post 2050 (if India’s TFR goes below replacement and stays there)?
http://www.domain.com.au/news/tokyos-abandoned-homes-20150824-gj6arl/
Yep…
http://www.economist.com/news/international/21652314-growing-number-cities-will-have-plan-drastically-smaller-populations-rus
https://en.wikipedia.org/wiki/Shrinking_cities
Uncontstrained growth zealots will hate the idea, but there is a purpose for urban growth boundaries if they are drawn for the purpose of reducing the number of buildings you will need to bulldoze in the future. One day someone’s going to have to bulldoze half of Houston.
StatSailor,
I am sure if Japan had been more open to immigration over the last 15 to 20 years most of these houses would not now be vacant. They would probably have young migrant families in them. I don’t think what is happening now in Japan can be used as an example of what will happen in Australia.
@nsf,
That’s fair enough, but note willy’s linked articles and consider that Germany is very open to immigration. Also, note that my timing for Australia suffering the same fate was based on India and China both having entrenched shrinking workforces, and hence far fewer people from those countries migrating anywhere else in the world.
Jaduong,
I think you are right. Australia will find it difficult stem the flow of migrants, both documented and undocumented (those who overstay their visa’s inAustralia’s case), for a sustained period until it makes itself a comparatively much less attractive destination.
Interesting article but confusing with assumed linkages, vague definitions etc. supported by anecdotal, not surprising with the source used.
A perceived correlation does not make a causation, while ignoring changes in population/NOM definition 10 years ago to include temps is not helpful (and unrelated to visa/nationality status), but does inflate headline data for more impact in the headlines, pardon the pun.
A permanent permanent migration cap of 200K+ does exist , the others are temps or churnover while population growth is also driven by fertility (negligible) but also ageing population (who drive cars, visit hospitals etc. using infrastructure, more often than younger ‘immigrants’.
Also ignores the qualitative side of productivity missed by disingenuously matching headline stats e.g. ignoring know how and skills both required and actually possessed by employees, assuming their job descriptions are up to date? Many of the temps (ex 457) are not eligible for unconditonal full time work.
Assuming the ‘population Ponzi’ meme reflects reality, population growth is driven by ‘immigration’ and is therefore a problem, what is the solution?
Which visa classes will be restricted and who decides? If a ‘stable population’ and ‘steady state economy’ are the solutions, are there any examples of where such autarkist states have worked well (or was it thought up by a bunch of ‘thinkers’ and remains imaginary)?
Will Australian citizens need re entry visas when returning after 12+ months as they are being described as ‘immigrants’ (or an exit permit in the first place) and may upset the NOM balance?
What happens if there are too many (ageing) Australians, without ‘immigration’, what do we do with this growing demographic bth overloading and overcrowding the state, infrastructure and healthcare? Like one is doing later, off to sleep….. hopefully I’ll be waking up in the morning…..
Article may concur with many commenters’, bloggers’ and many Australians’ views for whom evidence seems to be an ‘inconvenient truth’, but its conclusions are not matched by evidence (presented) and I would treat it as not unlike the need for Abbott and the ABP to propose a visa crackdwon in the Melbourne CBD… a sign of things to come?
Hang on, time for a reality check…
1. Increased productivity means less labour/staff. Productivity is now driven by automation and IT, think check out chicks etc
2. Population increase is also natural growth and that is going to drop off a cliff moving forward as 80 years after a baby boom, comes a detah bust. Two years of fewer babies in Oz is alarming and means less mothers 30 years down the track. Overall our future population growth will decline significantly.
3. It is not small business that creates jobs, it is govt that create jobs and this ‘new normal’ will be hard to accept.
Using the ‘self checkout’ as an example. There is no ‘productivity gain’ : it is actually slower to go through the checkout now!! The supermarket is just pushing the shopper to do the work of checking out without paying them.
To get productivity gains, enable RFID tags on all grocery items.
What the?
Certainly Coles and Woolies would look at the productivity gains of having less staff and more automation. You are looking from a customer point of view I think.
Probably only a productivity gain for supermarkets under certain conditions – a lot of the time it looks like exchange one check-out chick doing ‘eight items or less’ for one check-out chick troubleshooting customers’ self-serve checkout fails.
Works well in CBD supermarkets where customers buy a handful of things for lunch, though.
Stat
My first early experiences in Coles was a check out person and a packer. Now, no checkout people or packers. My point was that productivity gains, as an objective for business, do not necessarily mean more jobs, but sometimes less jobs. Think ATM’s and bank staff etc…
I am quite sure that the big Taxi companies will see driverless vehicles as a big productivity gain.
Of course you are right – unless demand continues to increase, productivity, effectively being the ratio of output to labour, requires that there is less labour, which means less people doing the labour (or averaging fewer hours worked). And hence the self service checkouts give the appearance of a productivity increase.
I guess I was saying that self-serve supermarket checkouts seem to show that the path to eliminating labour isn’t totally smooth. My local supermarket introduced them about five or six years ago (about five years after I first saw them in Europe, where I was told they had been for several years already, so by now quite a mature technology with ample time to iron out the bugs), but still seems to have as many non ‘eight items or less’ checkouts, which usually seem to be manned, as it did before (a few express lanes went to make way for the self serve), while the self service trouble shooter seems to be about the busiest employee in the shop, and the self service has the slowest moving queue.
At the same time Ronin’s point is valid – there is no saving in terms of human effort, and may well be an increase if you count the extra time the customer spends queueing – it’s just that the human effort has been moved so it no longer counts towards the supermarket’s labour costs.
Seriously, that’s all the great robotics revolution delivers?
Beg to differ on 3., it is my understanding that SMEs employ the majority, something neither govt. nor big companies do (and nowdays tend to outsource even more)?
UE, can you explain how participation isn’t a benefit, if we are talking about overall, not individual?
For example, if participation increases in line with jobs growth, would it not be reasonable to assume that long term unemployed and those entering workforce, are taking that participation % up/
I agree working longer hours is not a positive, working productively for shorter hours is much better
I didn’t say that participation isn’t a benefit, but that it is much less of a benefit than productivity.
Edit: I just re-read what I wrote and realised I should have worded it better. Hence, the amendment on participation
I wasn’t being smart (for once), was genuinely trying to understand.
I knida agree the Aussie population Ponzi is a big quality of life destroyer…that said I honestly don’t see this as Australia’s choice. All Aussies can do, at the moment, is to manage the population flow through effects of the current global Economic and GeoPolitical repositioning. Unfortunately our ability to adapt to this new world order depends largely on the participation emigrants with an in-depth understanding of these emerging markets. All our GDP upside, for at least the last 30 years, has come courtesy of Asia, making it a dangerous leap of faith to imply that the same GDP outcomes would have been achieved without the Aussie Asiafication that resulted from the Population Ponzi.
The other point to keep in mind is what we fail to deliver efficiently to the world, might be taken from us (witness the recent island building in the South China sea…after a little map redrawing and island building and we might find our NW shelf conveniently renamed the Chinese Indian ocean territory)
“All our GDP upside, for at least the last 30 years, has come courtesy of Asia, making it a dangerous leap of faith to imply that the same GDP outcomes would have been achieved without the Aussie Asiafication that resulted from the Population Ponzi”.
Most of this upside from Asia has not come from mindlessly boosting our population via immigration, but from selling-off our fixed endowment of resources. More people means less resources per capita.
Australia’s immigration intake was fine until the mid-2000s. It’s what’s happened since then that’s the problem.
Admittedly resource extraction has dominated the Australian story for the last 10 years however I’d suggest that our near term future depends heavily on the performance our Tertiary education and Tourism sectors. Both of these sectors require the participation of Aussies with a deep understanding of Asia and the contacts to grow these industries. Similarly our ability to become a Financial hub of Asia kinda requires the participation of Aussie citizens with a deep cultural knowledge of Asia and especially those with good ties to China.
UE,
If Australia had not embraced multiculturalism in late 1960s I think it is unlikely that Japan would have bought the minerals from Australia in 70s and 80s. I don’t think you can so easily delink the significant multicultural migrations to Australia over the last 50 years and the minerals that have been bought from us.
CB,
If Australia is going to have to rely significantly on Tertiary Education in the medium term then Australia will be in a lot of trouble. Connecting Tertiary Education with Immigration in 1996 has been a disaster for the quality of Tertiary Education in Australia. I argue that the quality of Tertiary Education can only start to be improved once the link between Tertiary Education and Education has permanently been removed. Removing the link between the two will not be easy.
@NSF,
If you decouple immigration from tertiary education as an export, the export education sector will halve overnight, and possibly shrink further before it grows.
However, in twenty years, it will be a lot more viable as a steady but small cottage export industry, which is where our ambitions for it should sensibly reside.
All the publicly expressed fears about an ‘aging population’ seem to centre around the year 2050. Our importing people binge began in the early 2000’s and I assume the majority of these imports would’ve been in their 20’s and 30’s so by 2050 they will be in their 70’s and 80’s. It would be interesting to know what proportion of the elderly in 2050 doing their so called sucking of the lifeblood out of Australia will be made up of these inports from 2000 onward.
@Jeremy C
4.1 million boomers born here and now we have 5.4 million due to immigration. 80% of that extra 1.3 million will require full or part pensions.
UE you are aware that the NOM definition changed in 2006 to include temporaries such as students, backpackers etc. staying 12/16+ months, thus inflating the headline population figure?
Further, although now described as ‘immigrants’, only a small minority will be eligible and then actually be successful. Temps don’t stay long term because they must depart; while in Oz they pay for all if not most services yet have no (or very restricted) access to permanent residency, healthcare, pensions and other benefits….
It is misleading to describe or suggest otherwise, unless one wants to create alarmist headlines encouarging people to now equate ‘immigrant’ with non-European’s whom are taking advantage of poor (white) Australia……
With the present antics of the Abbott ‘leadership’ and plans for the ABP to be in the Melbourne CBD to impress swing voters elsewhere with soome ‘other type’ ‘gotcha’ moments, will be interesting to see what comes out of the wash in media on this attempted impersonation of a totalitarian regime?
A massive proportion of our immigration during the mining capex boom came from non-Asian countries such as the Old Dart and Ireland. Not really seeing how Irish construction workers contributed to our ties and knowledge of Asia.
Apart from education mostly being a sham immigration gateway, we’re going to see declining growth in this space as the number of Chinese school leavers continues to decline, the number of Indian school leavers stabilises and others enter the market and become more competitive.
As out terms of trade continues to fall, and with it our ability to buy imported anything, probably a good time to re-learn how to do for ourselves, which admittedly may require a moderate intake of people with genuine skills which we lost.
Australia becoming an Asian financial hub just seems more fantasy than achievable goal.
“Working longer hours (increasing participation) means that less time is available for other pursuits, such as relaxing or meeting-up with friends.” Huh? That’s not workforce participation, but maybe I’m being too literal.
“lifting productivity, which allows more goods/services to be produced (consumed) from less effort” Ahhh…….productivity is an average measure of the efficiency of production using ALL inputs, not just effort (labour), but again I may be too literal.
Anyway, pushing on …….. ” (productivity) is the only real driver of rising living standards over the longer-term” No! …. Unless wages adjust to productivity gains increase profits which is what has transpired in Australia for years. From Mitchell “real wages are growing well below trend productivity growth and Real Unit Labour Costs (RULC) continue to fall. This means that the gap between real wages growth and productivity growth continues to widen as the wage share in national income falls (and the profit share rises). The flat wages trend is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending.
See http://bilbo.economicoutlook.net/blog/?p=31569
If this is Treasury’s view of the world then Australia is in more trouble than I thought.
But in regard to the topic of the article, the “population growth driving economic growth argument” holds true for under developed economies and applied to Australia 60 to 80 years ago when skills importation and concurrent infrastructure development occurred but it is no longer a significant benefit. The OECD produced an interesting report and concluded ” the impact of migration on economic growth for 22 OECD countries between 1986 and 2006 demonstrates a positive but fairly small impact of the human capital brought by migrants on economic growth” and paraphrased goes on ” ……the net effect is fairly small, including in countries which have highly selective migration policies. An increase of 50% in net migration of the foreign-born generates less than one tenth of a percentage-point variation in productivity growth (Boubtane and Dumont, 2013).
See http://www.oecd.org/migration/mig/OECD%20Migration%20Policy%20Debates%20Numero%202.pdf
Who remembers the 1970s predictions that the 40 hr work week would die out, this premise was justification for teaching avocational / vocational subjects (depending upon individual future decisions): sport, woodwork & photography for example. Just another Digital Revolution Prediction that failed to materialize.
If you decouple immigration from tertiary education as an export, the export education sector will halve overnight, and possibly shrink further before it grows.
StatSailor is correct.