In 2006, the Productivity Commission (PC) completed a major study on the Economic Impacts of Migration and Population Growth, which modeled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that it caused real GDP to be 4.6% higher than would otherwise have been the case in 20 years time (more labour inputs equals more outputs).
The PC also found that real income per person would increase ever so slightly. That is, 20 years later real income per head would be 0.7%, or $380 a year, higher than would otherwise be the case.
However, “the distribution of these benefits varies across the population, with gains mostly accrued to the skilled migrants and capital owners. The incomes of existing resident workers grow more slowly than would otherwise be the case“.
Hence, according to the PC in 2006, opening the spigots to skilled immigration would make the existing resident workers worse-off because they would earn less income than would otherwise be the case.
Yesterday, the PC released its final Migrant Intake into Australia report, which again provided a cautious assessment of immigration’s impact on the economy and living standards.
In its latest modelling, the PC found that maintaining positive net immigration would boost economic activity in per capita terms by increasing the proportion of the population participating in employment. Although this boost would be transitory:
Assuming that net overseas migration (NOM) continues at the long-term historical average rate (0.6 per cent of the population), by 2060 Australia’s population is projected to grow to nearly 40 million, with NOM adding some 13 million people to the population.
The continuation of an immigration system oriented towards younger working-age people can boost the proportion of the population in the workforce and, thereby, provide a ‘demographic dividend’ to the Australian economy. However, this demographic dividend comes with a larger population and over time permanent immigrants will themselves age and add to the proportion of the population aged over 65 years.
The Commission’s economy wide modelling projects that with NOM continuing at the long-term average rate with its current young age structure, by 2060:
– real gross domestic product (GDP) per person is projected to be some 7 per cent ($7000 in 2014 dollars) higher than if NOM was set to zero. In practice, this result cannot be extrapolated — limits on Australia’s absorptive capacity in terms of economic, social and environmental factors mean the modelling results do not shed light on the likely economic impact of very high rates of immigration
– a higher employment to population ratio associated with immigration will relieve some of the pressure of ageing on government expenditures (as a proportion of GDP), and moderate wage pressures particularly in high growth sectors…
However, labour productivity is forecast to decrease under current immigration settings, as are real wages, versus a zero NOM baseline:
Compared to the business-as-usual case, labour productivity is projected to be higher under the hypothetical zero NOM case — by around 2 per cent by 2060 (figure 10.5, panel b). The higher labour productivity is reflected in higher real wage receipts by the workforce in the zero NOM case.
Thus, the PC’s latest modelling shows a situation whereby ongoing high immigration improves per capita GDP by 2060 by boosting the proportion of workers in the economy, but this comes at the expense of lower labour productivity and lower real wages. Moreover, the benefits on workforce participation would only be transitory, with the migrants themselves aging and dragging on growth after the forecast period.
Importantly, the PC does caution that higher real GDP per person does not capture the negative externalities from immigration, nor does it account for any distributional impacts. Hence, policy needs to take a broader focus that improves “community wellbeing”:
While the modelling suggests that the Australian economy will benefit from migration in terms of higher GDP per person, whether migration delivers an overall benefit to the existing Australian community will also depend on other factors, including the distribution of those economic benefits, and the broader impacts of immigration, notably the associated social and environmental impacts…
High rates of immigration put upward pressure on land and housing prices in Australia’s largest cities. Upward pressures are exacerbated by the persistent failure of successive state, territory and local governments to implement sound urban planning and zoning policies…
Urban population growth puts pressure on many environment-related resources and services, such as clean water, air and waste disposal. Managing these pressures requires additional investment, which increases the unit cost of relevant services, such as water supply and waste management. These higher costs are shared by all utility users…
Immigration, as a major source of population growth in Australia, contributes to congestion in the major cities, raising the importance of sound planning and infrastructure investment. While a larger population offers opportunities for more efficient use of, and investment in, infrastructure, governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation.
For these reasons, the PC urges the Government to develop a national population strategy, rather than flying blindly:
With low and stable rates of natural population growth, decisions about the size of the permanent and temporary immigration intake amount to a de facto population policy.
The Australian Government’s judgments about immigration levels and population growth should be better informed by:
• a broad range of evidence which identifies, quantifies (where possible) and analyses the impacts of immigration and population growth on the wellbeing of the existing Australian community
• the Australian community’s values and perspectives on the importance of different impacts, that are well-informed by evidence
• the impact on future generations, incorporating a well-informed consideration of Australia’s absorptive capacity
• the effectiveness of policies that are best equipped to address these impacts. Enhancing the Australian community’s wellbeing is likely to be consistent with a range of immigration rates depending on the settings of many other complementary policies.
The Australian Government should:
• develop and articulate a population policy to be published with the intergenerational report
• specify that the primary objective of immigration and the Government’s population policy is to maximise the economic, social and environmental wellbeing of the Australian community (existing Australian citizens and permanent residents) and their future offspring.
Australia’s immigration and population policy should be better informed through:
• genuine community engagement
• a broad range of evidence on the economic, social and environmental impacts of immigration and population growth on the wellbeing of the Australian community
• a published five yearly review of Australia’s population policy. The Australian Government should calibrate the size of the annual immigration intake to be consistent with its population policy objectives.
MB has for a long time called for a frank and honest national conversation about population policy, which focuses on raising the living standards of the existing population. Not the current ‘grow and hope’ position displayed by the major political parties, which blindly assumes that mass immigration is beneficial, and maintains the current ‘Big Australia’ plan without community consultation and support.
Let’s hope this PC report gets the conversation and debate started.