The Lowy Institute has released another report, this time penned by former RBA board member John Edwards (aka “Dr Rainbow”), calling on Australia to maintain a “big immigration program” to boost growth without giving any regard to the costs imposed on the incumbent population:
Australia has a major demographic advantage over almost all other advanced economies and many developing ones. Its population is growing faster than many others, it is younger than others, and while the population is ageing it is not ageing as fast as many other advanced economies.
In the five years to 2010 Australia’s population increased on average by 1.8 per cent a year, markedly faster than India or Indonesia (both 1.4 per cent). It grew faster than Canada’s population, twice as fast as that of the United States, and three times faster than the populations of China or the United Kingdom. These were years of unusually rapid population growth even by Australia’s standards in recent decades. However, at an annual average growth of 1.4 per cent over the past 40 years, Australia’s population growth has been faster than most developed nations, and faster than quite a few developing nations.
For output growth the most important aspect of demography is the growth of the workforce-aged population rather than the population as a whole. In respect of workforce growth, Australia’s singularity is even more striking. The United Nations projects the population aged 15 to 59 will shrink by one-third in China between now and 2050. It will continue to decline in Europe (especially in Germany) and Japan. In the United Kingdom it will increase by 4 per cent. In Canada, an immigrant nation like Australia, it will increase by 5 per cent. In the United States it will increase by 9 per cent, a considerable advantage compared with the other major advanced economies.
But compared to these populations, Australia will be in a class of its own. For Australia the United Nations projects that the population in this age group will increase by 25 per cent — almost three times faster than the United States rate. The United Nations projects for Australia over the next two or three decades far faster workforce growth than in any other sizeable advanced economy.
Australian official population projections are even better. They are devised on different assumptions about net migration and so forth so are not directly comparable. Even so, the ABS and Treasury projections are markedly stronger than the implied UN projection of a 0.7 per cent annual average growth rate of Australia’s working-age population over coming decades.
In its central forecast of Australian population growth to 2061, the ABS projects an implied average annual population growth of around 1.2 per cent through the period. It projects the number of people of workforce age, defined here as those aged 15 to 64, will increase at an implied annual average growth rate of around 1 per cent.
Treasury’s 2015 Intergenerational Report Australia in 2055 projects Australia’s population will increase by an annual average of 1.3 per cent in the years to 2055 — not far below the average of 1.4 per cent of the last 40 years…
The population projections by the United Nations, the ABS, and Treasury all depend on a quite high rate of migration. Like other advanced economies natural population increase in Australia is now quite small. The fertility rate is below replacement rate, so the only source of natural increase is declining mortality rates or ageing. In recent decades about half the growth in population is from natural increase and half from net overseas migration. In the ABS projection net migration is assumed to be 240 000 each year. Almost all of the projected increase in the Australian population is attributable to net migration, both the migrants themselves and then also their offspring. The Intergenerational Report assumes annual average net migration of 215 000…
What strikes me most about this report is that it does not address any of the negative externalities caused by Australia’s high immigration program. Not once in the whole report does it mention the additional strains on infrastructure, the costs to the community (and economy) from increasing levels of congestion, the deleterious impacts on housing affordability and the environment, nor the dilution of Australia’s fixed mineral endowment.
The purported ‘benefits’ from Australia’s world-beating immigration program are also spurious. The whole premise of Edwards’ argument is that maintaining a “big immigration program” will help offset an ageing population by increasing the share of workers in the economy.
This view is not correct if a long-term perspective is taken. Why? Because migrants themselves grow old.
On multiple occasions, the Productivity Commission (PC) has exposed the fallacy of Edwards’ argument that mass immigration should be employed to counter population ageing. For example:
- PC (2005): “Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”.
- PC (2010): “Realistic changes in migration levels also make little difference to the age structure of the population in the future, with any effect being temporary“…
- PC (2011): “…substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age… It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts”…
- PC (2016): “[Immigration] delays rather than eliminates population ageing. In the long term, underlying trends in life expectancy mean that permanent immigrants (as they age) will themselves add to the proportion of the population aged 65 and over”.
The PC’s various economic modelling also does not support continued mass immigration.
The PC’s latest modelling, released in September, compared the impact on real GDP per capita from:
- Historical rates of immigration, whereby population hits 40 million by 2060; and
- Zero net overseas migration (NOM), whereby population stabilises at 27 million by 2060.
The modelling found that GDP per capita would be 7% ($7,000) higher by 2060 under historical immigration. However, all the gains are transitory and come from a higher employment to population ratio.
At the same time, labour productivity and real wages are forecast to decrease under current immigration settings versus zero NOM:
“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… The higher labour productivity is reflected in higher real wage receipts by the workforce in the zero NOM case”.
Therefore, according to the PC’s latest modelling, 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, beyond the forecast period (2060), the migrants will age and retire, thus dragging down future growth – classic ‘ponzi demography’.
Importantly, the PC also explicitly cautioned that higher real GDP per person does not capture the negative externalities from immigration, such as worsening housing affordability, infrastructure bottlenecks, and environmental degradation.
And to add insult to injury, the PC’s modelling on the Economic Impacts of Immigration, conducted in 2006, considered the distributional impacts of immigration (unlike their latest modelling). The PC’s 2006 report found that boosting skilled migration by 50% over the years 2005 to 2025 would actually lower the incomes of incumbent workers, while wealthy capital owners (and the migrants themselves) reap the gains:
The increase in labour supply causes the labour / capita ratio to rise and the terms of trade to fall. This generates a negative deviation in the average real wage. By 2025 the deviation in the real wage is –1.7 per cent…
Broadly, incumbent workers lose from the policy, while incumbent capital owners gain. At a 5 per cent discount rate, the net present value of per capita incumbent wage income losses over the period 2005 – 2025 is $1,775. The net present value of per capita incumbent capital income gains is $1,953 per capita…
Owners of capital in the sectors experiencing the largest output gains will, in general, experience the largest gains in capital income. Also, the distribution of capital income is quite concentrated: the capital owned by the wealthiest 10 per cent of the Australian population represents approximately 45 per cent of all household net wealth…
Making incumbent workers worse-off does not sound like an argument for ongoing mass immigration, does it? If anything, it is an argument against mass immigration.
Yet again, the Lowy Institute has produced a biased report that purports a whole bunch of ‘benefits’ from Australia’s high immigration program without giving due regard to its costs on the incumbent population.
