Immigration’s biggest economic myth destroyed

By Leith van Onselen

One of the most common arguments used to support mass immigration is the claim that it keeps the population young and productive, and without constant immigration, the population would grow old and the economy would stagnate.

For example, Prime Minister Malcolm Turnbull has stated previously that “anyone who thinks it’s smart to cut immigration is sentencing Australia to poverty”, whereas KPMG’s Bernard Salt – a self-proclaimed “unabashed supporter of a bigger Australia” – has produced reams of articles pushing mass immigration and warning that to not follow this path would lead to an economic and fiscal catastrophe.

I have noted previously how Australia’s Productivity Commission (PC) has comprehensively debunked the view that immigration can ‘solve’ population aging, noting the following over more than a decade:

• 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”.

In short, trying to overcome an aging population through higher immigration is a Ponzi scheme. It requires ever more immigration, with the associated negative impacts on economic and social infrastructure, congestion, housing affordability, and the environment.

The PC’s Migrant Intake into Australia report also showed that immigrants overall have experienced lower median income, lower labour force participation, and higher unemployment than the Australian born population:

In January, economists from MIT published a paper, entitled Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation, which showed that there is absolutely no relationship between population aging and economic decline. To the contrary, population aging seems to have been associated with improvements in GDP per capita, thanks to increased automation:

Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular
stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counter-intuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes, and provide evidence and theoretical underpinnings for this argument.

…we show that since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita…

Figure 2 provides a glimpse of the relevant pattern by depicting the raw correlation between the change in GDP per capita between 1990 and 2015 and the change in the ratio of the population above 50 to the population between the ages of 20 and 49… we show that even when we control for initial GDP per capita, initial demographic composition and differential trends by region, there is no evidence of a negative relationship between aging and GDP per capita; on the contrary, the relationship is significantly positive in many specifications:

Clearly, anyone using the excuse of economic calamity, due to an aging population, to justify high immigration is simply wrong – the empirical evidence does not support it. Importing loads of people is more likely to import higher unemployment in the future as automation eat jobs.

Curiously, Bernard Salt – one of Australia’s biggest population boosters – has himself warned that technological change will mean there are likely to be too few jobs to go around in the future. And yet he continues to argue for ongoing mass immigration and a ‘Big Australia’ on flawed ‘labour shortage’ grounds. Go figure!

It’s time to bury the ‘immigration stops aging’ myth once and for all. Moreover, given the significant qualitative costs of population growth – for example, worsening congestion, reduced housing affordability, the degradation of the environment, the depreciation of natural resources, and the overall decline in individuals’ quality of life – there is significant cause to dial Australia’s immigration program right back.

[email protected]