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:

ScreenHunter_15659 Oct. 24 14.47

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:

ScreenHunter_18202 Mar. 26 13.24

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.

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Comments

  1. SAP’s idea of letting in 70,000/year is way too high.

    Only refugee visas and spouse visas should be allowed to be converted into an Aussie passport.

    How many “skilled” workers does Kuwait let in?

    Does Mr Bourke not realise that we have had too many over the last 20 years? We had 300,000/year sometimes! A great chunk of whom cheated on exams to come here or bribed professors once they got here. Far from skilled, we got people of the worst character.

    • SA is very well aware of the history of the migration program. Talking about anything other than returning to the long term average of 70,000 is counter-productive to making SA appear mainstream to the public. SA needs a representative in parliament asap.

      • The number of foreign workers in Japan increased by about 200k between 2015 and 2016, so I reckon that’s pretty close to Japan’s migration rate.
        Immigration to South Korea was around 220k in 2014, and the South Korean government plans to expand immigration from 2018 onwards.

    • Our primary moral responsibility is to pass on an economically, ecologically and socially sustainable Australia. This is what we can realistically control.

    • brian560MEMBER

      The growth occurred from 2007 onwards when the Government at the time allowed overseas students studying for skilled vocational visas (subclass 880-885) learning to be cooks, pastrychefs, graphic pre press, nursery etc etc) to apply for Permanent Residence (PR) visas at the completion of their course. The requirements for PR were.a vocational degree, 900 hours work experience and the usual health.character requirements. When applicants couldn’t get skilled work, some idiot in Visa Policy allowed them to do voluntary work to meet the requirement. This led to the explosion of so called ‘bodgy colleges” where the complicit students just paid basically for the degree without studying. They didn’t need to learn anything because there was another racket where middle men or facilitators approached small businesses offering a payment for a work reference for a student. These middle men were the go between between registered migration agents and Australian employers. Many greedy and stupid employers risked 2 years jail for very little money.Going rate was 5k, employers goy 3-500. The MA got the rest.Immigration officially stated that the fraud rate in the skilled program was 50 percent. In reality it was close to 95 percent. Fraud in the overseas student caseload soared also as everyone rushed to pile into the scam. The whole saga was a complete farce and showed how useless Immigration actually was. The visa cheats got away with it because they cleverly played the race card. No prizes for guessing the nationality.

  2. I see you are moving more and more towards my position, Leith and other MB staff disbelievers.. That will benefit you all by raising your economic credentials.

    “…there is no negative association between aging and lower GDP per capita…” Hopefully this statement will be an aid to stopping your elder bashing MB staffers.

    Regarding immigration you are apparently moving towards my long stated solution, being ZERO net population growth:

    ZERO population growth allows government to plan for better social environments, higher standards of living and decentralization.

    ZERO population growth allows for replacing living environments such that people can live happier lives, with desired services available, and the natural flora and fauna environment can be preserved or enhanced where it is lacking.

    ZERO population growth reduces the demand for property at the margin and creates a downward pressure on prices insofar as the price of marginal properties declines until the prices meet demand. It is true to say that if the population of Australia were one, only you, the price of real estate would be very low, arguably, the price of real estate will increase roughly in proportion to the increase in the population if all else remains equal. There will, of course, be some increased demand and increased prices in some areas due to the propensity of some people to live in those areas if the population wanting to live in those areas exceeds the available properties and the affordable price.

    ZERO population growth allows for a fall in property prices to a level that allows for increased business activity due to lower real estate prices.

    ZERO population growth has more benefits than those listed above.

    It is necessary to reduce population growth to ZERO or less to create sufficient downward pressure on prices under current conditions (especially regarding high levels of private borrowing) to make property more affordable, as most other variables, such as interest rates, are stretched to or near their limit.

    We can expect ZERO population growth to be assisted by other variables to reduce real estate prices over time.

    • Before we assume too much about the connection between population growth and housing prices, we need to consider the following real historical cases:

      Liverpool: population fell nearly 50% over 6 decades, accompanied by major loss of industry and jobs.

      Median multiple in recent times: consistently above 6; most recently above 7.

      Houston: population growth between 10% and 20% per decade for 6 decades: median multiple never reached 4, and mostly trended between 2.8 and 3.5.

      This is in spite of, or rather “because of”, Houston freely allowing the choice of larger and lower-density housing, and being around 1/3 of Liverpool’s density.

      Then there is the decades of median multiples of around 3 in most of the Anglo New World, including Australia and NZ, during the Baby Boomers era, including when they were coming of age to enter the housing market. We seem to have selective amnesia about the population growth rates that were once the norm, possible because they were nice local people’s children growing up naturally embedded in the local culture and not visibly apparent by their “difference”.

      It is a mistake to dismiss the potential for utopian urban planning to create extractive and speculative market-gamers paradises regardless of population growth. It is also a mistake to dismiss the potential for population growth to be a net beneficial input when all the other inputs are properly aligned. We are seeing a great divergence taking place on the part of a few dozen cities in the USA that (still) do have these inputs properly aligned. I don’t know how long it will take “mainstream” economics to wake up to the divergence; meanwhile Joel Kotkin is the chronicler worth following for his insights.

      • Yes, we need to look into what variable(s) has caused the Liverpool affect, Phil. I do not know what the cause is at this moment.

        There are many variables that affect real estate prices. Some of the variables are not rational or quantifiable in standard economic numbers. For example, Dutch Tulip Mania is a totally irrational, human-emotion based cause of higher and then crashing property prices.

        When a number of variables start to add to each other the price effect can be exaggerated even more, both upwards and downwards.

        One important driver of demand for real estate is a population that is needing housing. If there is no need for housing then there is no demand. For simplicity lets say that each person requires a home of his or her own. Then: If the amount of housing available exceeds the population there will be some houses left unwanted. These houses will be those that are less in demand because, for example, they are run down or too big or too small, have too much or too little land attached, are in dangerous areas or for other reasons. Prices for the houses that are not in demand will fall, little or much, until they are in demand due to their lower prices.

        In some areas prices may remain high, or even increase, if there are reasons why people want to live in those areas, even when overall population falls. Nevertheless lower population and a fixed housing stock will ensure that, at the margin, house prices will fall if there are no other intervening variables such as government buying up unwanted houses or Chinese cultural norms that want to leave ‘investment’ houses vacant. This latter factor is why a vacancy tax is important.

        Another variable is cost of financing. If interest rates are low, (as they are at present around much of the world, including Australia and Liverpool) then home buyers will (if it is their cultural tendency to do so) bid more for housing due to their likely propensity to
        spend a significant portion of their income on the emotionally desired home.

        If unemployment increases, or incomes fall, then the number of people who cannot pay their mortgages increases and the number of properties on the market can go beyond the demand and prices can fall dramatically. This is what has happened in many of the mining boom and crash affected areas in Australia. The dramatic fall is often lagged by, say six months, as vendors hold their prices until some vendors begin to sell in a quantity sufficient to create a ‘price-war’.

        There are other variables but lets deal with those I have mentioned.

        Keep in mind that it is not so long ago, in 2007, that the real estate market across the USA crashed and give-away homes were a reality. The crash seemed impossible to many property purchasers but it came and then it went; and now it has been resurrected in some parts of the USA.

        Government intervention has prevented a property crash in Australia by incentives such as the Home Vendor Grant, as has lack of supply, investor favorable taxes, high demand through a population outpacing housing growth, record low interest rates and particularly increased population in Sydney and Melbourne due to high levels of immigration that has been allowed to move into those two cities.

    • demografixMEMBER

      By Zero, are you saying a NOM of zero, so immigration to match emigration, or are you saying a negative NOM, more emigration than immigration to balance the natural growth? I am not sure what you mean exactly?
      ‘Bashing the elderrs’ as you put it is not connected at all to population growth and GDP, it is about fairness and equality I would have through, like inc the home into the pension asset test.

      • What I mean, demografix:

        1: We count the population today, by an educated estimate using our best tools.

        2: We then estimate (i) the number of births for 12 months and (ii) expected emigration for 12 months.

        3: We then do the following:

        ‘current population’ + estimated births over 1 year – estimated emigration = estimated population without immigration.

        We then allow (skills targeted and genuine refugee) immigration numbers sufficient to return to the preceding ‘current population’ level.

        If the population has risen due to lower death rates, lower emigration or high birth rates then we simply postpone any immigration until there is a fall in population from the ‘current population’ number.

        Regarding my ‘elder bashing’ comment:

        Quoting from the MB text above:

        “…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:”

        Elders have been bashed in these pages for a number of reasons one of which you mention is capital appreciation of elders homes. Another ‘bashing’ is for receipt of pensions when pensioners have a home that is said to have a high value. If there is, in fact, an increase in GDP as a population ages (ie more elders) then we may be able to attribute that proportional increase to elders and THANK them for our increased GDP and thank them for our increased wealth rather than bash them and call them leaches or other undeserved names.

      • There is an issue on methodology with the article, ie. unclear why they focused upon a correlation between economic activity and ageing based on past years, but ignore the dynamic of ageing population and tax base to support?

        Further, MB’s article includes research graphic but minus the future workforce – retiree projections?

        If a government is to reduce the NOM how will they do it, it’s quite a mixed bag ie. complicated but suggested there is a simple solution.

  3. If house prices were normal, young Australians would be having more children.

    One can clearly see that White Australians are being replaced by a high steady flow of non-European migrants.

    • demografixMEMBER

      Yes, perhaps. Economic growth in general puts downward pressure on fertility, so a recession led by a bursting of the housing bubble may have the opposite effect. Certainly for those as in entrants after the bust it would.

    • Florida also has homestead laws (you can’t take someones home off them) and 1031 capital gains tax exemptions (ie no capital gains tax for most transactions).