Academic turns from mass immigration skeptic to booster

By Leith van Onselen

The Australian’s Judith Sloan penned the following on Friday about the heated debate that she had with University of Melbourne demographer, Peter McDonald, with respect to Australia’s turbo-charged immigration intake [my emphasis]:

I was engaged in a relatively heated but civil discussion of immigration with University of Melbourne demographer Peter McDonald yesterday at the Melbourne Institute/The Australian Economic and Social Outlook Conference.

Demographers are mainly concerned about numbers and age structures. By contrast, we economists are interested in the impact of immigration on the economy and the labour market as well as distributional effects on particular groups — young people, for instance.

McDonald regards the demographic pay-off of having a substantial immigration program as a prize worth seeking.

For my part, I am not convinced there is a great deal of difference between 25 per cent aged 65 and over by 2060 and 30 per cent, the latter of which would be achieved if we significantly cut back the annual migrant intake.

I’m of the view that we should face up to the demographic challenge that will inevitably confront us. After all, migrants age too. We might also be able to avoid some of the negative effects of having a very large immigration program such as urban congestion, loss of social amenity, rising house prices and environmental degradation.

It is curious that Peter McDonald chose to use the population ageing myth as a means of defending Australia’s mass immigration program, given he comprehensively debunked this myth in a 1999 federal parliamentary research paper, entitled “Population Futures for Australia: the Policy Alternatives”, which he co-authored with Rebecca Kippen:

In this paper, the McDonald and Kippen concluded that it is “demographic nonsense to believe that immigration can help to keep our population young”, while also recommending “a population of 24-25 million within 50 years” as well as “annual net migration… in the order of 80 000 if fertility falls to a level of about 1.65 births per woman”:

There is no question that immigration, at least the first 80 000 immigrants, provides a worthwhile reduction in the extent of ageing of the population. However, immigration cannot ‘solve our ageing problem’. Substantial ageing of the Australian population over the coming decades is absolutely inevitable. To illustrate the lack of power that immigration has in relation to our age structure, we investigate the levels of immigration that would be required to maintain the proportion of the population aged 65 and over at its present level of 12.2 per cent. In doing this, we maintain the fertility and mortality assumptions of the standard but allow annual net migration to change.

To achieve our aim, enormous numbers of immigrants would be required, starting in 1998 at 200 000 per annum, rising to 4 million per annum by 2048 and to 30 million per annum by 2098 (Table 6). By the end of next century with these levels of immigration, our population would have reached almost one billion… The problem is that immigrants, like the rest of the population, get older and as they do, to keep the population young, we would need an increasingly higher number of immigrants…

It is demographic nonsense to believe that immigration can help to keep our population young. No reasonable population policy can keep our population young.

…we should be aiming at zero population growth. On the basis of our criteria, we agree that this should be the lower end of any acceptable range of future population outcomes for Australia. The standard projection scenario described above takes us to a population of 24-25 million within 50 years, after which the rate of population growth would be close to zero…

Indeed, to avoid long-term population decline, annual net migration would need to be in the order of 80 000 if fertility falls to a level of about 1.65 births per woman, as we suggest is likely. If fertility were to fall below this level, higher levels of net migration would be required to achieve zero growth, and the resulting population size would be larger than the 24-25 million that results from the standard projection scenario…

As we have argued, annual net migration of 150 000 per annum seems to be beyond our present absorptive capacities but, if fertility were to fall to 1.4 births per woman, a net migration level of 150 000 would merely lead to zero population growth, the lower end of our acceptable range. Thus, those who wish to maintain population growth would do well to note the course of fertility. While it is impossible to be precise, an annual net migration level of 120 000 seems about as high as we should extend under present conditions…

A bipartisan approach to immigration policy has served Australia well in the past and we see little reason why this should not be the aim of the major parties today.

Fast forward to 2017, and Australia’s population has already reached the “24-25 million” limit courtesy of a mass immigration program that is roughly 2.5 times that recommended by McDonald and Kippen:

As well as a total fertility rate (1.81) that is currently well above the “1.65 births per woman” projected by the paper:

Sadly, the “bipartisan approach to immigration policy” is also for mass immigration and a Big Australia of at least 40 million mid-century, which Peter McDonald curiously now seems to endorse.

We also shouldn’t forget that 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.

In a separate article published in The Australian over the weekend, McDonald also reportedly played down the effects of mass immigration on the labour market:

Running a successful economy in the globalised age means ­embracing competitive policies such as 457 visas to ensure Australia represents best international practice.

On immigration, Melbourne University demographer Peter McDonald punctures the new anti-immigration mantra of the Liberal Party conservatives.

At the conference, McDonald provided an analysis of the connection between the labour market and immigration, leading to the conclusion that “the big story is that unemployment is largely unaffected by migration”.

Throughout the mining boom, business groups lobbied to increase immigration (both temporary and permanent) to alleviate labour shortages and prevent a wages/inflation break-out. In fact, Peter McDonald made the very same argument in 2010, as reported by Ross Gittins:

…in the present population debate the argument coming from the pro-growth side is the reverse: rather than arguing we need economic growth to cope with population growth, people such as the prominent demographer Professor Peter McDonald of ANU are arguing we need population growth to keep up with economic growth. The economy is growing strongly as we seek to exploit the super-high prices China and the world are willing to pay for our coal and iron ore. This growth is increasing employers’ demand for labour at a time when the unemployment rate is low and we’re close to full employment. High immigration is filling that demand, as well as helping to supply the growing labour needs of the mining states without them having to bid their wages up to persuade workers in other states to move to the backblocks of Western Australia and Queensland. In other words, if the economy’s demand for labour is outstripping the local population’s ability to supply that demand, but the government were to decline to allow more workers into Australia, the result would be a wage explosion as employers sought to attract the workers they need by bidding them away from other employers, which would soon lead to rapid inflation…

Now that the mining boom has finished, and there substantial labour underutilisation and weak growth, are we now somehow supposed to believe that continually importing workers does not adversely impact the labour market by exacerbating the over-supply and pushing down wages? Go figure!

In any event, the PC’s modelling is clear as to impacts on the labour market. In 2006, it completed a major study on the Economic Impacts of Migration and Population Growth, which modelled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that the benefits from increasing skilled migration accrue to the migrants themselves and wealthy capital owners, whereas existing resident workers are made worse-off. Here’s the money quote:

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…

In a similar vein, the PC’s most recent modelling found that labour productivity is forecast to decrease under current immigration settings, as are real wages, versus a zero net overseas migration (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.
ScreenHunter_14902 Sep. 12 16.24

Let’s forget the modelling and think logically for a moment. The whole purpose of ‘skilled’ visas is to suppress wages growth by allowing employers to recruit from a global pool of labour to compete with Australian workers.

When demand for workers rises, employers would normally need to bid against each other for the available scarce talent, thus biding-up wages (as argued by McDonald in 2010). However, the ability to bring in a migrant under the auspices of “skills shortages” obviously breaks this nexus. We don’t need some bullshit economic model to tell us otherwise – it is common sense.

One wonders why Peter McDonald has suddenly turned into an immigration booster, using arguments such as an aging population to prosecute his case in direct contravention of his earlier research, as well as that of the PC? Could it be because the university that he works for has become a factory for foreign students whose prime motivation of studying in Australia is to achieve permanent residency?

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Comments

  1. “unemployment is largely unaffected by migration”.

    Lies. Office clerks are imported to work for $9 an hour. Aussies are incapable of working as office clerks?

    PM Shorten must charge $100k upfront for each 457 visa. Even in 2007 it was hard to get a job. No more “skills shortage” occupation list! How could a politician know about every single occupation?

      • I get that, but HOW does he justify his change in stance.

        Edit: he produced a report some yrs back with a complete opposite outcome, how does he take his present position without making a professional fool of himself?

    • Follow the money. He’s an academic at a prestigious university. Said prestigious university makes a shedload of money from student visas. Do you think they’re going to tolerate an academic suggesting that the Government slows down on throwing out paths to immigration like they’re lollies?

      • I get that, but HOW does he justify his change in stance.

        Edit: he produced a report some yrs back with a complete opposite outcome, how does he take his present position without making a professional fool of himself?

  2. boomengineeringMEMBER

    On the note of permanent residency the Dutch started in 1629 and had up to four settlements before Cook but they accepted the Aussie way of life and integrated unlike the English who refused to learn the language or follow the laws.

      • boomengineeringMEMBER

        Hi Ermo, been on the bike before 4.00 am started work after that, now brekie before delivering the repaired big elect motor to Botany.
        It’s a matter of click bait versus echo chamber but its a bit hypocritical to expect new arrivals to speak English to become Australians when no Aboriginal language was spoken nor laws of the land were accepted when the so called first fleet arrived
        But the fact that the Dutch becoming Aussies.since 1629 didn’t stop the Aboriginal language of that area incorporating Dutch words but I guess that’s inevitable

  3. ErmingtonPlumbingMEMBER

    “Running a successful economy in the globalised age means ­embracing competitive policies such as 457 visas”

    There you have it,…his whole Idelogical position on everything, in one sentence.
    That in combination with his own self-interest, in maximising personal profit for himself,…make his opinions about as credible as a Talkback raido announcers, Paid for “Cash for comments”

    https://en.m.wikipedia.org/wiki/Cash_for_comment_affair

    Like our Politicians, Peter is persuing future rewards from powerfull benefactors, by showing of his carsalesman like ability to spruik and sell “shitboxes” to the Public.

    • By “competitive policies” does her mean lowering wages? Because there sure is no other possible explanation for such a link between 457’s and competition when mist of the 457 are not highly skilled high wage earners. Train the youth to fill the rules or reap the result of long term unemployed turning tocrime. (And no it’s not racist since a large chunk of those will be young immigrants with less than perfect English)

    • Spot on Ermo.
      It is another case of a ‘thought leader’ having a Road to Damascus moment.

      Probably angling for a consultant position with the IPA.

  4. WilliamMEMBER

    Well said Judith Sloan. McDonald is a serial propagandist for high immigration, at least in the last decade. It’s the first time I’ve heard his BS demographic modelling publicly challenged.

  5. I wonder if demographers are on the 457 list. Could probably get some cheaper ones from somewhere else. May this one needs to be reminded of that.

  6. The problem with the ‘aging population’ issue is that it has two elements:

    a. We need working age people to do the available jobs that the older portion of the population can no longer physically do, e.g. mine sh#t to sell overseas
    b. We need a certain portion of our population in full time work to earn salaries to pay the taxes to support the health / social security costs of the retired (aged) portion of the population and, by extension, the travel costs and entitlements of the over fed / under worked women and men who run the joint in Canberra

    Going back 50-60 years, a. made sense because of the labour intensive nature of the work i.e. before air conditioned semi automated underground mining equipment that allows one worker to do what used to take 6-8 men mucking about in coal dust manually drilling blasting holes or man handling pneumatic drills against rock faces, and before self driving trucks etc. Similar comments could be made for a bunch of other ‘manual labor’ industries. It makes zero sense now, due to either the aforesaid automation or the obliteration of industries such as car / aircraft / ship manufacturing in Australia and due to the bulk importation of pre fabricated flammable sh#ite from China to build our dog boxes and the advent of bricklaying robots etc for the few places still being built with brick.

    Now b. makes a lot of sense UNLESS there are no jobs available to earn salaries which can be taxed and the sad reality is that there are not now and certainly won’t be in 20-30 years. No sane CEO in any industry is looking to increase their headcount and whilst I have not yet drunk the Kool-Aid on the AI industry I don’t think that anyone can doubt that there are huge efforts underway to develop labour free / labour reducing options across a wide range of industries and that the next 20-30 years will deliver automation on a scale that we cannot fathom at present.

    A lot of commentators who harp on about aging go on about a. as if there will be all these jobs on offer that will go undone, but really the problem is b. and importing more people to join the ranks of the underemployed who will be consigned to a subsistence level of living in Australia with zero chance of accumulating any meaningful retirement savings is only going to add to the problem. That is: a fair portion of gen X retirees should have enough super to reduce the pension bill somewhat, but will still need all their healthcare looked after, but the prospects for most gen Y retirees will be full reliance on aged pension plus public housing or at least rent assistance plus healthcare. 457s coming in now to deliver pizzas for Dominos or work at 7-11 are going to join this latter group. And as for any tangential arguments about the 457s at least spending their meagre earnings in Australia and hence providing economic benefit, go down to the overseas money transfer booth at your local shopping centre on a Saturday morning and watch the wads of cash going over the counter for an hour or two and then tell me how that’s working out for the economy.

    Unless and until these youthful migrants we are importing are definitely going to be employed permanently in high earning positions that involve the creation of new industries with high export earning potential, then the whole scam needs to be shut down. And importing masters level Indian IT graduates on 457s to provide crappy tier 1 phone support via a low balling contractor to an Australian company or public sector agency or to help channel the bulk of their support services, and the private data of Australian customers, back to Indian call centres is not going to cut it.

    Faaarrrk me.

    • “Unless and until these youthful migrants we are importing are definitely going to be employed permanently in high earning positions that involve the creation of new industries with high export earning potential, then the whole scam needs to be shut down”.

      Very well said.

      • Hunter80MEMBER

        We need to scrap 457 visas for a visa for wealth generating activities, research projects that lead to export income generating industry, or other industries that lead to export generated income.

    • Excellent, but I have one nagging thought.
      If personal Labour Efficiency plays absolutely no role in remuneration than exactly what differences result in Labour Differentiation and the consequent wealth accumulation associated with supplying in-demand services to the economy? How would we as a society determine who should be well paid and who should be under paid? (btw please spare me the socialist rhetoric…From each according to his ability, to each according to his needs It’s kinda been proven to be a fairy-tale.
      Seen from the opposite perspective, If personal labour differentiation play no role in the process of accumulating wealth (measured in terms of asset control….or control over of the cash-flow resulting from assets) than how does one ever gain or for that matter loose wealth?
      Definitely explains a lot, if we’re morphing into a society where our access to capital (supplied from external sources) is the sole factor determining of our ability to accumulate wealth during our working lives.

      What does this all have to do with Immigration? Ah that’s a curly question but I suspect the answer lies in the realization that there is absolutely no equitable way to share anything that one would define as a “common” wealth suggesting that any equitable society must create tasks which reward achievement whereby achievement implies by definition a differentiated result from deploying ones own labour or the labour of others..

    • blacktwin997MEMBER

      Underlining the love for d6’s work, above – that is truly brilliant writing.

  7. MediocritasMEMBER

    Regarding the fertility plot:

    Trials started in 1954, and the first oral contraceptive pill (Enovid) was approved by the US Food and Drugs Administration on 9 May 1960. It was released in Australia on 1 February 1961 under the name Anovlar.

    In 1972, in his first 10 days in office, Prime Minister Gough Whitlam abolished the 27.5% luxury tax on all contraceptives, and placed the Pill on the Pharmaceutical Benefits Scheme list, reducing its cost to $1.00 per month.

    http://www.nma.gov.au/online_features/defining_moments/featured/the_pill

    • drsmithyMEMBER

      I’ll take a punt and say that abortion was legalised (actually, I suspect “decriminalised” is a more accurate way to state it) around the time of that second big drop as well.

      • demografixMEMBER

        Economic prosperity and female education are two two biggest drivers of low fertility.

  8. So here we are 33yrs faster than McDonald’s prudent growth speed and he wants to drive it faster

  9. demografixMEMBER

    To me the biggest social effect of an ageing society is our lone occupancy rates. Such a bad thing for an advanced society.

    24.4% now as lone occupants.
    I suggest a scheme where a lone pensioner can sell up and put their funds into a mortgage offset account for a young couple to live with and those funds remain asset test free for the pension. We need to solve housing affordability for the young while fixing the sad state of our lone occupants rate.

    • In any equitable economic system Capital accumulation (the process of becoming wealthy) and Capital disbursement (the process of spending ones accumulated wealth) should be functions directly related to the local value of labour. Our acceptance of Imported capital (that which is not dependent on or created by our own labour) is the root cause of all the problems that you describe.
      Beyond retirement age, for most of the population, getting older should lead directly to one getting poorer, anything that we do as a society to prevent / adjust / modify this reality will by necessity result in us getting collectively poorer through the misallocation of labour and misallocation of capital. If you’re left leaning go back and read Marx, he was very clear on this point, if you’re right leaning than Milton Friedman is equally clear on this issue re: consumption function.

      • demografixMEMBER

        I am referring to the social system more than the economic system. 24.4% as lone occupants and rising is a disgrace and something we should be ashamed of as a society.

        My proposal is to address both economic and social needs.

      • I am referring to the social system more than the economic system.
        Are they different?
        I would say any and every functioning social system creates/defines a functioning economic system which results indirectly in labour finding (or being allocated to) address the most pressing social issue.
        Equally a failing social system produces a dysfunctional economic system, the two systems are inseparable, you can’t distort one without distorting the other, we’re seeing this reality day in day out wrt our Millionaire pensioners, the last thing in the world that they want to part with is their greatest asset (the house) however it has only become this unattainable asset because of the intentional distortion created by our so called Urban Planning process along with a limitless supply of external capital.

    • This seems like a near inevitable consequence of longer life expectancy – the longer people survive, the higher the variance among ages at death, and the more likely it is that one spouse in a married couple survives the other by a significant amount.

  10. DominicMEMBER

    Perhaps this is what has been exercising the ‘elites’ all this time:

    UN Document From 2000 Exposes Global “Migration Replacement” Solution To Developed World Demographics

    http://www.zerohedge.com/news/2017-07-23/shocking-un-document-2000-exposes-global-migration-replacement-solution-developed-wo

    I don’t support Big Australia at all but what is definitely true is that the world’s population is on the verge of peaking and there are two gigantic ponzis that need supporting: the global debt-berg and the welfare ponzi.

    A reckoning of monumental proportions is heading our way.

    • The really scary thing is what happens when China and India move decisively out of being the world’s largest people exporters to being the world’s largest importers.
      Actually, not China and India – the continent of Asia.