Yesterday, I praised the Grattan Institute’s detailed new report entitled Housing affordability: re-imagining the Australian dream, which lays-out a sensible blueprint for housing reform across Australia.
In particular, I commended the Grattan Institute for finally acknowledging the damage that mass immigration is doing to Australia’s housing market, as well as them recommending cutting immigration in the likely event that our governments continue to fail to plan adequately for the population influx.
While my praise of the Grattan Institute’s report still holds, it did pen a spurious article in The Conversation yesterday claiming that while cutting immigration would reduce housing pressures, it would also make ordinary Australians worse-off in other ways, including by lowering their income:
If we want to maintain current migration levels, along with their economic, social and budgetary benefits, we need to do better at planning to allow more housing to be built…
If planning and infrastructure policies don’t improve, the government should consider cutting the migration intake. This would reduce demand for housing, but would also reduce the incomes of existing residents…
The best policy is probably to continue with Australia’s demand-driven, relatively high-skill migration and to build enough homes for the growing population. But Australia is in a world of third-best policy: rapid migration and restricted housing supply are imposing big costs on people who don’t already own their homes. If the states are not going to reform planning rules to increase the number of homes built, then the Australian government should consider whether reducing migration is the lesser evil.
Any reduction should be modest and targeted at the parts of the migration program that provide the smallest benefit to Australian residents and migrants themselves. Balancing these interests is difficult, because each part of the program has different economic, social and budgetary costs and benefits.
Cutting back family reunion visas would have substantial social costs. Limiting skilled migration would hurt the economy and many businesses. Restricting growth in international students would reduce universities’ incomes.
There are also broader costs to cutting the migrant intake. It would hit the Commonwealth budget in the short term. Most migrants are of working age and pay full rates of personal income tax. And many temporary migrants, such as 457 visa holders, can’t draw on a range of government services and benefits, including welfare and Medicare. More importantly, cutting back on younger, skilled migrants is likely to hurt the budget and the economy in the long term.
Grattan made similar claims in The Guardian:
John Daley from the Grattan Institute told Guardian Australia he was very conscious of the politics surrounding population growth and he did not want to be seen to be calling for the migrant intake to be cut…
But he said the Grattan Institute also believed state governments were struggling to deal with rapid population growth in their major cities and the quality of life of residents – represented by the rapid growth in house prices in recent decades – was suffering…
“Reducing immigration would reduce demand but it would also reduce economic growth per existing resident [so] first-best policy is probably to continue with Australia’s demand-driven, relatively high-skill migration, and to increase supply of housing accordingly.
Below is a ‘fact check’ on Grattan’s claims about the supposed ‘benefits’ of mass immigration and the claimed deleterious impacts on existing residents if immigration was lowered.
Economic impacts on existing residents:
First, Grattan’s claim that cutting immigration would “reduce the incomes of existing residents” and would “reduce economic growth per existing resident” is misleading and largely debunked by the Productivity Commission’s (PC) various modelling.
The PC’s Migrant Intake Australia report, released in September 2016, 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 the population stabilises at 27 million by 2060.
The PC’s modelling did find that GDP per capita would be 7% ($7,000) higher by 2060 under current mass immigration settings. However, all of the gains are transitory and come from a temporary lift in the employment-to-population ratio, which will eventually reverse once the migrants age (i.e. after the forecast period):
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 PC also explicitly acknowledges that per capita GDP is a “weak” measure of economic welfare:
While the economywide modelling suggests that the Australian economy will benefit from immigration in terms of higher output per person, GDP per person is a weak measure of the overall wellbeing of the Australian community and does not capture how gains would be distributed among the community. Whether a particular rate of immigration will deliver an overall benefit to the existing Australian community will crucially depend on the distribution of the gains and the interrelated social and environmental impacts.
It is worth pointing out that the PC’s modelling unrealistically assumed that Australia’s infrastructure stock would keep pace with the extra population, which is vital if economy-wide productivity is not to dimish and for the PC’s GDP per capita forecasts to come to fruition:
Specifically, the expansion in labour supply through migration is projected to lead roughly to the same proportional growth in capital and output in most industries including infrastructure industries. That is, the modelling broadly assumes that there are constant returns to scale in production…
As the modelling broadly assumes that there are constant returns to scale in production, the economy-wide modelling results are broadly linear. Hence, while the modelling provides insight into the economic impact of NOM, in practice limits on Australia’s absorptive capacity (including environmental factors) mean that constant returns to scale are unlikely to hold for very high rates of immigration.
Clearly, this assumption is at at odds with the Australian economy’s actual experience, whereby massive infrastructure deficits have accumulated over the last 15-years of hyper immigration, particularly in the major cities.
Most importantly for incumbent Australian workers, the PC’s 2016 modelling found that labour productivity and real wages are projected to decrease under current mass immigration settings versus zero net overseas migration (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 (figure 10.5, panel b). The higher labour productivity is reflected in higher real wage receipts by the workforce in the zero NOM case…
With zero NOM, real wages are projected to increase over time, and at a rate greater than in the business-as-usual scenario. That is, in the zero NOM scenario labour is relatively scarce which puts upwards pressure on real wages and causes a substitution towards capital, contributing to the marginally higher labour productivity relative to the business-as-usual scenario (figure 10.5, panel b). Higher rates of labour force participation through immigration in the business-as-usual case is projected to moderate such wage pressures.
Therefore, according to the PC’s most recent 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’.
As noted by the PC above, its latest modelling also did not take account of the distribution of gains to per capita GDP, which is vitally important. Thankfully, it’s 2006 major study on the Economic Impacts of Migration and Population Growth did, and the results were unflattering for existing residents.
Here, the PC modeled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that “the incomes of existing resident workers grow more slowly than would otherwise be the case”. Below is 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…
Of course, the PC’s Migrant Intake Australia report also went to great lengths to stress that there are many costs associated with running a high immigration program that are not captured in the modelling but are borne by incumbent residents and unambiguously lowers their welfare. These include rising congestion, smaller and more expensive housing, environmental degradation, and more expensive infrastructure. For example, with respect to infrastructure, the PC noted:
…where assets are close to capacity, congestion imposes costs on all users. A larger population inevitably requires more investment in infrastructure, and who pays for this will depend on how this investment is funded (by users or by taxpayers). Physical constraints in major cities make the costs of expanding infrastructure more expensive, so even if a user-pays model is adopted, a higher population is very likely to impose a higher cost of living for people already residing in these major cities.
Accordingly, the PC explicitly asks that these costs be considered as part of any cost-benefit analysis on the immigration intake, rather than blindly following the results of its modelling, which is inherently limited and a poor measure of ‘wellbeing’.
Grattan’s claim that cutting immigration would adversely impact the federal Budget is myopic as it:
- ignores the negative impact on State Budgets, which carry the cost of infrastructure and services to support population growth (think roads, public transport, schools and hospitals); and
- ignores the cost on households, who have to pay more as new expensive infrastructure projects are built in response to population growth (e.g. desalination plants, toll road tunnels, etc), as well as pay more as states sell-off public assets to private monopolies to raise funds for new infrastructure.
Indeed, the Grattan Institute’s own analysis in 2014 showed that “unprecedented infrastructure spending by states and territories” since the escalation of population growth from 2004 is “largely responsible for a $106 billion decline in their finances since 2006“, and that “after a threefold increase in capital spending over the last 10 years, states are paying 3 per cent more of their revenues in interest and depreciation”.
Grattan also implicitly acknowledged the huge costs of mass immigration on state budgets in The Guardian article above:
[Daley] said the Grattan Institute also believed state governments were struggling to deal with rapid population growth in their major cities and the quality of life of residents – represented by the rapid growth in house prices in recent decades – was suffering.
Migration program is not that ‘skilled’ after all:
The claim that Australia’s migration program is ‘skilled’ and that migrants pay heaps of tax is also highly debatable.
A recent major survey from the Bankwest Curtin Economics Centre found that 53% of skilled migrants in Western Australia said they are working in lower skilled jobs than before they arrived, with underemployment also rife:
So Australia has effectively stolen ‘skilled’ workers from developing nations – where they are needed most – so they can work in lesser jobs in Australia!
This Bankwest Curtin Economics Centre survey also accords with research conducted in 2013 by Bob Birrell and Ernest Healy, which found that while 69.3% of Australian graduates aged 25-34 had managerial or professional work in 2011 and only 9.5% were not employed, only 30.9% of non-English-speaking-background [NESB] migrants who were graduates of the same age, who had arrived between 2006 and 2011, had managerial or professional work. And a full 31.1% were not employed. Most of this group of graduate arrivals (79%) were of NESB background:
These reports help to explain why the Australian Bureau of Statistics (ABS) latest Characteristics of Recent Migrants report, released in June, revealed that migrants have generally worse labour market outcomes than the Australian born population, with recent migrants and temporary residents having an unemployment rate of 7.4% versus 5.4% for the Australian born population, and lower labour force participation (69.8%) than the Australian born population (70.2%):
The PC’s recent Migrant Intake Australia report also stated that around half of the skilled steam includes the family members of skilled migrants, thereby around 70% of Australia’s total permanent migrant intake is not actually ‘skilled’:
…within the skill stream, about half of the visas granted were for ‘secondary applicants’ — partners (who may or may not be skilled) and dependent children… Therefore, while the skill stream has increased relative to the family stream, family immigrants from the skill and family stream still make up about 70 per cent of the Migration Programme (figure 2.8)…
Primary applicants tend to have a better fiscal outcome than secondary applicants — the current system does not consider the age or skills of secondary applicants as part of the criteria for granting permanent skill visas…
The PC also showed that while primary skilled migrants have marginally better labour market outcomes than the Australian born population in terms of median incomes, labour force participation, and unemployment rates, secondary skilled visas, and indeed all other forms of migrants, have worse outcomes:
Negative impacts on universities is over-blown:
Grattan’s claim that cutting immigration would adversely affect universities is over-blown. Cutting the permanent migrant intake (see next chart) – as recommended by MB and Tony Abbott – would not directly impact the number of temporary student visas issued, only the number of foreign students that are eventually granted permanent residency.
Are foreign students coming to Australia to gain an education or as a back-door to permanent residency? And is Australia selling “education” exports or “permanent residency” exports? If it is the former – as it should be – then there is nothing to fear from cutting the permanent migrant intake.
Exactly the same arguments apply for temporary ‘skilled’ visas. The numbers issued won’t be directly impacted by a reduction in the permanent migrant intake.
Broader economic impacts not acknowledged by Grattan:
There is strong evidence to suggest that mass immigration is partly behind Australia’s trade and current account deficits, as well as the nation’s ballooning foreign debt.
The lion’s share of Australia’s export revenue comes from commodities and from Western Australia and Queensland in particular:
However, the majority of Australia’s imports and indeed private debt flows to our biggest states (and cities), New South Wales (Sydney) and Victoria (Melbourne). Sydney and Melbourne also happen to be the key magnets for migrants – a point acknowledged by the Grattan Institute.
Clearly, increasing the number of people via mass immigration does not materially boost Australia’s exports but does significantly increase imports (think flat screen TVs, imported cars, etc.). One only needs to look at both New South Wales and Victoria, which have driven huge trade deficits as the extra imports have far outweighed exports (Chart 15):
All of these extra imports must be paid for – either by accumulating foreign debt, or by selling-off the nation’s assets. Australia has been doing both.
Australia would improve its trade balance and current account deficit, as well as reduce the need to sell-off assets and binge on debt, if it simply reduced immigration.
Australia would still ship the same amount of hard commodities and agriculture regardless of how many people are coming in as all the productive capacity has been set up and it doesn’t require more labour. However, we would import far less.
Essentially, by running a mass immigration program, Australia is diluting its fixed mineral wealth among more people, which necessarily lowers residents’ welfare.
Area of agreement: Australia needs an explicit population policy:
Like MB, Grattan believes that Australia needs an explicit population policy aimed at maximising the welfare of the existing population:
The Australian government should develop a population policy, as the Productivity Commission recommended. It should articulate the appropriate level of migration given its economic, budgetary and social benefits and costs. This should include how it affects the Australian community living with the reality of land use planning policy – and contrasting this with the effect of optimal planning policy.
Indeed, the PC explicitly called for greater democracy in setting Australia’s immigration policy in its Migrant Intake Australia report:
…decisions on the migrant intake should be part of a transparent population policy based on well – informed engagement with the Australian community so that the policy reflects the preferences of the broader community as well as businesses.
…businesses who benefit from the increased supply of labour and, with this, demand for their goods and services, and [the incentives of] members of the community, as reflected in the large number of submissions raising concerns about house prices, congestion, and other environmental impacts. Even if all of the concerns raised are not proven, these views do need to be taken into account in setting the migrant intake…
Australia’s system of parliamentary democracy has an in-built predisposition towards ‘hearing’ from certain stakeholders (who typically have a vested interest and are well organised). In contrast, members of parliament are less likely to ‘hear’ from affected constituents for whom the effect of a policy change is individually small, but is large when added up over many constituents…
However, I believe the government should go one step further and hold a plebiscite on Australia’s future population so that the Australia people can decide how ‘big’ Australia becomes, and whether they want to live like sardines in crowded cities. It’s the democratic thing to do, so let’s give Australians their say.
Below is MB’s submission to the federal government’s Migrant Intake Review, which the Grattan Institute would do well to read.
THE BLIND MARCH TOWARDS A ‘BIG AUSTRALIA’
Submission to the Department of Home Affairs’ Managing Australia’s Migrant Intake Review
At MacroBusiness we support immigration, but at sustainable levels.
Australia’s immigration levels are too high – higher than our cities can absorb. The infrastructure costs of high immigration are excessive and Australia’s infrastructure supply is not keeping up with demand, despite our best efforts.
The economic arguments frequently used to justify high immigration fail the evidence test. Empirical data does not support mass immigration. Excessive immigration also damages Australia’s employment market and the environment.
It is time for an honest debate.
Currently, Australia’s immigration program is overloading the major cities with tens of thousands of extra people each year to stoke overall economic growth (but not growth per person) and to support business (e.g. the property industry and retailers), despite growth per person stagnating.
Meanwhile, individual living standards are being eroded through rising congestion costs, declining housing affordability, paying more for infrastructure (e.g. toll roads and water), environmental degradation, and overall reduced amenity.
The economic evidence for the above is contained in this submission.
The Australian Government needs to stop ignoring these issues. Australia’s living standards are at stake.
MacroBusiness urges the Australian Government to reduce Australia’s immigration intake back towards the historical average of around 70,000 people per annum.
1. Australia’s immigration program is unprecedented:
One of the most profound changes affecting the Australian economy and society this century has been the massive lift in Australia’s net immigration, which surged from the early-2000s and is running at roughly triple the pace of historical norms (Chart 1).
In the 116 years following Australia’s Federation in 1901, Australia’s net overseas migration (NOM) averaged around 73,000 people a year and Australia’s population grew on average by around 180,000 people.
Over the past 12 years, however, Australia’s annual NOM has averaged nearly 220,000 people a year and Australia’s population has grown on average by 370,000 people.
The principal driver of Australia’s population increase has been the Australian Government’s permanent migrant intake, which has increased from 79,000 in 1999 to nearly 210,000 currently, including the humanitarian intake (Chart 2).
Due to this mass immigration ‘Big Australia’ policy, Australia’s population has expanded at a rate that is more than 2.5 times the OECD average, easily the fastest of advanced English-speaking nations (Chart 3).
This rapid population growth is expected to continue for decades to come, with the Australian Government’s Intergenerational Report projecting population growth of nearly 400,000 people a year – equivalent to one Canberra – until Australia’s population reaches 40 million mid-century (see Chart 1 above).
However, the problem with Australia’s mass immigration policy is not just the extreme volume, but also the concentration of migrants flowing to Australia’s largest and already most overcrowded cities.
As shown in Chart 4, around three quarters of Australia’s NOM has flowed to New South Wales and Victoria, principally Sydney and Melbourne:
In the 12 years to 2016, Melbourne’s population expanded by nearly 1.1 million (30%), while Sydney’s population expanded by 845,000 (20%). There was also strong growth in Brisbane (537,000) and Perth (502,000) (Charts 5 and 6).
The migrant influx helps to explain why dwelling price growth has been strongest in Sydney and Melbourne, and why housing is most unaffordable in these two cities (Charts 7 and 8). While the Australian Government and property lobby likes to blame a ‘lack of supply’, the problem rests primarily with excessive demand from mass immigration.
The chronic problems around housing and infrastructure will only get worse under the current mass immigration policy.
State Government projections have Melbourne’s population expanding by 97,000 people each year (1,870 people a week) and Sydney’s by 87,000 people each year (1,670 people each week) for the next several decades until both cities’ populations hit around 8 million people mid-century.
To put this population growth into perspective, consider the following facts:
- It took Sydney around 210 years to reach a population of 3.9 million in 2001. And yet the official projections have Sydney adding roughly the same number of people again in just 50 years.
- It took Melbourne nearly 170 years to reach a population of 3.3 million in 2001. In just 15 years, Melbourne expanded by 34% to 4.5 million people. And the official projections have Melbourne’s population ballooning by another 3.4 million people in just 35 years.
No matter which way you cut it, residents of our two largest cities will continue to feel the impact of this rapid population growth via: traffic gridlock; overloaded public transport, schools, and hospitals; pressures on energy and water supplies; as well as more expensive (and smaller) housing.
It is a clear recipe for lower living standards.
2. No economic bonanza:
Politicians and economists frequently claim that maintaining a ‘strong’ immigration program is essential as 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”. In a similar vein, former KPMG partner and “unabashed supporter of a bigger Australia”, Bernard Salt, has produced reams of articles warning that Australia faces economic and fiscal catastrophe without ongoing strong immigration.
Economic models are often cited as proof that a strong immigration program is ‘good’ for the economy because they show that real GDP per capita is moderately increased via immigration, based on several dubious assumptions.
First, it is generally assumed in these models that population ageing will result in fewer people working, which will subtract from per capita GDP. However, it is just as likely that age-specific workforce participation will respond to labour demand, resulting in fewer people being unemployed, as we have witnessed in Japan, where the unemployment rate is below 3%.
Even if this assumption was true, the benefit to GDP per capita would only be transitory. Once the migrant workers grow old, they too will add to the pool of aged Australians, thus requiring an ever increasing immigration intake to keep the population age profile from rising.
Indeed, the Productivity Commission (PC) has for more than a decade debunked the myth that immigration can overcome population ageing. For example, in its 2010 submission to the Minister for Population, the PC explicitly noted that “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”.
Academic demographer, Peter McDonald, has also previously stated that it is “demographic nonsense to believe that immigration can help to keep our population young” .
Second, it is generally assumed that migrant workers are more productive than the Australian born population and, therefore, labour productivity is increased through strong immigration. However, the evidence here is highly contestable, with migrants generally being employed below the level of their qualifications, as well as having lower labour force attachment than the Australian born population (more information here).
Third, economists and their models generally ignore obvious ‘costs’ of mass immigration on productivity. Growing Australia’s population without commensurately increasing the stock of household, business and public capital to support the bigger population necessarily ‘dilutes’ Australia’s capital base, leaving less capital per person and lowering productivity. We have witnessed this first hand with the costs of congestion soaring across Australia’s big cities.
Moreover, the cost of retro-fitting our big cities with infrastructure to cope with larger populations is necessarily very expensive – think tunnelling and land acquisitions – with costs borne largely by the incumbent population. This fact was explicitly acknowledged by the PC’s recent Shifting the Dial: 5 year productivity review:
“Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels)” .
Finally, while economic models tend to show a modest improvement in real GDP per capita, the gains are more likely to flow to the wealthy, whereas ordinary workers are made worse-off.
In 2006, the PC 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. The modelling found that even skilled migration does not increase the incomes of existing residents. According to the Commission: “the distribution of these benefits [from skilled migration] 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” .
Of course, there are other costs borne by incumbent residents from immigration that are not captured in the economic modelling, such as worsening congestion, increased infrastructure costs, reduced housing affordability, and environmental degradation – none of which are given appropriate consideration by politicians nor economists.
Adding a Canberra-worth of population to Australia each and every year – with 80,000 to 100,000-plus people going to Sydney and Melbourne – requires an incredible amount of investment just to keep up. Accordingly, Australia’s infrastructure deficit has fallen badly behind over the past decade, and will continue to do so under Australia’s mass immigration program, thus eroding residents’ living standards.
3. Empirical data does not support mass immigration:
While the economic models might show small per capita gains from immigration-fuelled population growth, based on faulty assumptions, the actual empirical evidence shows no link between population growth and prosperity.
Since Australia’s immigration intake was expanded in the early-2000s, trend GDP per capita growth has plummeted to recessionary levels, suggesting falling living standards (Chart 9).
Chart 10 plots the growth in GDP per capita versus population change between 2000 and 2016 across OECD nations and shows no correlation (Australia denoted in red):
Meanwhile, there is a slight negative relationship between labour productivity and population growth (Chart 11):
Whereas there is zero correlation between population growth and multifactor productivity across OECD nations:
A recent study by economists at the Massachusetts Institute of Technology (MIT) also found “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” (Chart 13).
There is also evidence to suggest that mass immigration is partly behind Australia’s trade and current account deficits, as well as the nation’s ballooning foreign debt.
The lion’s share of Australia’s export revenue comes from commodities and from Western Australia and Queensland in particular (Chart 14):
However, the majority of Australia’s imports and indeed private debt flows to our biggest states (and cities), New South Wales (Sydney) and Victoria (Melbourne). Sydney and Melbourne also happen to be the key magnets for migrants (see Charts 4,5 and 6 above).
Increasing the number of people via mass immigration does not materially boost Australia’s exports but does significantly increase imports (think flat screen TVs, imported cars, etc.). Accordingly, both New South Wales and Victoria have driven huge trade deficits as the extra imports have far outweighed exports (Chart 15):
All of these extra imports must be paid for – either by accumulating foreign debt, or by selling-off the nation’s assets. Australia has been doing both.
Australia would improve its trade balance and current account deficit, as well as reduce the need to sell-off assets and binge on debt, if it simply cut immigration.
Australia will ship the same amount of hard commodities and agriculture regardless of how many people are coming in as all the productive capacity has been set up and it doesn’t require more labour.
4. Lowering immigration would raise wages:
Hand wringing over Australia’s anaemic wages growth (Chart 16) hit fever pitch recently, with politicians, economists and media all searching for answers.
One cause that has received scant attention is the role caused by mass immigration in driving-up labour supply and reducing the bargaining power of workers.
Employer groups often argue that a strong ‘skilled’ migration program is required to overcome perceived labour shortages – a view that is supported by the Australian Government. However, the available data shows this argument to be weak.
The Department of Employment’s 2016-17 Skills Shortages report revealed that Australian skills shortages “continue to be limited in 2016-17”, and that there are a high number of applicants per job (Chart 17):
The Department of Employment also revealed a record number of Australians studying at university (Chart 18):
Of whom many graduates cannot gain meaningful employment (Chart 19):
The Australian Bureau of Statistics’ labour force data also shows that Australia’s underutilisation rate remains high, especially for Australia’s youth, despite the recent improvement in the labour market (Chart 20).
Curiously, Australia’s permanent skilled migrant intake is significantly higher today (128,550) than it was at the peak of the mining boom in 2011 (113,850). Why? Unlike then, labour shortages are “limited”, wages growth is running near the lowest level on record, and labour underutilisation is high. What is the economic rationale for running the highest permanent migrant intake on record when economic conditions do not warrant it?
Standard economic theory claims that net inward migration has minimal long-term impact on wages. That is, when the quantity of labour increases, its price (wages) falls. This will supposedly increase profits, eventually leading to more investment, increased demand for labour, and a reversal of the initial fall in wages. Immigration, so the theory goes, will enable the larger domestic population to enjoy the same incomes as the smaller population did before.
However, a recent study by Cambridge University economist, Robert Rowthorn, debunked this argument. The so-called ‘temporary’ effects of displacing incumbent workers and lower wages can last for up to ten years. And if there is a continuing influx of migrants – as is the case in Australia – rather than a one-off increase in the size of the labour force, demand for labour will constantly lag behind growth in supply .
In other words, if the Australian Government was to stem the inflow of foreign workers, then workers’ bargaining power would increase, as will wages growth. It is basic economics.
As noted in April last year by The Australia Institute’s chief economist, Richard Denniss, the very purpose of foreign worker visas is to “suppress wage growth by allowing employers to recruit from a global pool of labour to compete with Australian workers”. In a normal functioning labour market, “when demand for workers rises, employers would need to bid against each other for the available scarce talent”. But this mechanism has been bypassed by enabling employers to recruit labour globally. “It is only in recent years that the wage rises that accompany the normal functioning of the labour market have been rebranded as a ‘skills shortage'” .
Australia’s youth is effectively caught in a pincer by the Australian Government’s mass immigration program. Not only does it hold down their wages, but it also inflates their cost-of-living via more expensive housing (both prices and rents).
5. It’s time for a national debate and population policy:
The Australian Government under both the Coalition and Labor has long supported mass immigration and a ‘Big Australia’ on flawed economic grounds.
Behind the scenes, the ‘growth lobby’ of retailers, the banking sector, the property industry and erroneously named ‘think tanks’ all push the growth-ist agenda, while completely ignoring the cost burden on ordinary residents.
At the same time, many on the left pursue the globalist agenda of ‘open borders’ citing spurious social justice concerns.
Currently, there is no coherent plan other than to inundate the major cities with extra people each and every year to stoke overall economic growth (but not growth per person), to support big business (e.g. the property industry and retailers), and to prevent Australia from going into recession (despite growth per person stagnating).
Meanwhile, individual living standards are being eroded through rising congestion costs, declining housing affordability, paying more for infrastructure (e.g. toll roads, water and energy), environmental degradation, and overall reduced amenity.
Never have Australians been asked whether they want a population of 40 million-plus mid-century. Nor whether they want Sydney’s and Melbourne’s populations to swell to eight million mid-century.
Yet immigration and population growth affects every facet of Australian life, including: how long one spends stuck in traffic; whether one can get a seat on a train or a spot in hospital or school; and/or whether one can afford a good sized home within a decent commute to where one works. It is a key determinant of living standards above all else, yet is rarely questioned by the media nor politicians.
Without mainstream political representation on this issue, divisive elements like Pauline Hanson’s One Nation party have emerged to wrongly use the ills of overpopulation to attack the small number of refugees arriving in Australia, as well as Muslim and Asian immigration.
As this submission has shown, there is strong justification to reduce Australia’s permanent migrant intake back to historical levels primarily by slashing skilled migration, which has been the driver of the influx. This would take the strain off the major cities, put a floor under wages growth, and safeguard Australia’s environment.
Australia could achieve such immigration cuts without affecting its global obligations via the humanitarian migrant intake. Indeed, much of Australia’s 130,000 strong permanent skilled migrant intake comes from countries where skills are more desperately needed than in Australia. Australia’s immigration program is depriving these countries of skills, and we have a moral obligation to limit the brain drain.
More broadly, Australia desperately needs a national debate and a population strategy, led by the Australian Government. The Government needs to conduct a population plebiscite asking Australians how big they want the nation to become, and then set immigration policy accordingly. The Australian Government also needs to provide a comprehensive plan detailing how and where it will accommodate all the extra people, while safeguarding incumbent residents’ living standards.