Why mass immigration is productivity destroying

By Leith van Onselen

Former special adviser to the Reserve Bank of New Zealand (RBNZ) and New Zealand Treasury, Michael Reddell, has cited mass immigration as a prime cause of New Zealand’s weak productivity. From Interest.co.nz:

For decades, New Zealand’s economic Achilles heel has been its low productivity…

GDP per capita remained at just 0.1% in the last quarter…

New Zealand’s productivity levels have been well below the OECD average for some time now…

Independent economist Michael Reddell, who is cited in the Productivity Commission report, says New Zealand’s immigration policy is a key factor in its productivity issues.

He says the high level of net migration has been putting pressure on real interest rates, as large levels of investment have been needed to keep up with all the new people.

In a country with a fairly modest savings rate, Reddell says that puts persistent upward pressure on real interest rates.

That, in turn, has kept the kiwi dollar elevated for years making it harder to export from New Zealand – a major issue for Kiwi firms looking to sell their products to the world.

“The consistent pressure on the real interest rates and the exchange rate squeezes out the opportunities that might otherwise be here,” he says.

This means successful businesses choosing not to set up shop in New Zealand, given the increased costs.

Fewer successful businesses means less innovation, holding New Zealand back from productivity growth in the long term.

Given the similar economic structure and similar mass immigration policy, Reddell’s arguments hold equally for Australia.

That said, there are several other areas where mass immigration is productivity destroying.

The most obvious of these costs is congestion, where the population explosions in Sydney and Melbourne, in particular, have led to worsening congestion over the past decade:

Worse, “avoidable social costs” of congestion are projected by the Bureau of Infrastructure, Transport and Regional Economics to soar as rampant population growth continues to overrun the city’s infrastructure:

As noted recently by Mike Seccombe in the Saturday Paper:

The Bureau of Infrastructure, Transport and Regional Economics estimates the “avoidable” social costs of traffic congestion in the eight Australian capitals cities. They reckoned it to total $16.5 billion in the 2015 financial year, up from $12.8 billion in the 2010 financial year. By 2030, they forecast, the cost of congestion would rise to between $27.7 billion and $37.3 billion. That is roughly the cost of the National Disability Insurance Scheme, fully implemented.

Another area where mass immigration is productivity destroying is the escalating cost of infrastructure. In order to keep pace with Australia’s projected population explosion, the Productivity Commission (PC) in 2013 estimated that total private and public investment requirements over the next half century will need to be more than 5-times the cumulative investment made over the last half century:

ScreenHunter_15679 Oct. 25 14.39

Moreover, because most migrants settle in Sydney and Melbourne, which are already built-out, this makes the cost of retrofitting new infrastructure to accommodate greater population densities prohibitively expensive because of the need for land buy-backs, tunnelling, as well as disruptions to existing infrastructure. These are basic dis-economies of scale.

The escalating cost of infrastructure was made explicit by the PC’s 2016 Migrant Intake into Australia report, which  noted:

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.

…governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation…

In a similar vein, the PC’s more recent Shifting the Dial: 5 year productivity review explicitly noted that infrastructure costs will inevitably balloon due to our cities’ rapidly growing populations:

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).

Mass immigration also worsens Australia’s current account balance, escalating both national debt and the sale of the nation’s assets.

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), which are also the key magnets for migrants and projected to take the lion’s share of Australia’s population growth.

Increasing the number of people via mass immigration does not materially boost Australia’s exports but it 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:

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 and abandoned the ‘Big Australia’ policy.

Think about it. 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.

Proponents of mass immigration ignore the above concerns and instead claim that Australia’s productivity is enhanced because migrants are supposedly more productive than locals and, therefore, labour productivity is increased through strong immigration.

However, the actual evidence debunks this view and shows that migrants are generally employed below the level of their qualifications and have lower labour force attachment than the Australian born population (detailed discussion here).

In summary, Australia’s mass immigration program imposes net costs on the Australian economy. Individual living standards are also 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.

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Comments

  1. Israel has high immigration, doesn’t affect its productivity too much? Granted Eire has high productivity, but it also has 800% debt to GDP – so its toast… Italy productivity has been declining since the mid 1990’s, why? Population decline?

    Productivity statistics are a bit bunkum. We have all seen massive changes in technology, none of this is captured in those statistics. Simple things like worksheets, email, working from home on a remote connection. Frictionless international trade and investment…

    On the other side of the ledger, debt has increased +200% for many economies – where is the productive benefit for bring forward all this production???

    None of it makes sense anymore.

    • The guys doing our kitchen spent 1.5hrs in traffic coming less than 7km one morning – no traffic accident.

    • Israeli immigration consists of top-level Jewish people (in terms of $, education, influence). Israeli people have: 1. cutting edge science/technology/production; 2. political/cultural/financial global influence; 3. weapons to obliterate any treat if necessary.

      • Holy mackerel, so no treats to the israelis,
        How about joe gutnick, musta been handing out treats???
        How about his sister up at qld bauxite??

    • I saw some data recently (can’t remember where) which showed that Israel has the largest inequality gap relating to income, in the World.
      Israel is a fascist, apartheid state that relies on plausible deniability and playing the victim while simultaneously being in a position of disproportionate power and influence.

      • Who said anti-semitism was dead!!! Tiniest excuse to put in the boot…

        Not a WA Labour pollie by any chance? Or Tanya Plibersek meme?

      • Did the data include or exclude countries where women are not allowed to drive, work or go out without being escorted by a male relative?

      • Israel’s global influence is massively disproportionate and they control US foreign policy through AIPAC which has led to the current mess in the Middle east.

        They also have their tentacles in the Coalition here and should be subject to the same criticism as China’s Labor stranglehold.

      • I think you’ll find Researchtime’s goal was to direct attention/discussion away from the substantial debate on productivity and economic migration, not enter into a substantive discussion on the complexities of the middle east. lol.

    • nexus789MEMBER

      The vast majority of economists have little idea how an economy actually works and how it generates wealth. What creates wealth is having a ‘competitive’ national economy driven via the exploitation of technology. Productivity is only useful after this is been achieved. A few are starting to see technology as being a key consideration in this. Also the inherent lack of co-ordination within Neoliberal tainted economies is not a factor that is even considered.

  2. Definitely not good and not sustainable. Re-considering choice to come to Aus. Before, lived in 6 EU countries. This is my filter question used to re-consider migration: “Would I still be here if I get 10-20 million $?” The answer is big NO. Reasons: poor health system (doctors with no skills), poor primary/secondary school education, childcare (daycare) costs of roughly 35k per year, tall poppy syndrome, rent seeker economy, 2-3x overvalued property prices, feel poor with a salary of 150-200k, Anglo dominant economy (luckily Brits loosing supremacy) – but unfortunately to Indians/Chinese, gang violence in Syd/Mel, long-term prosperity sacrificed for short term gains, not caring for the nature/animals, chicks behave like men, men behave like chicks, arrived to late to join property Ponzi scheme. Good sides: people mind their own business, nobody works hard (but pretend to), salaries decent (but, see above…), less shooting compared to the US (this is changing too…), closer to Fiji, Bora Bora and New Caledonia.

    • Funny that – if you import too many 3rd world workers, you end up with a 3rd world productivity, culture and country. Who would have guessed?

      There is a sort of Gresham’s law with the quality of people you import. They don’t assimilate, rather the country they move to gets assimilated.

      • nexus789MEMBER

        You also end up de-skilling your own people. Australian youth and graduate employment is growing.

    • That general statement about the health system is baseless. Are there shortcomings in the skills of some Doctors? Most certainly – as there are in every health system on the planet. Are they significant overall compared to the shortcomings of the health ministers, administrators, bureaucrats, nurses, pharmacists, radiographers, orderlies, physiotherapists and security guards or compared to the concerted move by Governments to wind down the entire system by diluting the pool of statically funded resources with hundreds of thousands newly imported non contributing patients via idiotic immigration policies? Most certainly not.

    • “Anglo dominant economy (luckily Brits loosing supremacy)”.

      Why would you come to an English speaking nation and expect it to be anything different? It’s like me going to Malaysia and complaining that its an “Asian dominant economy”. As an “Anglo” I find your statement ridiculous.

    • blacktwin997MEMBER

      With respect DoubleDoc, the issues you mention are almost all precisely because of excessive immigration and concentration in two relatively mediocre cities:

      poor health system (doctors with no skills), # many if not most of these ‘doctors with no skills’ are overseas-trained, it would be very rare that we’d hear of an unskilled local-trained doctor although as d6 mentions above, they must exist. Any time you import a Canberra’s worth of people per year, often with pre-existing conditions, without building an appropriate level of hospital capacity, surely you’re going to overwhelm it sooner rather than later?

      poor primary/secondary school education, # the entire Australian education system has been dumbed down to cater for non-English native speakers and well resourced yet relatively dumb international ‘students’, this flows down to primary school level and will continue to do so while governments continue to withdraw funding from education to e.g. knock down and refurbish sports stadiums

      childcare (daycare) costs of roughly 35k per year, # when you pack so many people into two cities you might expect the scarcity of quality childcare to be reflected in the price, again isn’t this a symptom of too many people?

      tall poppy syndrome, # this was always the way wasn’t it? These days more of a corrupt poppy syndrome

      rent seeker economy, # agreed

      2-3x overvalued property prices, # again if we didn’t import way faster than we could absorb and stopped offering obscene tax breaks for the already relatively wealthy, would this still be the case? Also 2-3x sounds a little low.

      feel poor with a salary of 150-200k, # overvalued property is the main reason why, surely?

      Anglo dominant economy (luckily Brits loosing supremacy) – but unfortunately to Indians/Chinese, # what do you have against Anglo dominant economies?

      gang violence in Syd/Mel, # is this from Australians or again, some imported group?

      long-term prosperity sacrificed for short term gains, # agreed, business capture of the political economy

      not caring for the nature/animals, # less bulldozing and development would assist here

      About these last two, i’m not sure what you’re getting at or whether this has anything to do with the Indian/Chinese ascendancy you mention:

      chicks behave like men,
      men behave like chicks

      Please do reconsider your choice to come to Aus, Maybe we could pass the hat round for your $10-20M?

  3. Perhaps some nationalities are more skilled at some things than others?
    According to the ABC a certain nationality made up only 0.11% of VICs population, but was responsible for 7.44% of home invasions, 5.65% of car thefts and 13.9% of aggravated robberies.

    • Wino Shinyface

      well looking at that objectively that’s productivity through the roof! …to get access to the kitchen and rip apart the cupboard and away with the car keys and wallet

    • Yeah well, I reckon that where you find Africans, there you will find Africa. If you move a bunch of violent arseclowns from Africa to Melbourne, they’re still gonna violent arseclown, and the presence of lots of boutique coffeeshops won’t change that.

      This seems blindingly obvious to me, because the character of a country derives from the character of the people who live there. It’s not the air, it’s not the dirt, it’s the people.

      The statistics involving over representation of certain nationalities in violent crime in Australia and elsewhere seem to confirm my views, but statistics be racist.

      • “The problems began in early January when a federal minister – a concerned Queenslander – said that Melburnians were scared to go out to restaurants because of Sudanese gangs roaming the streets.”
        “The Commission believes that Canberra’s inflammatory statements on race and crime – the so-called #AfricanGangs crisis – have caused real harm in Victoria. And we are calling for better federal leadership this election year,” .

      • Mate, vibrancy, diversity, inclusion and all that other self-aggrandizing narcissistic wank synonymous with Melbourne are far more important.

        Julian Burnside told me so while leaning out the balcony of his Toorak house.

      • A cursory check of any World Atlas will show that Africa is a VERY big place that contains many and varied countries.
        Which begs the question.
        Is there nowhere else in Africa for African refugees to be sent to?
        An entire continent …. but no, they get sent halfway around the World?

  4. Nigel Farage when questioned about Britain’s low productivity recently said thats what you get when you flood the labour market with cheap unskilled labour

  5. Increasing productivity means doing more with less people. If you double the population, you do not export twice as much LNG. Heck, there will be less LNG to export because an Australia of 35 million will consume more hydrocarbons than an Australia of 25 million people.

  6. If extra people destroy Productivity than it’s certainly worth asking exactly what Productivity measures.
    What exactly does it mean when an Economist decides that Productivity is falling?
    does it mean that things are more expensive?
    does it mean that we’re producing less units of product per unit of labour? (like wtf measure is that for a service economy)
    what exactly is Productivity if the sum of our combined labour results on zero units of anything tangible that anyone outside the system desires.
    I suspect in the end the biggest problem with Productivity is the measurement itself, however what this has to do with increases or decreases in population is kinda beyond me.