More proof high immigration stifles productivity

The Centre for Future Work has released a new report showing that Australia’s “pace of automation is lagging behind other industrial nations”:

Startling new research from the Centre for Future Work has shown that Australia’s economy is now regressing in its use of new technology, with negative implications for productivity, incomes, and job quality.

The new report, The Robots are NOT Coming, compiles 8 statistical indicators confirming that the pace of innovation and automation in Australia’s economy has slowed down dramatically in the last decade.

Major findings of the report include:

  • Business investment in new machinery (including robots) is weaker than at any point in Australia’s postwar history.
  • Business spending on new research and technology has also been falling in Australia, and now ranks well behind the average of other industrial countries (and even some emerging economies, like China).
  • The average amount of machinery and equipment used by the typical Australian worker has been declining since 2014, and has since fallen by 6%.
  • Because of less automation and innovation, average productivity in Australia’s economy has also been declining for three straight years – also the weakest performance in Australia’s postwar history.

The findings contrast sharply with the common concern that robots and other forms of automation will threaten future job security for Australian workers.

“In fact, the biggest problem is that Australian businesses are not investing nearly enough in new technology, not that they are investing too much,” said Dr. Jim Stanford, author of the report and Economist and Director of the Centre for Future Work.

“The decline in average capital intensity and average productivity in the Australian economy is very unusual, and very concerning, because it suggests a structural regression in our overall economic development.”

“The unprecedented weakness of business investment in new technology does not mean that Australian jobs are somehow safer. To the contrary, the failure of business investment means that even more jobs will be located in low-productivity, low-tech, low-wage industries – with terrible implications for wages and job quality.”

“Business leaders love to complain that Australia’s productivity problems are due to red tape, taxes, and unions. In fact, the evidence is clear that their own failure to invest in new capital and new technology explains the stagnation in productivity. Instead of blaming others for this outcome, business leaders need to look in the mirror.”

These findings are hardly a surprise.

For 15 years, Australia has run one of the biggest immigration programs in the world, which has allowed Australian employers to grab cheap migrant labour en masse:

Allowing Australian firms to pluck cheap migrants in lieu of paying higher wages to local workers has necessarily discouraged them from innovating and adopting labour saving technologies, which would boost the economy’s overall productivity. It also prevents creative destruction by enabling low productivity farms to remain in business.

Put another way, stemming the flow of low-wage migrants would force the least productive firms to shrink and go bust, transferring workers, land and capital to more productive businesses, thus raising average productivity across the economy.  Further, all firms, observing higher wages, would invest more in labour saving technologies and restructure to raise productivity.

There’s a reason why construction firms, farms and manufacturers in advanced nations typically involve a handful of workers operating heavy machinery, whereas in low-wage developing countries these are manned by many workers doing manual labour. The higher cost of labour in advanced countries forces these firms to invest in labour saving machinery, which lifts productivity.

None of this is rocket science. Yet it has been completely ignored by the Centre for Future Work. Why?

Lowering immigration would also unambiguously reduce one of the major drags on Australia’s productivity: rising infrastructure bottlenecks and congestion. It would lower the Australian dollar (other things equal), rebalancing the economy away from ponzi growth towards productive tradeable growth. It would help to lift wages. And it would improve Australia’s current account, since Australia would import far less and the nation’s mineral wealth (and exports) would be shared among less people:

On the last point – the current account – notice below how our two biggest migrant magnets of Sydney an Melbourne have driven gigantic trade deficits?

Basically, all the extra migrants that have flooded into these two cities have barely lifted exports, since these cities don’t actually produce much that is tradeable. By contrast, imports have skyrocketed via more purchases of consumer goods like flat screen TVs, cars, furniture, etc. These net imports must be paid for, either by increasing the nation’s debt or via selling-off the nation’s assets. We’ve been doing both.

The truth is that the mass immigration ‘Big Australia’ policy promotes ‘dumb’ growth, concentrated in urbanisation and household debt, and associated sectors benefit (think Big Property, Big Retail and banking). This has its limits, as we are already seeing in debt stress everywhere and declining liveability, as it benefits the few over the many, increasing inequality.

But it’s not the preferred model of growth. Far from it. Productivity enhancement and competitiveness are a far better model over the long run as they lower debt while boosting incomes per capita, are more meritocratic, and would send the 40% of the economy that is tradeable into overdrive.

Returning to the mass immigration ‘Big Australia’ policy post COVID will only further stifle productivity, worsen the unemployment queues and further depress wages, smashing Australia’s working class.

The policy needs to be junked for the sake of productivity, liveability and equality.

Leith van Onselen
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  1. rob barrattMEMBER

    Don’t worry chaps!
    As soon as we get our shipment of the new Russian Chernovid B vaccine (brought to you by the same innovative company making Novichok for the UK) immigration will be back to normal and we’ll all be saved.

      • rob barrattMEMBER

        Correct. They’ll then be driven to a very remote handling area and given 2 weeks for it to work.

      • I hear they’re going to skip the silly time-consuming part of the vaccine trial, namely the people testing over an extended period of time to check the outcomes….. to get it into us quicker…..thinking thalidimide….

        • While I do kind of agree, it is worth remembering that the demographic most as risk from Covid19 is the geriatric population especially those confined to nursing homes.
          With this in mind the typical life expectancy of someone in a nursing home (especially in Australia) is less 2 years, so a lot of lives can be potentially saved if a less rigorous approach to Phase3 trials is used. Maybe we limit the initial ramp to nursing home patients, even a cursory look at the current virus clusters and death statistics would suggest things can be dramatically improved if we eliminate transmission in Nursing homes.
          But what’s the maximum downside if we maybe get this wrong…well it’s kind of only 2 years life for someone with one foot in the grave already.

          • Ronin8317MEMBER

            There is also the 55% of people who gets permanent brain damage after COVID-19, which would be far more costly to society.

          • This is definitely a worrying complication however it is 55% of those that get seriously ill with Covid19 not 55% of those that are infected, (The ratio of Infected to seriously ill is somewhere between a factor of 5 and 10) combining these facts suggests a rate of possible organ damage of 5% to 10%. However even this doesn’t tell the whole truth because it is a well understood fact that elderly patients will often suffer precipitous declines in cognitive function with any extended period of illness or injury.

          • billygoatMEMBER

            Yeah needle up the aged care, nursing home, geriatric, grandparents, nan & pop, elderly crowd ASAP with untested BS vaccine. what are your thoughts on the age unwell ness factor to be eligible or should just hurry everyone past Australia retirement age with euthanasia. Solve everyone’s financial problems////SARC sad ass f$$kers calling this BS

          • I’m sorry you’ve lost your mum Ulrike. I’m not ready to throw mine under the bus yet – most wouldn’t & most wouldn’t volunteer.

            No thoughts on the links supplied?

          • Thoughts on the links
            well it has been obvious for a while that the primary danger with Covid19 is inflammation of the circulatory system, so the organ damage described is consistent with just this sort of thing.
            Even the lung damage suffered by Covid19 patients is very different from that which was expected for a typical Corona virus.
            As for many of the other strange symptoms and longer term health effects I suspect what we are seeing is a virus reacting with the immune system in ways consistent with what known of virus triggered Autoimmune disorders.
            It’ll be interesting to see just how many of these cases develop into Autoimmune diseases like Lupus, Arthritis and Diabetes, MS etc. But again this isn’t anything for any geriatric patient to loose sleep over.

          • You might be right on the Geriatric affects as those diseases take time – If that’s what occurs. Good luck getting it through…..

            If you’re right on these effects & even if they aren’t autoimmune, but similar diminishment, this world is in for an Unimaginable amount of stuffed lives & dimensions of Pain. All the more reason to stamp it out of here asap, (if possible) IMO.

    • The applicator looks surprisingly like an umbrella too. I think Bulgarian umbrella manufacturing industry is ready to fulfill the demand…

      • Don’t want to get your applicators mixed up in an aged care home.

        Or anywhere, really.

  2. Poochie the Rockin DogMEMBER

    There was always a price to be paid for free trade and theories of competive advantage don’t hold up in the real world. We don’t need to be the most efficient producers but we need to go back to producing things so we can stop being one of the dumbest countries in the world

  3. No disrespect Leith but before you launch into a rant about Immigration impacting manufacturing Productivity you really need to have a better understanding of Gross Margin, Cost of Goods Sold, cost of capital models and Turns of Capital and the effect that these metrics have on the decision to design and manufacture any given product.
    In today’s global manufacturing environment there’s a lot of price pressure on the mid to low end of all markets. Typical manufacturing gross margins are less than 30% and often more in the range 15% to 20%. This situation is not likely to change because as China moves up the value chain there are a dozen desperate countries that are prepared to throw government money at any manufacturer that promises jobs.
    As much as you might counter that a fully automated Aussie factory would be competitive on 20% margin we’d never get the opportunity because manufactures place value on the ability of their suppliers to react quickly to the market. Automation plus long lead times along with shipping times guarantees that no Aussie manufacturer even gets a look in at this end of the market.

    As you move up market, Gross margins from 30% to 50% you’re entering the sweet zone but it is typically a segment that is very sensitive to product development schedules and ability to quickly ramp to volume. Even when Aussie manufacturers luck out with a timely product they lack the ability and understanding of just how to ramp to volume. Ramping to volume is in the first instance about understanding the market and the evolution of available slots but even more important is the ability to finance this ramp up in production. This speaks to capital availability and different models for matching risk capital to opportunities. Australia’s debt and capital markets are to say the least very immature when it comes to financing product ramp to volume.
    At the top of the market 60% to 90% gross margin we have all of our small volume Medical, Military and Mining manufactures they typically don’t really benefit from automation because there’s just not enough volume to ever require serious Automation. However what they do need is relatively cheap bods available to make stuff whenever they see any upside..
    Just to recap It is great that you are focused on Productivity but …

    • The only thing China knows how to do is steal IP from others and use state subsidies to illegally prop up politically connected companies.

      They would not do these things if they had the ability to move up the value chain.

      If it was remotely fair a playing field in manufacturing, Australian companies would have no trouble competing.

      • It’s historic biases just like this that make it doubly difficult to get any traction wrt advanced Aussie manufacturing.
        Take for instance Huawei 5G system, if they copied or stole the underlying IP than how come they’re ahead of most of their competitors. Maybe they’re just so good at this that they produced a perfect copy before their competitors had even invented the product ….sneaky buggers those Chinese.

    • Ronin8317MEMBER

      Labour productivity have nothing to do with profit margin. It is defined as :

      “Amount of work done per worker per hour.”

      Assuming a worker making one ‘widget’ per hour. Being paid $100 a hour or being paid $1 an hour makes no difference to productivity.

      What you’ve described is “capital productivity”, which is a different measure.

      • I’m certain that your definitions would prove valuable if I were writing a text book or trying to pass an economics exam but would be considered as a decidedly less than helpful comment to any manufacturer that I know.

      • Are you in Retail Procurement?
        I wish…no if anything my specialty is Product development in emerging technology markets
        It’s not really a useful skill for any Aussie to have.

  4. TailorTrashMEMBER

    Message from your labour Premier

    Please do not adjust your sets . We are experiencing a small technical difficulty and will be back to full transmission shortly . Your relatives Medicare cards
    have been printed and are here waiting for their arrival
    Please ensure they vote labor when they arrive .

    “I made some comments going back a couple of years ago now, my support for families being together, our support for a migration policy that is bigger rather than smaller, one that is about giving people a chance to play their part in building a stronger Victoria,” he added.

    • We need these very productive people back, stat!

      No one sleeps on a job (or sleeps with the job) quite like them!

  5. PaperRooDogMEMBER

    The best economic managers, so long as you don’t look under the hood! (the 2nd best economic managers are almost as guilty)

  6. Reus's largeMEMBER

    Well most robots are related to manufacturing so no surprise that there then, what we need to measure is automation of the house market process, automated RE agents, and online house market where you can buy and sell houses like stocks on a stock exchange, next would be lawyers / financial planners and barista’s.

    • I like the idea of an automated RE, I’ve often wondered why, now that you can use the websites to sell, that you have to have an RE lic to be able to list a property?
      Clearly no real reason, just to keep the poor little RE souls in work then?
      Else, anyone could sell their own house and who would need an RE at all?

  7. Roger Stevenson

    I struggle to see how the quoted report counts as “proof” of anything related to immigration, it doesn’t mention immigration once?!

    • Per Capita released a similar report that supported my arguments. You might want to take a look. You’ll find it enlightening.

      Here’s a sneak peak:

      Measures of Research and Development (R&D) spending by corporations, an important precursor to increasing productivity, have been very low in Australia for some time… our national gross R&D level is now among the lowest in the developed world. The private sector in Australia has consistently failed to adequately engage in R&D and capital investment…

      This may partly be a result of long-term slackness in the Australian labour market: even before the current crisis, unemployment in Australia was stuck at 5.1%, considerably higher than in comparable advanced economies, and the underutilization rate was 13.7%, meaning that almost one in five Australians was seeking more hours of work. There is growing evidence that a tight labour market promotes innovation and productivity enhancements as employers are motivated to reduce labour costs, so a full employment economy is a means to encourage business investment in productivity gains.

      Obviously, mass immigration is a key driver of Australia’s labour market slackness.

      Do you disagree?

      • ceteris paribus

        Leith, I have always believed your argument has been astute on this topic. I would need to add, as a long time ago time ago I think you also wrote, that we would be morally obliged to the rest of the world to sharply increase the numbers of humanitarian intake within a significantly decreased overall total of migration . We have the wealth and the institutional framework as a nation to turn around any initial economic drag of such preference into generations of economic advantage.

  8. Why do we need to innovate when the world just keeps buying our dirt at a premium? The money prints itself

    • TailorTrashMEMBER

      Dirt with houses on it is even better …that makes us all millionaires……pity we will end up homeless and refugees one day.

      • Yea but who cares we will be dead before that happens and future generations have their self to blame for not being smart enough to come up with a new economic money maker. (sarcasm)

  9. – Wrong, wrong & wrong.
    – Rising produtivity decreases demand. But that falling demand has been offset by rising levels of debt. But rising levels of debt increase demand now but decreases demand in the long run.
    – As a result of falling demand companies try to olower their costs even more by “importing” “cheaper” labor forces.
    – But this kind of logic is “Too Original” for the braincells of one Leith van Onselen, right ??

  10. Like Roger Stevenson above, I struggle to find any corollary to “mass” immigration in this report. And it’s a tad disingenuous to then plug in some ABS figures on NOM and population change to try and discern some measure of Total State ‘Suck-Holeness’. Could it not be the decline in total R&D expenditure and business investment that the report alludes to might actually be the precursor to total State Suckholeability…?

    That then got me thinking: how many suckholes does a State trade deficit make? So I checked NOM and mapped it as a percentage against the the total size of the Australian labour force since 2000. Why? I dunno, ’cause I can! But essentially if the trade deficit were to worsen it would be as a result of increasing consumption, cet par, as a result of growing incomes. Unemployment over this period has remained fairly steady except for 2008 where there is a step-wise jump, which tapers off.

    Anyway, what’s interesting is that total NOM tracks almost perfectly against the size of the labour force until….. 2008, when everything goes skewiff. What you’ll find is that after 2008 the labor force growth rate is on a steady upwards trajectory whereas NOM as a % is on a steep decline. So my question is: if less and less immigrants are making up the total size of the labour force, where are they getting the incomes to contribute to the deterioration in the trade deficits of the suck-hole States? Could it be that declining R&D and business investment in what I would call ‘productivity upkeep’ is worsening these current account deficits? Just sayin’…..