AUSTRALIA’S IMMIGRATION INTAKE: PLUS OR MINUS?

It’s quite important at the start to qualify points.

When you talk about immigration, you have to also talk about population policy. We need to think, not just about immigration, but what it is in the context of population policy. The other point is that we’re not making judgements about the migrants themselves; we’re actually making a judgement about the migration policy.

We can get very caught up in what might be regarded as a judgement about the migrants themselves. The migrants, by and large, are doing exactly what you’d expect them to do. They’re generally overwhelmingly coming here to make a better life for themselves and their families. That’s absolutely fine. So, it is important to concentrate our critiques on the migration policy settings of the government.

Having said that, the government should be acting in the best interests of Australian citizens and permanent residents. They don’t, at a point in time, have any wider moral obligations to people overseas, with the exception of the humanitarian program. But in regard to the humanitarian program, analytically, it’s important to put that to one side. There may be some questions about that and I’m happy to deal with that. But those two important preface remarks should be kept in mind.

We should think about this in two parts. The first is what I’d call the theory and the second part is what I’d call the practice. So, what’s the theory about the impact of immigration? There’s a micro side. If you bring in a lot of migrants of a particular skill, those who are here, domestically, lose out. If you have competitive skills with the migrants, there are losers.

For the owners of capital for businesses, by and large, immigration is a very good thing. For those workers who have complementary skills, migration can be a good thing. It can obviously affect particular labour markets. I’m hoping Saul might get on to this, as we’ve got an interesting natural experiment at the moment. With the international borders being closed, we don’t have the migrant inflows, so we can pick up what that is doing to individual labour markets and wage pressures and the like.

This is a terrific topic to discuss. There’s the microeconomics, and then there’s what I call the macroeconomics. And that’s where you need to bring into account the total economy wide effects of migration. Obviously, migrants do not just increase the supply of workers and increase the population size, they also bring in demand.

What the macroeconomists can do often, with their fancy models, is model the impact of immigration at a macro level and figure out whether or not there are economic gains – what are the size of those economic gains and what is the timeframe of those economic gains. One of the problems with migration, all other things being equal, is that it leads to some capital dilution. So, you’ve got a fixed stock of capital, you bring in migrants, and what happens is that you’ve got less capital per worker. In the short term, you may actually not have great economic benefits. It’s only over time when the capital stock can be increased that you often get the effects. That’s by and large what the models say.

The models say that over time immigration can have positive net effects – bear in mind that a lot of those gains are actually captured by the migrants themselves. And the size of the gains – and I’m quite happy to have a debate with Saul about this –looks reasonably small to me. Here’s the important point; obviously immigration increases the absolute size of the economy, but what we are more interested in is what it does to per capita GDP. Unless the migrants actually look quite different from the locals, it’s going to be difficult for you to get a boost in per capita GDP.

It is often said that, in general, migrants are a bit younger than the locals, and so have higher participation rates. Those things can have a positive effect. Whether they have a productivity effect is a very open question and one where the evidence is completely unsatisfactory.

We do vaguely understand the theory, the empirical testing of that theory is a bit uncertain. But it’s very important to look at the actual features of Australia’s immigration program. People will say to me that Australia’s economic development has always been based on immigration, so immigration must be a good thing and we need to continue immigration. I’m not actually saying we don’t need to continue immigration, but there are issues about the size of the intake. Secondly there are questions about the composition of the intake, the composition of the program, the visas that allow in the migrants. In the past, and until about the mid 1990s, we never had any temporary migrants; the people who came to Australia came here forever. In many cases, such as migrants who came here after the Second World War, quite a significant number never even went back to the countries where they had been born.

In the mid-1990s, we began a shift to much more temporary migration, so in that we had temporary workers, we had working holiday makers and, more lately, temporary migration has been dominated by international students. Pre-Covid, for example, there were 700,000 international students residing in Australia. Depending on what they want to do, international students with a graduation visa, generally available for several years, can stay in Australia for upwards of 10 years. This is important to bear in mind. We now have an immigration program which, instead of being dominated by permanent and indeed relatively skilled workers, there is a very large slew of temporary migrants. And, by and large, with the exception of what actually is quite a small temporary worker program such as the old 457s, most of those workers are actually not particularly skilled at all. They have work rights but they take jobs, by and large, in hospitality and retailing, which is of course is why it’s been difficult for those industries during the pandemic.

Another important change in direction was that, in the mid 2000s, there was a very significant kick up in the number of net migrants coming to Australia. Until that point, we had about 100,000 of what we call “net overseas migrants”. These are ones that come, minus the ones who leave. Pre-Covid, the figure was closer to between 200,000 and 250,000. So, we had migration basically contributing about 60 per cent of population growth, and that is something worth debating. If we went out onto Pitt Street mall and asked what percentage of population growth should be made up in migration, many people wouldn’t say nearly two thirds. That has been a big change. Pre-Covid the Australian population was increasing by about 400,000 a year – by about the size of Canberra every year – but that increase was mainly going to Melbourne and Sydney.

The negatives that you might see associated with migration are congestion, pressures on infrastructure, pressures on roads, schools, transport and the like. This was being made worse by the fact that we had a migration program that could not to direct immigrants geographically. And, they naturally went to Melbourne and Sydney. It’s important to think not just about theory, but also to ask if we have a good migration program.

Another feature worth mentioning, is the new business investment program. Essentially, if you’ve got maybe a million, a million and a half, that you can demonstrate you will invest in Australia, you can get a passport. It’s not dependent on having English language skills; it’s not dependent on being young. We’ve been allowing in about 15,000 of these business/investment migrants a year. That’s another serious critique of the government’s migration policy settings. Interestingly enough, in a number of other countries like Canada, they have gotten rid of these programs because basically they are not good value. You’re probably better off to take a young, eager, recent graduate as a migrant, who wants to do well, rather than these business investment migrant programs which are subject to enormous gaming.