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.

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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