For years the growth lobby has argued that Australia needs to run high levels of immigration in order to alleviate so-called skills shortages and to mitigate an ageing population, despite the Department of Employment showing that Australia’s skills shortage “remains low by historical standards” and Australia’s labour underutilisation rate tracking at high levels:
Economic models are often cited as proof that a strong immigration is ‘good’ for the economy because they show that real GDP per capita is moderately increased via immigration, based on several dubious assumptions.
The most dubious of these assumptions is that population ageing will necessarily result in fewer people working, which will subtract from per capita GDP (due to the ratio of workers to dependents falling).
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Leaving aside the fact that the assumed benefit to GDP per capita from immigration is only transitory, since migrants also age (thereby requiring an ever-bigger immigration intake to keep the population age profile from rising), 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 only around 3%.
Indeed, The ABS yesterday revealed that more Australians are working past traditional retirement age, thus mitigating concerns that population ageing will necessarily reduce the employment-to-population ratio:
Although labour force participation decreases with age, data from the monthly Labour Force Survey shows that over the previous two decades, a growing proportion of older Australians were working beyond traditional retirement age of 65 years. Labour force participation rates among men aged 65 years and over have almost doubled, from less than 10.0% in 1995 to just under 18.0% in 2015. Among older women, the labour force participation rate has increased from less than 3% in 1995, to just under 10.0% in 2015…
Similar to older workers, data from the Labour Force Survey show that labour force participation among mature-age workers is rising. This is particularly so for women aged 55-64 years, whose participation has doubled over the last two decades, from less than 30.0% in 1995 to just under 60.0% in 2015.
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Rather than relying on mass immigration to fill phantom ‘labour shortages’, the more sensible policy option is to moderate immigration and instead better utilise the existing workforce as well as use automation to overcome any loss of workers as the population ages – as has been utilised in Japan.
It’s worth once again highlighting that economists at MIT recently found that there is absolutely no relationship between population ageing and economic decline. To the contrary, population ageing seems to have been associated with improvements in GDP per capita, thanks to increased automation:
If anything, countries experiencing more rapid aging have grown more in recent decades… we show that since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita… on the contrary, the relationship is significantly positive in many specifications.
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Again, the last thing that Australia should be doing is running a mass immigration program which, as noted many times by the Productivity Commission cannot provide a long-term solution to ageing, and places increasing strains on infrastructure, housing and the natural environment.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
