Grattan Institute spins immigration fairy tales

The Grattan Institute has published a blog post arguing that ramping-up immigration won’t increase unemployment nor dampen wage growth because “recent migrants spend more in Australia than they earn, adding as much to labour demand as labour supply”:

When there are more migrants there are also more jobs. Recent migrants spend more in Australia than they earn, adding as much to labour demand as labour supply. That’s why studies repeatedly find migration has little to no overall impact on the wages of local workers.

If Grattan’s claim was true, then the ‘loss’ of roughly 400,000 migrants over the pandemic:

Australia would have ~400,000 more workers currently if immigration remained at its pre-COVID pace.

Would not have tanked Australia’s unemployment rate to its lowest level in nearly 50 years, as well as pushed-up the employment-to-population ratio to record highs:

Australia’s unemployment rate hit a 48-year low, and the employment-to-population ratio hit a record high after immigration collapsed.

The Grattan Institute’s claim also contradicts the business lobby, which continually argues to lift immigration to alleviate “skills shortages”. Why would business groups furiously lobby to boost immigration if migrants add “as much to labour demand as labour supply”? And how could skills shortages have become so acute during the pandemic when immigration turned negative if it was true that migrants “spend more in Australia than they earn”?

None of it makes sense, nor matches the actual empirical evidence of the past 2.5 years.

Grattan also conveniently ignores the fact that migrants send billions of dollars in remittances out of Australia to their home countries. This necessarily reduces their spending in Australia:

Migrants send money out of Australia.

Grattan then waxes lyrical about the huge fiscal benefits of ramping immigration:

The main benefit of lifting the annual migrant intake would be to boost federal and state government budgets that are mired in debt. Skilled migrants generate a fiscal dividend because they pay more in taxes than they receive in public services and benefits over their lifetimes.

Grattan Institute modelling suggests that increasing the size of the permanent intake from 160,000 to 200,000, and allocating those extra visas to skilled workers, could offer a $38 billion boost to federal and state governments combined over the next decade.

Extra young, high-skilled migrants provide a fiscal dividend to the Australian community since they earn high incomes and pay substantial taxes upon arriving in Australia. While immigration does not eliminate the costs of population ageing, since migrants themselves also age, even in the long term each additional cohort of 40,000 skilled migrants would deliver a $7 billion fiscal dividend to federal and state governments combined over their lifetimes in Australia after accounting for pensions, health and aged care, and other costs.

Australia ran its biggest ever ‘skilled’ migration program in the 15 years leading up to the pandemic, and what did it achieve? Crush-loaded hospitals, schools, roads, trains, utilities, chronic housing shortages, you name it. And Australians are paying more for infrastructure and services than ever (think toll roads).

This alone should tell you that the fiscal benefits of mass immigration are largely illusionary. They only arrive if our governments refuse to provide the necessary funding of infrastructure and services to cope with the exploding population. Hence the chronic crush-loading.

Moreover, the primary reason why our governments waste copious amounts of money on infrastructure projects like the $125 billion Suburban Rail Loop or WestConnex is to keep pace with Australia’s exploding population due to immigration.

So tell me again: how are we better off financially from mass immigration?

To its credit, Grattan has at least called for the wage floor on skilled permanent migrants to be lifted to $85,000 – “the equivalent of median annual full-time earnings” – alongside abolishing “clunky and out-of-date occupation lists”. It also wants the points test revised to “prioritise younger, higher-skilled workers”. These are good, common sense reforms.

However, it then lets itself down by calling to “raise the minimum salary threshold for sponsoring temporary skilled migrants to $70,000, while allowing employers to hire temporary skilled migrants into jobs in any occupation”. It also notes that “today, more than half of sponsored workers earn less than the typical full-time Australian worker (currently $85,000 a year)”. Grattan explains its proposed $70,000 threshold as follows:

About one in three existing jobs for temporary skilled migrants would be knocked out by a $70,000 wage threshold. Hospitality would be hit hardest, since nine in 10 cooks and chefs are paid less than $70,000 a year. But it was allowing employers to sponsor workers at such low wages which has raised community concerns about temporary migration in the first place. Our research shows that sponsored workers on lower wages tend not to see their wages rise once in Australia – reflecting their lack of bargaining power – whereas higher-wage temporary migrants do get pay rises.

Wages in hospitality would have to rise, benefiting local workers. But other sectors, such as health and aged care, would be barely affected since few temporary sponsored migrants currently work in those sectors.

Why on earth would you set a wage floor for temporary skilled migrants $15,000 below the median full-time wage (which includes unskilled workers)? Why not set this threshold at the same $85,000 level as permanent skilled migrants? Otherwise, how can you call it a genuinely skilled system?

Surely setting an $85,000 wage floor (indexed to the wage price index) for both temporary and permanent skilled migrants would maximise the benefits from skilled migration, while also protecting local wages and conditions? It’s a policy no-brainer.