Whenever things are going badly from an economic perspective, we like to point fingers. And, let’s face it, things are not going well. Wednesday’s GDP figures showed the economy on its knees and household incomes going backwards. On top of that, unemployment has been creeping higher for the better part of a year, while house prices continue to climb, leaving our biggest cities among the most unaffordable in the world.
Kristalina Georgieva, the managing director of the International Monetary Fund, said in a speech earlier this year: “Many people feel that the economy is not working for them. Many are not just anxious but angry. And we are seeing this play out in society and in politics, raising the spectre of an ‘age of anger’, of further polarisation and instability.”
Perhaps this anxiety, and even anger, is most clearly playing out in Australia in the current debate surrounding migration. Australia has the second-highest share of migrants of any OECD country (Luxembourg tops the list). At almost 30%, our migrant population is more than double the OECD average. Little wonder then it’s such a hot-button issue.
Yet the reality is that migration, from an economic perspective at least, needs to be evaluated in a much more nuanced perspective than we typically see playing out in Parliament House, media headlines or even around the barbecue.
There have been numerous studies undertaken into the economic impacts of migration, and they invariably tell different stories. What we can say, with confidence, however, is that migration plays an integral role in Australia’s economic and cultural wellbeing, from a number of perspectives.
The economy relies on three key drivers: population, participation and productivity. Migration influences each of these outcomes.
In the simplest of terms, population growth – in which migration plays a critical role in Australia – has kept the economy alive over the past two years. Yet it’s not clear this headline outcome is such a boon.
If population growth keeps us buying more toothbrushes and milk, thereby adding to measured GDP growth, it doesn’t necessarily mean we’re better off. In fact, this week’s GDP figures demonstrated how the economic pie overall can grow while at the same time our individual shares shrink.
The more meaningful economic benefits come from migrants’ contributions to participation and productivity.
Participation rates record the percentage of the working age population that is either in work or looking for work. The more of us who participate, the more production and the economy grow, raising living standards and reducing reliance on government at the same time. With an aging population, this is especially important for our future budget security. According to Jobs and Skills Australia, the 2021 census shows that recent migrants had a participation rate of 72.4%, compared with 66.3% for those born in Australia.
Perhaps even more significantly for our current and future growth prospects, migrants are good for productivity growth, something that has fared very poorly since the pandemic. According to research by the OECD and the Centre for Population, regions with higher migrant populations also have higher levels of wages (and therefore productivity). Migrants were seen to raise the productivity of the Australian-born population. Unlike the sugar hit of population-driven growth, productivity gains increase both the size of our pie and our slices.
And over and above the economic benefits of migration, we know cultural diversity creates a richness in our communities.
Of course, there are lots of different types of migration, and some, such as skilled migrants, will result in a stronger economic impact than others, such as family reunion migrants.
When setting our migration policies, both the overall target and the categories of migrants we accept, we should be careful not to throw the baby out with the bathwater. The post-pandemic lockdown boom in migration was needed to recover population levels and support a strained labour force and replenish classrooms. A return to more sustainable levels is now warranted. But we should be careful what we wish for.
There is no doubt our housing crisis is chiefly the product of supply failing to keep pace with demand. But looking to “quick fix” solutions, such as cutting back migration targets, will not change the underlying conditions creating lack of affordability – and will come with significant economic costs. It’s far from clear that the costs to participation rates and productivity will be worth it.
If the problem we are trying to solve is housing undersupply, then planning and tax policies, not migration, should be where the focus is.
Migration is a critical element in Australia’s cultural and economic fabric, and should not be discarded lightly.
Nicki Hutley is an independent Australian economist and councillor with the Climate Council
