Net Overseas Migration and Productivity In Australia
The interplay between net overseas migration and productivity is important in determining the course of prosperity. Especially in our country. They are economic variables that play out over time in ways that are hard to see day to day.
Because of current extreme deviations from the norm, we are going through a phase where their impact is visible in a more direct manner than is typical. Both topics have made their way into headline making news.
Take Demography as an example. Who has not heard about or even felt the impact of our high level of immigration?
In a media release on 14 Sept 2023 by the ABS, Beidar Cho, the head of demography, has said that “net overseas migration … added 454,400 people to the population in the year to March 2023.”
The impact of this level of net overseas migration is being felt in our property sector. The demand for residential property is defying the normal reaction to increased interest rates.
Enormous levels of new demand for housing driven by net overseas migration have increased prices for property. Even when the level of home lending has decreased.
Demography and population growth can be fiendishly hard to predict. It involves making assumptions about the level of net overseas migration, a country’s birth rate, and changes in average lifespan.
Australia’s first intergenerational report significantly underestimated the level of population growth.
Productivity is another economic variable that has profound effects on our prosperity.
The latest intergenerational report assumes that productivity levels at 1.2% in its forecasts of economic growth. A decrease from 1.5% that has occurred on average since the turn of the century.
Productivity growth is currently nil.
Demographic change and productivity slowdown are occupying center stage in our economic debate.
It relates to the cost-of-living difficulties that are affecting a significant portion of the population. Especially non-homeowners and those with a large mortgage.
The pressure is on the easy fix to get this pressure under control. That fix is to curtail the level of net overseas migration.
Don’t Be Implusive
I believe this would be a mistake.
There is much to criticise about the way migration is occurring. One of them is the abuse of classes of visas that are used as a backdoor method of gaming the system to get residency.
Processes are underway to deal with these issues. At least they are in the ambit of government administration. We can alter policy to fix these issues.
A more pressing and intractable issue is the high level of transaction costs associated with migration.
These transaction costs are the difficulty of absorbing large numbers of immigrants in Australia. They are a frictional cost and represent a disparity between culture and tolerance.
The greater the cultural difference between those entering and those already present, the greater the costs. The higher the disparity, the greater the cost or the higher the tolerance required for the frictional costs that are imposed.
The economic cost of accommodation has risen because of economic forces unleashed by the increase in net overseas migration. This is not a higher frictional cost since competition for accommodation is occurring across all parts of the population. There is little doubt, however, that there is an economic cost.
Multiculturalism
An example of the frictional transaction cost is that which has manifested most recently because of the conflagration in the middle east. It has bought into focus how difficult it can be to support a policy of multiculturalism.
Multiculturalism is far superior to assimilation. However, attention to integrating high levels of net overseas migration into our society would be fruitful.
In the broad scheme of things, the unfolding history of this great country will be better off for having a higher population. It will add dynamism and scale to our economy and provide a level of security that comes with properly occupying a country as vast as ours.
In the meantime, we have world class institutions that play a critical role in protecting us from ourselves. A constitution that emphasises the importance of rules in how we provide governance to ourselves and places the rule of law within reach to us all.
Growth in GDP per capita has evaporated and may not present itself for some time. In a world that has suddenly become more menacing, we are a magnet for people who want the promise of a better life. There is a very good chance that our institutions can convert that into prosperity for us all, albeit with a certain amount of friction.
In the short term, we may go through a period of difficulty.
Short-Term Problems
The news that from the data is that inflation is stubbornly high, and that productivity is lower than what is consistent with ongoing prosperity.
Our state and federal governments are on an infrastructure spending juggernaut. It is pouring fuel onto the flames of inflation.
Small businesses are being asked to bear greater regulation. Especially in relation to industrial relation rules.
Households are being required to tighten their belts to make ends meet as costs are going up and real incomes have been in decline.
This is exactly the environment where significant change occurs. Not because it is easy, but because it must.
The work from home trend started by covid is here to stay. An AI revolution has started. These two phenomena provide opportunity to small business that are difficult to overstate.
