A self-induced economic slowdown?

[Belbo]

A very interesting article indeed by Larry Schlesinger posted on the Property Observer site reports the view of Tony Crabb of Savilles that we have brough much of the current slowdown on ourselves by recent cuts to immigration numbers -

According to Crabb, the decline in migrants has also played a much bigger role in the decline in retail turnover, which has been largely ignored as everyone focused on the role of the internet.

“[Immigration] is the elephant in the room," Crabb says.

“No one wants to talk about it, but we have slashed immigration by 200,000 people a year. That equals 70,000 houses, 100,000 cars, 70,000 washing machines, 70,000 dishwashers, and 150,000 beds. Never mind linen, crockery, cutlery, food, clothing and everything else.

“That’s around $5 billion to furnish a house, and feed and clothe an average family per annum and that’s without adding additional retail expenditure involved in the construction of 70,000 houses, which on current values would be worth circa $400,000 each.

“No wonder retail is in the doldrums,’’ he says.

I find this argument highly plausible (although I'll be the first to admit I don't have the economics expertise to verify it).

None of the major political parties (Greens, Labor, Liberal or Nationals) seem prepared to support appropriate levels of immigration, and I think the reason is cynical political expedience: Why upset an electorate currently nervous about their own jobs and at the same time increase the need for improved government social infrastructure spending (i.e. schools, hospitals, public transport, etc)?

I'd be interested to hear other people's views on this: Is the so called 'two-speed economy' a monster of our own making, the result of knee-jerk but inadvised immigration cut-backs?

 

[TomW]

Assuming for a minute the argument is correct is it really sustainable/wise to take in hundreds of thousands of immigrants in order to juice the economy a bit?

 

[lizzie]

I agree that is is potentially "part" of the problem - but definately not the whole.

Another segement of the problem is what I expected to read when I opened this post. Savings and mortgage repayments are at a 25yr high in Australia. This is physical money that people aren't spending - combined with a sharp decrease in credit card spending - we are in some ways causing our own recession by saving ... not that saving is a bad thing and that we did come off a very low base!

Combine those two with other factors such as high dollar, share volitility, tight credit, uncertainty, high hidden taxes etc ... and it forms a whole

 

[Nemo30]

Or you could look at it another way... 200 000 people who potentially will not be collecting centrelink payments in 2 years time when they cant find a job.

They did some studies recently and found that a huge percentage of skilled migrants were unemployed or underemployed in the years following migration. This was a particular issue for (but not limited to) people who had migrated from countries where English was not the primary language.

Migration is great. I'm totally in support of it, however it needs to be controlled carefully. There is no point in bringing in 200 000 people if the jobs aren't there to support them, or there is aleady an oversupply of workers in that field.

 

[VYBerlinaV8]

Savings and mortgage repayments are at a 25yr high in Australia. This is physical money that people aren't spending - combined with a sharp decrease in credit card spending ...

This is the part that says to me that Australia's economic doldrums, although potentially lasting a while, will eventually be overcome and good growth again achieved. People can only save and reduce debt for so long until they feel comfortable to start spending again.

 

[josko]

I agree that is is potentially "part" of the problem - but definately not the whole.

Another segement of the problem is what I expected to read when I opened this post. Savings and mortgage repayments are at a 25yr high in Australia. This is physical money that people aren't spending - combined with a sharp decrease in credit card spending - we are in some ways causing our own recession by saving ... not that saving is a bad thing and that we did come off a very low base!

Combine those two with other factors such as high dollar, share volitility, tight credit, uncertainty, high hidden taxes etc ... and it forms a whole

Lizzie,

I completely agree that people are saving. We have closed our purses and have been waiting to spend since GFC1. Although I did hear a report that we still like eating out..well I guess we have to eat!

70,000 houses? Do we only allow immigrants with perhaps $350,000 plus to buy a house into the country? I don't think immigration has much to do with our slow down at all. It's much about consumer sentiment and there are so many things to be concerned about atm. That and the fact that money is much harder to get these days.

Regards JO

 

[StefanA]

If GDP growth is dependent on population growth, then we've got a Ponzi scheme masking serious structural and cultural issues with productivity per capita.

Hence the current concern and focus on productivity by the slow but informed.

And how does 2%pa net migration lower the youth unemployment rate which is now only 22.3%.

 

[weg]

What we've been seeing is the result of dropping consumer confidence - regardless of how good or bad our local economy really is.

A significant and extended drop can cause a domino effect nasty enough to cause significant damage to an economy.

I think what we'll eventually see, and possibly are seeing now, is a decline of wealth (regardless of people saving), increasing job losses, etc., making a quick turnabout highly unlikely, especially with no good news on the distant horizon.

It would take more than immigration to prevent that kind of slowdown .

 

[Intrinsic_Value]

-



I find this argument highly plausible (although I'll be the first to admit I don't have the economics expertise to verify it).

I'd be interested to hear other people's views on this: Is the so called 'two-speed economy' a monster of our own making, the result of knee-jerk but inadvised immigration cut-backs?

I would say its a very strong contributing factor, especially with the break up of migration levels these days (higher proportion under skilled/business migration).

I would also add international student levels, whilst not permanent migrants they are here for several years and there movements effect rental demand. There numbers are significant especially in Melb/Syd

 

[porp_e]

They did some studies recently and found that a huge percentage of skilled migrants were unemployed or underemployed in the years following migration. This was a particular issue for (but not limited to) people who had migrated from countries where English was not the primary language.

Migration is great. I'm totally in support of it, however it needs to be controlled carefully. There is no point in bringing in 200 000 people if the jobs aren't there to support them, or there is aleady an oversupply of workers in that field.

Couldn't agree more, I come from a migrant family (moved here under 'skilled' worker program - dad is an engineer) however the only job he could get when we moved here was as a taxi driver, took him about 5 years of additional study (paid for by himself) before employers starting recognising his qualifications and he could get a job in his field, Im not saying he should have gone straight into an engineering job however the system seems a bit self defeating...

 

[Intrinsic_Value]

Couldn't agree more, I come from a migrant family (moved here under 'skilled' worker program - dad is an engineer) however the only job he could get when we moved here was as a taxi driver, took him about 5 years of additional study (paid for by himself) before employers starting recognising his qualifications and he could get a job in his field, Im not saying he should have gone straight into an engineering job however the system seems a bit self defeating...

I've known many overseas students who obtained PR after finishing Uni.
There is not one that is on unemployment benefits, and the 'sample size' would be a 100 or so.

 

[Aaron_C]

I've known many overseas students who obtained PR after finishing Uni.
There is not one that is on unemployment benefits, and the 'sample size' would be a 100 or so.

They spend most of their time trying to find a job (unsuccessfully) and failing that end up working in a restaurant. It's quite unfortunate really - and the reason why is because (here in Melbourne) there's simply not enough jobs.

 

[Ausprop]

it's a bad combination - slashed immigration, a banking sector that is out of control like a cancer in the economy that's eating everything up, a government determined to lead us into the unkown, gloomy consumers and an RBA that has it's eyes on a different prize.

 

[MarkB]

The Productivity Commission did a research report on a very similiar topic only a few years ago.

Full Report is here.



Press Release

Productivity Commission to Examine the Impact of Population Growth and Migration on Productivity Growth

The Treasurer today announced that the Productivity Commission will undertake a research study into the impact of population growth, including through migration, on Australia’s productivity growth.

The Commission will report on the nature of international migration flows over the last decade, in particular, flows of skilled migrants and the impacts this has had on skill levels in the Australian population generally, as well as within different industries and occupations.

This study will assess likely future developments, identify the mechanisms through which population growth transmits to productivity growth and report on whether there are any legislative or other impediments preventing Australia from realising potential productivity gains from population growth.

The Treasurer noted that understanding the link between population growth and productivity is especially important in the context of an ageing population. Given the importance of productivity growth as a major driver of improved living standards there is value in identifying the ways in which population growth and the human capital aspects of migration can affect productivity.

The terms of reference for the study are attached.

Further information on the study can be obtained from the Productivity Commission’s website at: www.pc.gov.au or by contacting the Commission directly on (02) 6240 3239.

CANBERRA
25 July 2005

Terms of reference
THE IMPACT OF MIGRATION AND POPULATION GROWTH ON PRODUCTIVITY GROWTH IN THE AUSTRALIAN ECONOMY

Productivity Commission Act 1998

The Productivity Commission is requested to undertake a research study examining the impact of population growth, including migration, on Australia’s productivity growth. Productivity growth is a major driver of improvements in real per capita living standards, so there is value in identifying the ways in which population growth and the human capital aspects of migration can affect productivity.
In undertaking the study the Commission is to:

• report on the nature of international migration flows over the last decade and the extent to which Australia has participated in them, in particular, flows of skilled migrants
• examine the impacts on skill levels in the Australian population generally, as well as within different industries and occupations, of skilled and unskilled migration
• assess the relationship between migration, its different permanent and temporary categories, population growth, population and workforce diversity and productivity in Australia, its States and Territories and regions (where possible) and assess likely future developments, quantifying impacts where possible and drawing on the experience of other OECD countries
• identify the mechanisms through which the impacts of migration and population growth on productivity are transmitted
• report on any legislative or other impediments which prevent Australia realising the potential productivity gains from migration and from effective use of Australia’s population and workforce diversity, and
• consider the impact of migration and population growth on labour force participation and economic growth more broadly.
• The Commission is required to provide a report within nine months of receipt of this reference.

The report is to be published.

PETER COSTELLO


Key Points of the Report

Migration and Population

Migration has been an important influence on Australian society and the economy

• affecting the size, composition and geographic location of the population and workforce.

Recent changes to Australia's migration program include a greater emphasis on skills, increased numbers of temporary immigrants, and more diversification in the country of origin.

The number of Australians leaving this country, permanently and long term, has risen markedly in recent years.

• But the number has been considerably smaller than those coming to Australia.

Economic effects of migration arise from demographic and labour market differences between migrants and the Australian-born population, and from migration-induced changes to population growth.

However, the Commission considers it unlikely that migration will have a substantial impact on income per capita and productivity because:

• the annual flow of migrants is small relative to the stock of workers and population
• migrants are not very different in relevant respects from the Australian-born population and, over time, the differences become smaller.

Some effects of migration are more amenable to measurement and estimation than others. Effects that cannot be reliably measured or estimated might still be significant.

• Positive effects from additional skilled migrants arise from higher participation rates, slightly higher hours worked per worker and the up-skilling of the workforce.
• Some of the economy-wide consequences lower per capita income, such as capital dilution and a decline in the terms of trade.
• The overall economic effect of migration appears to be positive but small, consistent with previous Australian and overseas studies.

In terms of the selection criteria of the Migration Program:

• the greater emphasis on skills has been associated with better labour market outcomes for immigrants
• English language proficiency stands out as a key factor determining the ease of settlement and labour market success of immigrants.

 

[Dazz]

Nice post Mark - thank you.

 

[Belbo]

Yes, very valuable post Mark, although the Productivity Commission Report appears to imply only that productivity is not significantly altered - positively or negatively - by immigration. What about net demand? I solemnly concur that productivity improvements are vital to economic development, but that's not exactly the issue that has been raised. (At the same level of productivity, doubling the population will double net demand, won't it?)

Lizzie (and Weg, and others) make the equally valuable point that other factors - and in particular increased savings rates and general economic uncertainty - are overlooked by Tony Crabb's proposition, and I agree that on face value they are. But I'm still suspicious about the relative weight of these factors compared to extra mouths to feed in the overall equation. A family of immigrants will spend everything they earn for many years, whereas savers will remove a few percentage points of demand from the economy for just a few years at most (most likely). And we all anecdotally know that immigrants then put whatever savings they can muster together to work very hard, don't we? (Just as, with respect, Porp e's father most evidently did.)

Nemo and Josko are less convinced though, and suspect that the slowdown not only has nothing to do with immigration cutbacks - but may be less severe because of it. I find this implausible, and think that Intrinsic Value cut to the point: Immigrants don't have a habit of bludging on social security (and the Productivity Commission Report could be taken as fairly solid support for this assessment).

I agree that it's a deeply provocative notion though: It implies that we need immigration for our economic wellbeing right now, which hardly gels well with our cultural sense of individual self-reliance and new-world autonomy. But, historically, we did benefit economically from every successive wave of immigration - and I suspect, greatly - and I can't help but feel that we're missing a trick this time around. (Of course and I repeat, these are complex issues I confess, and I could well be wrong.)

 

[MarkB]

Yes, very valuable post Mark, although the Productivity Commission Report appears to imply only that productivity is not significantly altered - positively or negatively - by immigration. What about net demand? I solemnly concur that productivity improvements are vital to economic development, but that's not exactly the issue that has been raised. (At the same level of productivity, doubling the population will double net demand, won't it?)

Believe it or not, I actually wasn't wanting to enter this debate. The problem was that somewhere in my idiot brain I had a vague recollection of a PC report and I thought it might be of interest to those who are interested in this discussion.

*sigh*



But now I am here, I refer (below) to page XXVIII of the PC Report (part of "The Overview").

What are the links to per capita income and productivity?

As part of this study, the Commission has been asked to identify ways in which migration and population growth impacts on productivity. Although migration increases the absolute size of the economy, for the purpose of this study, economic growth is expressed in per capita terms (per head of population). In terms of the living standards of individuals (and families), it is income (and consumption) per capita that is most relevant. The limitations of using indicators such as Gross National Product (GNP) per capita and Gross Domestic Product (GDP) per capita as measures of welfare have long been recognised. Nevertheless, they do allow us to reveal much about the economic consequences of migration and population growth. The aspects not captured by such measures are considered in qualitative ways in this report.


From XXXVII

Summing up
The greater emphasis on skilled immigration has contributed to improved labour market outcomes for immigrants. Consistent with previous Australian studies and research in other countries, the effect of increased skilled migration on average living standards is projected to be positive, but small. It is also likely that most of the benefits accrue to the immigrants themselves.



Yes, Belbo, immigration = more bums on seats = a bigger economy = more demand.

But what the PC said was that basically the bigger pie is just shared by more people - as they say, "the effect of increased skilled migration on average living standards is projected to be positive, but small".

I'm not, and I don't think the PC is "anti-immigration", but what they seem to be saying is that if you want to increase your population and the alternatives are either "growth from within" (increased birth rates) or "skilled migration", it is, in an economic sense, 6 of one and half a dozen of the other.

 

[Aaron Sice]

What are the links to per capita income and productivity?

As part of this study, the Commission has been asked to identify ways in which migration and population growth impacts on productivity. Although migration increases the absolute size of the economy, for the purpose of this study, economic growth is expressed in per capita terms (per head of population). In terms of the living standards of individuals (and families), it is income (and consumption) per capita that is most relevant. The limitations of using indicators such as Gross National Product (GNP) per capita and Gross Domestic Product (GDP) per capita as measures of welfare have long been recognised. Nevertheless, they do allow us to reveal much about the economic consequences of migration and population growth. The aspects not captured by such measures are considered in qualitative ways in this report.

that's the notion that Topcropper also brings to the table.

 

[josko]

Thanks Mark B,
Great report and nice feedback Belbo.

Bigger pie, bigger picture.

For me, it just stands to reason that migrants represent a small proportion of our population, so how could they possibly have such an enormous effect on the economy as a whole.

Regards JO

 

[Aaron_C]

Thanks Mark B,
Great report and nice feedback Belbo.

Bigger pie, bigger picture.

For me, it just stands to reason that migrants represent a small proportion of our population, so how could they possibly have such an enormous effect on the economy as a whole.

Regards JO

Well migrants tend to be concentrated in certain areas. Melbourne CBD (students), Clayton (students), Footscray (asylum seekers). So their effect is amplified in a small area rather than overall on the economy.