Immigration debate needed

From ABC Unleashed:

Rudd's immigration policy doesn't add up

Ben Power
12 August 2008

Australia is finally starting to have an immigration debate. A number of commentators, including Michael Duffy, Paul Sheehan and Ross Gittins, have highlighted the Rudd (and previous Howard) Government's acceleration of the migrant intake.

As Paul Sheehan wrote in the Sydney Morning Herald, Rudd is "implementing the biggest immigration program since the end of WWII and the biggest intake, in absolute numbers of permanent immigrants and temporary workers, in Australia's history".

Before I go on, I have to make the usual disclaimer: this article is not arguing against immigration. It is not about the benefits of cultural diversity and the wonders of having 20 different restaurants in our main streets. This article is questioning why Australia's governments never fully outline the economic impact of significantly accelerating immigration.

The Rudd government has said, or indicated, its immigration boost is designed to combat a 'skills shortage' and inflation. But the economics of immigration is more complex; it is not just about broader economic gains, it is also about winners and losers. And it is about suitable timing given the state of the economy.

There is no denying immigration brings economic benefits, particularly if there are a high proportion of skilled migrants. Research shows that skilled migration does increase the well being of Australians; that is, boosts GNP per capita.

But the benefits are surprisingly, and disappointingly, small. This has also been found overseas. Harvard immigration economist George Borjas said the debate over immigration actually shouldn’t be about the economic benefits to a nation, as they "seem much too small". In the UK, a recent House of Lords Select Committee on Economic Affairs report, The Economic Impact of Immigration, found the economic benefits of immigration were 'small or insignificant'.

According to Borjas, the debate over immigration numbers should be about winners and losers: "In the short run, it transfers wealth from one group (workers) to another (employers)."

The main mechanism through which the economy benefits from immigration is the lowering of wages by increasing the supply of workers. (While people focus on the impact on low-wage workers, a program with a high proportion of skilled workers will also keep down wages for a nation's existing skilled workforce). Some argue immigration doesn't lower wages, but if wages aren't lowered, then there is probably little economic benefit from immigration.

Cheaper labour costs eventually mean lower consumer prices... but also higher profits to business. That's one of the reasons business – particularly big business – is constantly calling for higher immigration. It is in the interests of business to talk up a 'skills shortage'. (Borjas also believes that productivity gains from skilled migrants – one of the biggest selling points – are "trivial in the context of the overall economy").

There are also other costs. The House of Lords report found immigration didn't just have a small negative impact on wages of lower-paid workers but also contributed to falling housing affordability – one of the major issues facing Australia.

In the current economic climate in Australia, perhaps the biggest issue is timing. The government is accelerating immigration as the economy and employment are weakening or set to weaken. Will Australians accept increasing competition for jobs when the economy is slowing?

Even if we accept that skilled migrant numbers are an economic boon, what are the justifications for the numbers we're targeting?

Given the economic benefits are surprisingly and disappointingly small, the fact the economy is slowing and inflationary pressures easing, the Rudd government needs to explain its justification for an acceleration in the immigration program. We hear little discussion about these issues in Australia. I haven't even touched on the impact of higher population on carbon emissions and water supplies.

The UK and US are having debates on the economic impact of immigration, and hopefully ours is starting. In recent times Australians have accepted higher immigration numbers. But in a gloomy economic climate that could change quickly if the government doesn't start convincing them why it is a good thing.

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