Immigration: the winners and losers

Below is an extract from "The Productivity Commission on the economics of immigration" by Bob Birrell, published in People and Place, Volume 14, Number 1 (2006). It examines the Australian Productivity Commission’s 2006 Position Paper on the Economic Impacts of Migration and Population Growth, which focused on the effects on productivity (output per hour worked) and GDP per capita of higher immigration levels. The Productivity Commission concluded that the effect of a 50 per cent increase in the numbers of skilled immigrants over the twenty year period to 2024-25 will be to reduce average productivity slightly but increase GDP per capita slightly relative to 2006 immigration levels. However, as Birrell shows, the Position Paper did not assess the impact of these extra immigrants on the existing Australian population (or "incumbents", as Birrell refers to them). Birrell argues that the effect on GDP per capita for incumbents will be to lower it under the high immigration scenario relative to the maintenance of 2006 immigration levels. According to Birrell, younger Australians will be the worst affected by increased immigration.

Who benefits from high migration?

The PC [Productivity Commission] does not consider the question of who benefits from high migration. Its terms of reference did not specifically ask for such consideration. This is an unsatisfactory situation. Surely Australians ought to be informed on this vital issue.

There is no doubt that the additional migrants entering Australia under the high migration scenario will be the major beneficiaries, assuming that the PC is correct in its expectation that they will find professional and trade level employment. Since most will come from non-western societies their income levels will expand sharply. They will also enjoy the benefits of the accumulated investment in civic and economic infrastructure in Australia without having to pay an entry fee.

What about residents--or incumbents? The main losers will be young people, especially those with university training. This is because they will bear the brunt of the competition presented by the skilled migrants. Their wages and conditions by 2024-25 will be considerably lower than would have been the case in the absence of the skilled migrant competition. Ironically, lower skilled incumbents will be less disadvantaged because, under the high migration scenario, there will be few extra migrants in their skill bracket competing for employment.

Young residents will also be negatively affected because they are not property owners. They will have to compete for entry into the housing market against the extra migrant households. Australia already experiences one of the highest ratios of detached house prices to household income in the developed world. The extra migration will add to the demand side of the property price equation. It will do so at a time when, in Brisbane, Sydney and Melbourne, the respective State governments are trying to curb the spread of the suburban frontier.

The main winners from the high migration scenario, apart from the migrants themselves, will be the owners of businesses, whose markets will grow and whose profits will expand in the short to medium run as the labour to capital ratio rises. These beneficiaries include home builders, shopping centre proprietors, infrastructure providers and media owners. The beneficiaries also include most home owners, since their properties will appreciate as a consequence of the increased scarcity value of their holding with the influx of migrant households.

The high migration scenario thus seems to benefit the advantaged at the expense of the disadvantaged. Another way of viewing the situation, which supports this contention, is that the ownership of capital is skewed heavily towards the more elderly (since it depends on past savings). Hence the old win on this front too, because profits go up under the high migration scenario. Meanwhile the young lose because their lifetime wage earnings fall under this scenario.

Much of the business rhetoric about the benefits of higher migration has to do with the consequent growth in the size of the Australian economy. Yet, the Position Paper indicates that, when it comes to capturing the alleged benefits of economies of scale, 'trade and migration are substitutes'. As is pointed out in the work of the Harvard economist George Borjas, this insight has a profound bearing on the debate about the implication of high migration.

When Australia imports clothes from China, Indonesia or Fiji it, in effect, imports the cheap labour embodied in the manufacture of the garments. Instead of bringing such workers to make the garments in Australia we import the product. Likewise, when Australians import motor vehicles (currently more than 60 per cent of all motor vehicles sold in Australia are imported), they import the economies of scale that the Japanese and other major exporters have achieved. For Australia to reproduce such economies of scale (and the lower costs per vehicle associated), would require a massive increase in the domestic market (if the cars were to be sold in Australia). In other words, if Australians wish to benefit from the cheap labour and economies of scale available overseas or, for that matter, from the benefits of advanced technology in countries like Germany, it can import the products which embody these attributes. There is no need to expand migration to achieve these effects.

In order to capitalise on these benefits Australia's exports will have to increase. Currently Australia has the capacity to maintain high levels of exports deriving from its renewable and non-renewable resources. It can only do this because of its small population, that is, because there is currently a substantial surplus between what can be produced and what is needed for consumption in Australia. There is very little relationship between extra migration and the scale of rural and mining output in Australia. However, a migrant induced increase in population has a direct relationship with the level of imports, in the sense that imports will rise at least as fast as the migrant population rises.

In these terms it is hard to see the economic argument for high migration, at least from the point of view of most incumbents. One of the more bizarre outcomes of current migration policy is the high intake of professionals from the Indian subcontinent and from China (particularly those who have studied in Australia). These migrants are arriving at the very time that Australian firms and consumers are drawing on the benefits of the cheap labour in their homelands--for consumer goods and increasingly for outsourced services. In India's case this includes the outsourcing of IT services. If Australian firms can access such professional services in India and China for a fraction of the cost of such persons once they are in Australia, why bring them here?

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