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Economic impacts of migration and population growth

Research report

Released 17 / 05 / 2006

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  • Key points
  • Media release
  • Contents

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.

Migration has been an important influence on Australian society and the economy. Increasing skilled migration would make a positive overall contribution to Australia's future per capita income levels, according to a final report released by the Productivity Commission.

The report - Economic Impacts of Migration and Population Growth - responds to a request by the Australian Government to examine the impact of migration and population growth on Australia's productivity growth.

'Australia's migration program is increasingly focussed on skilled migration, which is generally improving the labour market outcomes for immigrants. However, the annual flow of immigrants is small compared with the size of the population and the workforce, so a relatively small contribution to the economy is to be expected. Furthermore, there are economy-wide consequences that can offset the labour market effects of immigrants', said Commissioner Judith Sloan.

To assess the effect of skilled migration, modelling was conducted to estimate the economic impact of a simulated increase in skilled migration of about 50 per cent on the level in 2004-05.

By 2024-25, the increase in income per capita, on average, is projected to be about $400 (or about 0.7 per cent), compared with a base case scenario. Commissioner Sloan said 'in an exercise like this, many assumptions are required and not all of the potentially important aspects can be quantified. However, the results are consistent with studies in other countries as well as previous studies in Australia, and provide a guide to the likely economic effects.'

'Migration contributes to the economy in many ways. As well as the upskilling of the workforce, economies of scale and the development of new export markets would further add to the economic benefits of migration. Environmental issues associated with a larger population would need to be managed, however', according to Commissioner Sloan.

The Commission also found that the English language proficiency of immigrants is a key factor in determining their ease of settlement and their labour market success, particularly for skilled immigrants.

Cover, Copyright, Foreword, Acknowledgments, Terms of reference, Contents, Abbreviations and Glossary, Overview

1 Introduction
1.1 Background to the study
1.2 Scope of the study
1.3 Conduct of the study
1.4 Structure of the report

2 Trends in migration
2.1 International migration flows
2.2 Australian perspective
2.3 Migration and Australia's population

3 Linking migration, population and productivity
3.1 Economic growth and living standards
3.2 Size and diversity are keys to the economic effects
3.3 Overview of migration's links to productivity and income per capita

4 The diversity of the migrant workforce
4.1 The education levels of immigrants
4.2 Immigration and the supply of labour by occupation and industry
4.3 Immigration and the working age population
4.4 Immigration and labour force participation
4.5 Immigration and unemployment rates
4.6 Immigration and working hours
4.7 Immigration and regional labour supply
4.8 Intergenerational effects
4.9 Emigration and labour supply
4.10 Projecting the effect of changes in immigration flows on labour supply
4.11 Overall assessment

5 Migration and labour productivity
5.1 Migration, human capital and productivity
5.2 What is the evidence on the labour productivity of immigrants in Australia?
5.3 The skill effect of immigration
5.4 Overall assessment

6 Scale and environmental effects of migration
6.1 Migration and economies of scale
6.2 Migration, natural resources and environmental externalities

7 Sectoral, economy-wide and distributional effects of migration
7.1 Sectoral effects
7.2 Other economy-wide effects
7.3 Distributional effects

8 Overall impact on living standards
8.1 Overall effect of migration on living standards
8.2 Why a small impact?
8.3 Comparison of modelling results

9 Impediments to productivity and economic growth from migration
9.1 Efficacy of Australia's migration program
9.2 Migration policy and skill shortages
9.3 English language proficiency
9.4 Distortions arising from the skilled migration program
9.5 Efficacy of skills assessment and recognition processes
9.6 Impediments arising from Australia's tax system
9.7 Australian emigration

A Submissions, visits and roundtable attendees

B Trends in international migration

C Australia's migration policy and flows

D Characteristics of Australia's migrants

E Labour market analysis

F Effects on labour supply of an increase in skilled migration

G Economic effects of increasing skilled migration: Modelling summary

H Detailed employment effects by occupation and region

I Referee reports on modelling

J Alternative modelling assumptions and results