Forward Planning and Stability of the Australian Migration Program

155

Forward Planning and Stability of the Australian Migration Program

Harry Clarke" School of Economics La Trobe University

Abstract

Should the Australian immigration intake be forward-planned and, if so, should the resulting intake be numerically stable through time .? There are sound reasons for anticipating the effects of current intakes on future intakes and fo r basing current intakes on Australia's long- term national objectives. These policy requirements imp1.y a case for forward planning but not the need fo r a stable intake. Appropriately designed numerically unstable intakes are preferable to stable intakes because instability, while introducing adjustment costs, avoids more sign$cant losses due to reduced selectiv- ity in the entry mix.

* This article is based on Clarke (1994) which contains more information. Earlier versions have been presented to seminars at the (then) Bureau of Immigration and Popula- tion Research and at Melbourne, Monash and La Trobe Universities. I acknowledge the contribution of partici- pants at these presentations and particularly comments by Peter Lloyd. I also thank two anonymous referees. Joint- editor David Johnson made detailed, useful comments baaed on a careful reading of earlier drafts. The views here are mine.

1. Introduction

Since the early 1980s the Australian Govern- ment has formulated immigration intake decisions as annual targets. Each April or May, based on a cabinet decision and after consultations with various interest groups, it announces its annual Migration Program. This comprises targets for the various immigration entry categories that are expected (and perhaps pursued) by the authorities (DIEA') over the com- ing financial year. The program therefore involves only limited forward planning. More- over, immigration levels have recently dis- played considerable year-to-year variability. Early in 1989, the total planned intake for 1989-90 was 140 000. The planned intake for 1993-94 in early 1993 was almost half this at 78 000.

This raises two concerns:

(i) Should intakes be subject to more forward planning?

(ii) Should intakes be more stable through time?

These are distinct issues since forward planning need not imply numerical stability of intakes. The intake can be planned but still be numerically unstable. Also, plans do not need to be formulated in terms of intake numbers. They can be formulated in terms of (numerically un- constrained) entry rules. In Australia rules, rather than numerical quotas, determined 59 per cent of the 1992-93 intake mainly via the demand-driven Preferential Family subcate- gory.

156 The Aiistruliarz Economic Review 2nd Quarter 1996

In examining planning, a major issue is intake controllability. Section 2 below considers the extent to which intakes can be controlled given political economy factors, immigrant supply imbalances and supply shifts. It exam- ines the trade-offs between numerical and attribute stability of the intake given such shifts. Without control, questions of forward planning and stability are moot. Section 3 assumes controllability and looks at how it should be exercised. Two notions of planning are used: one involves use of closed-loop rolling plans and the other numerically precommitted intakes. I t is argued that there are arguments for planning to account for long-term objectives and dynamic linkages between intakes but that the case for rigid commitment to numerical rules is weak.

Section 4 provides a checklist of the costs and benefits of variability. With a family-cum- skill-based migration policy an appropriate unstable intake is preferable to a stable one even with public and private sector costs stemming from instability. There are few gainers but many losers with a commitment to stability. Section 5 makes final comments and summa- rises conclusions.

2. Intake Control

There are four reasons why control of immigration entry levels is problematic. There may be:

(i) migrant supply shortages;

(ii) problems of controlling demand-driven categories;

(iii) international migration market integration and policy interdependence; and

(iv) predetermined intakes via chain migration.

After discussing the first three of these the selection of a proximate migration target is ana- lysed. Discussion of chain migration is de- ferred to Subsection 3.2.1 since, although chain migration impacts on controllability, its main implication is the need for forward planning to account for the dynamic linkages it establishes.

2.1 Controllability with Migrant Supply Shortages

If migrant numbers alone are targeted and there is a net excess demand for entry in a quota then objectives are achievable. This sometimes oc- curs in Australia when applications exceed ac- ceptances in non-demand-driven categories.

Typically however, both numbers and some migrant attribute (for example, skills) are joint policy targets. Thus, for economic reasons, Australia may seek a certain number of migrants with literacy or technical skills. The more skilled are applicants the greater will be the demand for them globally so the aggregate demand for entry depends inversely on skill requirements. With such demands, hitting both skill level and migrant number targets may be infeasible-there may be a trade-off between skills and numbers so controllability is unach- ievable. With excess entry demands, numerical upper-bounds are achievable but with loss of control over intake skill composition.

With an excess supply of entry positions, lower-bounds on intakes may not be achievable without costly marketing programs and subsidies’ directed to sought-after migrants. Therefore, if Australia cannot gain immigrants at targeted skill/language/cultural homogeneity levels and instead substitutes those less-skilled or more culturally diverse it is not necessarily correct to see the resulting intake as reflecting ‘costs of multiculturalism’ or ‘low skills’ as Rimmer (1991) claims.’ Such outcomes are costs only if feasible alternative ‘monocultural’ or ‘high-skilled’ entrants are excluded and, if they have not been excluded, if it is known that those accepted with less-than-targeted attributes provide net social losses.

This point has relevance for analysing recent Australian experience. The current low planned intake for 1994-95 and declining skill mixes are partly a policy response to severe Australian unemployment. They are also a supply response by migrants, particularly those with attractive skills, who see current Austral- ian prospects as una t t ra~t ive .~ Admitting less- skilled alternative migrants is advantageous if they provide net economic benefit and if alternative more-skilled migrants are unavailable.

Clarke: Australian Migration Prograin 157

With an excess migrant supply having desired attributes, the control of intakes with joint numerical and skill targets is simple. Without an excess supply control can only be exercised by trading-off numbers for attributes.

2.2 Controllability of Demand-Driven Migration

The annual Australian migration intake splits into Family, Skilled and Humanitarian compo- nents and these categories into further subcomponents.’ For analysing intake controllability it is convenient to classify all subcomponents into quota-determined and demand-driven immigration. This distinction (if not the terminol- ogy) is often invoked in the literature (see Burstein, Hardcastle & Parkin 1993).

Quota-dejermined immigration involves entry, conditional on rules, but constrained by an aggregate fixed quota which can be enforced by rules independent of particular applicant attributes. Such attribute-independent rules include ‘first-in-first-served’ rules, ‘pooling’ and ‘capping’ procedures and ‘points tests’ with flexible passmarks (see Clarke 1994). These rules enable pursuit of targets with an assurance of satisfying numerical upper-bounds on entry.

An example of ‘quota-determined’ migration is the Humanitarian program involving the entry of displaced persons and refugees. An- other example is the Concessional Family sub- category. This is a class of applicants that must be sponsored by Australian relatives, satisfy health and other requirements and pass a variable passmark ‘points test’ to be accepted. Entry within this category is controlled by varying passmarks and by using rules and conditions governing entry.

Demand-driven entry is entry subject to pre- stated rules but not subject to a quota or any au- tomatic mechanism (for example, a ‘points test’) which would enable authorities to constrain the size of the intake if numbers are judged excessive. Rules must be changed to deal with unanticipated excess entry demands and normally lags arise before such changes can be made. The applicable entry rules depend on applicant attributes and not on application numbers. Subject to standard inspectiordevalu-

ation errors these attribute-dependent rules yield migrants who satisfy imposed conditions defined in terms of individual attributes.

The important Australian demand-driven component is the Preferential Family subcate- gory. This is not numerically controlled but guarantees entry to those establishing certain family connections to residents. Control of numbers here, given an excess entry demand, cannot be effected by appealing to a numerical quota-the rules specifying the relevant family ties must be changed. Most entry under the Skills category is also demand-driven in analogous terms.

The key distinction between demand-driven and quota-determined categories is the flexibility policy makers have in altering entry requirements. Both classes of applicant are ulti- mately defined by admission rules so, apart from policy lags and reduced policy flexibility for demand-driven categories, the issue of controllability seems similar in each case.

Why is there less policy flexibility for demand-driven migration? Why is i t more difficult to change attribute-related rules than numerical controls? Demand-driven categories are subject to rule changes-they have been tinkered with frequently since the Second World War (WWII) as pointed out by Lloyd ( 1993)-but these changes are constrained because:

(i) Curtailing entry within attribute- dependent categories is costly in terms of a government’s social responsibilities to residents. For example, the demand- driven Family program involves predom- inantly the sponsorship of spouses and other dependent family. Curtailing this right in a non-discriminatory way limits the rights of Australians to marry foreign- ers and reside with such persons in Aus- tralia. Provision of this right is a social re- sponsibility of government to residents. Conversely, recognition of this right con- strains the ability of authorities to restrict entry.

(ii) Changing attribute-dependent rules to restrict entry has political economy

158 The Australian Economic Review 2nd Quarter I996

dimensions. For most Australians, migration issues have low priority. For minority ethnic groups immigration is important. Therefore, for standard public choice reasons, electorally-aware politicians have a sensitivity to interest group issues out of proportion to their ‘average’ sig- nificance in the electorate. Interest groups can constrain reforms which seek more restrictive or selective entry rules by promoting electoral sensitivities. The de- pendence of Australian federal election outcomes on immigration policy is widely recognised (see Gruen & Grattan 1993). If interest group strength is strong enough then the effective power to control intakes is transferred to such groups.

(iii) Finally, changing attribute-dependent rules is complex. Community attitudes towards desired immigrant attributes (family-concerns, skills and humanitarian issues) are diverse and extreme. Prefer- ences by individuals or individual interest groups for attributes can be lexicographic (there may be an absolute preference for particular attributes6) implying that rule- design involves intractable trade-offs.

These constraints on flexibility imply less controllability. Burstein et al. (1993) argue that demand-driven categories now dominate entire immigration programs in Australia and Canada as privatised programs whose composition and scale are determined by private interest groups such as ethnic lobbies. They see the ‘targets’ formulated by immigration bureaucracies as forecasts not a reflection of discretionary policy. While there is evidence of interest group bias in the Australian program (see Lloyd 1993) the privatisation viewpoint seems exag- gerated and unsupported by evidence (see Clarke 1994, Appendix 3.1 and Subsection 3.2 below).

Most Australian entry categories can be bounded above if required and in the past have been.7 It may be difficult (for supply reasons) to attract sought-after migrants but there are al- ways rules that provide a basis for restricting entry if desired.

Policy makers may not wish to limit certain types of entry when the issue of numerical control is unimportant. Demand-driven categories such as the Independent Skills category might not be constrained because, if attribute rules are satisfied, the need to further constrain entry may not arise. Similarly, subject to standard health and visa checks, there may never be a desire to restrict tourism and temporary entry. Generally however, concern has been that migrant entry has been too large and insufficiently selective rather than too small-this is a major current criticism of the Australian program.

2.3 Migration Policy with International Interdependencies

Assessing intake controllability calls for an assessment of the international supply factors im- pinging on Australian plans. Australian migration history has for a century been strongly influenced by common ‘push’ pressures apply- ing to all ‘high migration’ countries (see Clarke 1994; Clarke & Smith 1996). Post-WWTI, the particular United States role has become important. The Australian intake has been nega- tively related to the United States intake over this period whereas the earlier relationship between different national intakes was positive reflecting dominant ‘push’ factors.’ Parkin and Hardcastle (1993) argue that large Australian intakes post-WWII have only been possible because of restrictive United States intakes. This emphasises a constraint on control possibilities from the interdependence of national policies, exogenous source country ‘push’ shocks and the primary role of United States policies.

If at the start of each plan authorities could anticipate ‘shocks’ due to policy shifts or other exogenous supply effects then, provided there remain excess migration demands within program categories, controllability is unaffected. It is the inability to anticipate such shocks in conjunction with widely-fluctuating excess demands that creates problems.

2.4 Choice o j Proximate Migration Target

On what intermediate or proximate target should immigration authorities focus? Should

Clarke: Australian Migration Program 159

the focus be on numbers within an entry category or on attributes such as skills? In a deter- ministic setting, provided entry demands are known, this choice is irrelevant. Thus, if the demand for entry curve Du in Figure 1 is known, it is irrelevant whether the proximate numerical target N , or attribute target E, is chosen. In a stochastic setting however this choice mat- ters. If numerically stable intakes are sought in the face of supply shocks (business cycle, changed policies in the United States, Canada or elsewhere) then, during recessions or periods where intakes are relaxed, rules governing entry must also be relaxed if stable numerical targets are to be met. Conversely, during booms or phases where intakes are tightened elsewhere, entry rules must be tightened if a numerically stable intake is to be pursued.

From a controllability viewpoint therefore, numerically stable intakes stemming from choice of a numerical proximate target in the face of shifting international supply conditions must imply unstable immigration rules and regulations. Conversely, stable rules in the face of supply shocks imply numerically unstable intakes. There is a trade-off between numerical stability of intakes and attribute (or composi- tional) stability given migrant supply shocks.

Figure 1 Numerical Intake Stability and Attribute Stability

attribute target E

Thus in Figure 1 Da denotes the average demand for entry, D, denotes recessionary low demands and D, denotes peak demands during cyclical booms. These demand shifts occur in response to the supply variations discussed. E denotes a migrant attribute such as points gained in an entry test (a ‘points test’). If, before demands are known, the authorities peg a numerically fixed entry number at Nu then entry scores must vary between E, and El for this market to clear-there is attribute instability. If, however, the authorities peg an entry score at E, then numbers must vary between N, and N , over the business cycle and there is numerical instability.

This reasoning, together with recognition of the proclivity of governments in post-WWII Australia to peg entry numbers, partly explains ongoing tendencies to tinker with immigration entry rules.

In nineteenth and early twentieth century Australia, when restrictions on immigration were loose and there was no attempt to ‘fine tune’ intakes, there remained substantial year- to-year variability. Clarke (1 994) argues that contemporary concern with changing international immigration markets is warranted since, just as supply-induced instability dominated earlier experience, so its role cannot be ignored post-WWII.’ The current analysis of Australian immigration needs to be made in a context of global trends, increased international integration and policy interdependence. The role of United States policies and entry levels are specifically important. l o

3. How Should the Intake Be Planned?

Supposing the intake is controllable how should it be controlled? There are several notions of planning. A plan is a statement of more-or-less flexible intention. Control engi- neers draw a distinction between precommitting and operating from a rolling plan subject to revision based on new information. One might precommit to a future time path for intakes regardless of circumstances (an open-loop plan) or be prepared to revise intakes depending on future conditions: a plan conditional on pre- vailing conditions is a closed-loop plan. Is

160 The Australian Ecoiioinic Review 2nd Quarter 1996

there a case for determining intakes in advance and how rigid should such intentions be’?

With either open- or closed-loop approaches there is a need for explicit objectives. Even with closed-loop plans the way plan revisions deal with new information rests on an under- standing of links between intakes and objectives. A difficulty in Australia is that longer- term objectives are seldom spelt out and are difficult to determine. They evidently include social objectives since about half of intakes in recent years has been Preferential Family and HumanitariadRefugee immigrants. Skilled migrants are sought presumably to bolster longer-term economic growth.

For the moment suppose given policy objectives: in 3.2 below we suggest a mechanism for uncovering objectives analogous to that proposed by the Committee to Advise on Aus- tralia’s Immigration Policies (CAAIP) ( 1988). With such objectives there are strong arguments for deciding intakes systematically using closed-loop plans. The arguments for numerical precommitment are weaker.

3.1 Plriniiing as Precominitment

Totally non-precommitted plans with policy revisions made each period are equivalent (in terms of intake effects’ ’ ) to period-by-period myopic plans of the type currently employed. There is some measure of precommitment in any meaningful forward plan. As a polar extreme to myopia strict precommitment implies setting desired intakes less frequently, for example every five years, and never revising targets even given new information.

3.1.1 The Case for Flexibility

In an obvious sense arguments for strict precommitment are weak. Even if authorities seek a stable intake (for example, 100 000 per year for five years) they are almost never worse-off renewing their commitment to this objective each year over the five-year period provided correct account is taken of the costs of varying policy. Policies may not be revised because of adjustment costs but there is the opportunity to change if desired. With open-loop policies pol-

icy maker choice is restricted because revisions are disallowed.

Taken to extremes this flexibility argument has surprising implications. Favouring flexibility, without considering costs of altering policy would suggest that, rather than moving from annual plans to those devised five-yearly, it would make sense to move to quarterly (or even monthly) plans which accounted for policy variability costs. This move would increase policy maker discretion to alter intakes. Such reformc also have stability advantages- shorter revision horizons yield more stability given external shocks than would annually based revisions. With nonlinear increasing costs many small monthly adjustments involve lower total cost than a single annual adjustment. From an adjustment cost view policy makers are better-off opting for frequently- revised rolling plans rather than rigid open- loop rules.

3.1.2 Avoiding Quick-Fixes and Policy Reputation

Policy makers are urged to ‘tie themselves to the mast’ (like Ulysses and the Sirens) for two reasons. First, to avoid the temptation of seduc- tive quick-fix policies and second, to build a reputation for policy-toughness. There is a relation between these aspects: painful, current decisions with adverse effects on citizens now may nevertheless be justified if longer-term, less immediately apparent (or ‘vivid’) costs are avoided.

Prime Minister Hawke’s decision to allow Chinese affected by the Tienneman massacre to extend Australian visas has been seen as a quick-fix inconsistent with the ‘procedural fair- ness’ principle of treating equally-deserving applicants equally. Many would have preferred a less accommodating response. The same criticism underlies policy responses to ‘boat- people’ issues: these are attempts to create a reputation for policy-toughness to discourage future illegal entry.” Reputation issues are best dealt with by a more codified legislative structure limiting discretion with respect to un- sought flexibility not via general constraints on program flexibility.

Clarke: Austruliati Migrution Progrum 161

3.1.3 Interest Group Politics

Analogously when interest group politics in- trude on immigration policy there is sometimes seen to be a case for precommitting intakes to limit lobbying gains by such groups. Again, a preferred option is to reform processes so unrepresentative interest groups do not have an undue voice. Such reforms can involve a move towards a more consultative program as suggested by CAAIP ( 1 988) and discussed in Sub- section 3.2.

3.1.4 Precomrnitted Policies us Autoinatic Stcibilisers

An argument for numerically stable intakes is sometimes devised by linking intakes to the business cycle. If immigration demand varies procyclically with the cycle (as evidence suggestsI3) and provides a net economic stimulus, it is preferable to smooth out intake peaks during booms to dampen activity and to encourage extra immigration during recessions to encourage recovery. Thus, it is argued, a numerically stable immigration time path is preferred to one less stable.

Even assuming intakes have the hypothe- sised effects, this argument however supports using them as a short-term stabilisation tool riot precommitment. Activist countercyclical immigration intakes (cutting intakes below trend in booms and boosting them above trend in recessions) would generally outperform stable intakes in promoting macro-stabilisation.

Moreover, evidence does not suggest virtue in such discretionary stabilisation: Foster (1992) finds that changes in intake size and composition have negligible macroeconomic effects so the intake used for stabilisation would be a blunt instrument that may itself become very unstable.

Finally, a strong argument for not precommitting is that Australia is a small country subject to increasing international integration. Na- tional and international business cycles, foreign migration policy changes, wars, civil disturbances and environmental disasters all have impacts on migrant supplies. These events can constrain or augment the opportuni-

ties arising for Australia in migration markets. If policy makers ignore their role then they can pursue precommitted targets only by having unstable entry rules and regulations. This type of instability imposes its own costs. The arguments for precommitting intakes are weak. There are however reasons for accounting for short-term variability costs (as discussed below in Section 4) and then using flexible rolling plans.

3.2 Planning und Longer-Term Objectives

In three senses non-precommitted forward plans are important in linking current policies to longer-term objectives: (i) they account for constraints implied by current policy on future intakes; (ii) they enable intakes to be based on long-term objectives; and (iii) they reduce planning and adjustment costs contingent on demographic uncertainty.

3.2.1 Dynamic Linkages between Intukes

Current and future migration intakes are linked via chain immigration. Migrants arriving now under quota-determined or demand-driven categories induce future migration through the Family program. Critics of such links have fo- cused on refugees with limited skills ‘seeding’ further demand-driven (and therefore often not ‘skills-tested’) migration. However the issue is broader than this: data cited in Lloyd (1993) suggests 90 per cent of migrants across the entire Australian program already have family links in Australia.

With fixed migration quotas such links mean it is inappropriate to decide intakes myopically without accounting for future arrivals contingent on current intake. If such ‘seeding’ processes are ignored future keenly-sought migrants can be ‘crowded-out’ by those less- sought.

Such dynamic linkages change the way planners must think about entry rules. Thus there has been controversy about the extent to which attributes of a principal applicant’s spouse should contribute to entry decisions. However, if applicants ‘seed’ further demand-driven migration not subject to further selection then

162 The Australian Economic Review 2nd Quarter 1996

either the entry of likely extended groups needs to be assessed at the time of the initial entry (using past chain migration experiences) or the entry rules for those ‘seeded’ need tightening.

Chain migration affects controllability because it impacts on demand-driven migration. It is also now seen to influence plans by imposing a dynamic structure on the intake process. In Clarke (1994, Appendix 2.2) the compila- tion of an Expected Future Arrivals Table is discussed as a device for analysing such trends.

3.2.2 Long-Term Objectives: Consultation and Consensus

CAAIP (1988) argued that intakes should be forward-planned because (i) adjustment costs are imposed on the private and public sectors with variability and (ii) programs should reflect long-term national objectives and community views rather than being a ‘glad bag of favours’ (op. cit. p. 3) for interest groups.

The adjustment cost rationale has been men- tioned but it was argued that such costs do not imply the need to abandon flexibility-they only imply that costs need to be correctly esti- mated (as discussed in Section 4) and incorporated into objectives.

The second rationale, namely the orientation to long-term objectives, is important. Migra- tion policies are important national policies because they determine who comprises the na- tion.“ This view lies at the heart of CAAIP’s critique ofpre- 1988 policy. It is the major issue addressed by CAAIP that has neither been incorporated into policy reform or explicitly re- jected. CAAIP thought that allowing newcomers to become Australians was valuable to both newcomers and residents. This ‘right’ however was being undervalued by policy makers, politicians and migrants alike.15 Although migration was demographically and culturally trans- forming Australia, policy was dominated by interest groups and bureaucrats and hence had become a marginal part of national thinking not reflecting important economic, social and demographic concerns.

There are two issues here: first, the role of community preferences in determining policy

and second, irrespective of this first role, desired long-term immigration objectives.

Community Preferences

Two major CAAIP criticisms of the current planning system were:

(i) although planning does involve consultations with various interest groups, these groups are unrepresentative and the consultations private;16 and

(ii) policy involves a consensus of political views around a common ideological posi- tion unsupported by general public opinion (see, for example, Betts 1988).

The interest group argument is debatable. Over recent years much Australian legislative reform has not worked for lobbyists. Instead, legislation has become more codified reducing the scope for the discretion that rewards interest group activity. Also, the source countries of major migrant communities in Australia are now not major sources of migrants-ethnic migration patterns have changed. While it can be argued that interest groups have fostered liberal policies only to be ‘caught’ by unanticipated switches in migration demands this is implausible. The government can reverse earlier policy stances given changed demands.

More plausibly however, political biparti- sanship (between Liberal and Labor parties) on migration has led to policies with elite support but with only minority general community support.17

One way to increase representativeness would be for DIEA to move toward regionally decentralised consultations with informed members of the Australian community. Public opinion could also be sampled using surveys. A conference-cum-survey approach is close to the original conception of the Immigration Outlook Conference as proposed by CAAIP (1 988, p. 104). Currently the Australian Bureau of Immigration, Multicultural and Population Research (established on CAAIP recommen- dations) does organise what it calls a National Outlook Conference but this is dominated by


the ethnic industry (bureaucrats, politicians and ethnic interest groups) whose role CAAIP sought to limit: a proposal to reconstitute this conference is developed in Clarke (1994).

Criticisms of such suggestions for increasing representativeness include that intakes may therefore fall or that it is the state’s role to ex- ercise stewardship and lead in policy formula- tion. Finally, some suggest that representative views may be difficult to elicit because open migration debates can become ‘shrill’ and dominated by ‘squeaky wheels’. These objec- tions stem partly from political value judgements concerning the importance of community preferences for policy decisions. The more substantial issue of ‘shrill’ debates and ‘squeaky wheels’ amounts to saying that sampling cannot uncover representative views because aggressive aspects of national character will limit possibilities for informed debate. This last argument seems untested. It may be that by representatively sampling, those with extreme views will isolate themselves.

It is true that determining a consensus may be costly in political and economic terms. This suggests it is appropriate to initiate the process only periodically rather than annually and limit some parameters of choice. This process would then determine broad community values leav- ing DIEA and the Federal Government to ‘fine tune’.

Objectives

The determination of long-term objectives can stem from consultations or be more or less authority-driven. While there are substantial disagreements in Australia about appropriate policies, the relevant issues to be resolved are clear. Objectives must suggest solutions to the main decision-problem, namely to decide the size of aggregate-planned intakes and their composition in terms of Family-based, Skill and Humanitarian programs. Solutions can be formulated in terms of numbers or in terms of principles underlying entry rules. This requires data on net benefits of different types of migration, on humanitarian and social concerns and critically, the case for family versus skill-based attributes. This information was provided for

the reformed Canadian program (see Immigra- tion Canada 1990) and could be provided pub- licly in Australia by DIEA.

Open public consultations make an important issue a mainstream issue reflecting general rather than particular community concerns. An incidental benefit is that if decisions reflect a consensus there is no basis for believing the program involves vote-buying and interest group politics. Then the program becomes more stable and (in CAAIP’s language) ceases to be under ‘threat’.

Irrespective of whether decisions are made openly or with major central direction and even given predominant long-term objectives there is no presumption that stable intakes will result. If, for example, the CAAIP (1 988) recom- mendations were supported-so there was a dominant skill bias in the program-then, given immigrant supply uncertainties associated with business cycle variability, desired intakes will be unstable. In short, since planning discussions and procedures can emphasise rules rather than fixed numerical targets, numerical stability may need to be sacrificed to pursue satisfactory desired attribute levels.

3.2.3 Plans and Forecasting

If plans are decided by public consultations they will be public knowledge. If, however, forward plans are made centrally or privately between government representatives and interest groups, should such knowledge be public?

There are tensions in any bureaucratic provision of plans which can be interpreted as forecasts. Bureaucracies dislike admitting policy revisions because revisions suggest error. In particular they will be uncomfortable forecasting volatile intakes. However plans have social value in assisting demographic forecasts. Even if implied forecasts are inaccurate, provided they yield better information than would other- wise be available they reduce the instability/ adjustment costs faced by these sectors by improving intake predictability.

Thus arguments exist for making forecasts available even should they be subject to revision and error. As argued in Clarke (1 994), the case for making forecast intakes available

164 The Aiistralian Ecotzornic Review 2nd Qiiurter 1996

corresponds to the case for making aggregate demographic forecasts available. Intake variability is the decisive source of uncertainty in aggregate demographic forecasting (see Shu & Khoo 1992, pp. 3-5) and improving such predictability reduces adjustment costs faced in meeting unforeseen population-induced demand tluctuations for both private and public goods.

4. Benefits and Costs of Short-Term Variability

How large are policy adjustment costs relative to the benefits of policy variability? While the case for precommitting policy is weak, we have argued a case for planning intakes on a closed- loop (or rolling plan) basis which accounts for adjustment costs, addresses CAAIP-type ob- jections and improves predictability.

Incorporating adjustment costs encourages frequent, small policy changes rather than more periodic, larger changes. Thus, these costs produce more policy tlexibility not less. With fixed (not adjustment) costs of devising policy--costs of meeting, political costs from raising divisive issues, decision calculation costs-decisions will optimally still be periodic (not continuous) with intervals between policy revisions depending on adjustment costs relative to desired adjustments.

To measure the benefits of variability a stability measure is necessary which assesses variability at different intakes. The housing industry may be concerned about intake levels (which decide housing demands) and intake variability (which determines adjustment costs in meeting demands). Would the industry prefer an average intake of 150 000 with a variance of 20 000 to an intake of 100 000 with a variance of 10 OOO? This is a non-trivial portfo- lio problem involving a trade-off between risk and numbers. To simplify analysis we generally suppose a mean intake has been prespeci- fied and then say the intake has increased stability (increased instability) if the actual intake is achieved with lower (higher) intertemporal variability (measured by lower variance).

Who then gains and who loses with increased stability in this sense and what are

the comparative gains and losses? Precise quantitative assessment is difficult" so a qualitative assessment is attempted among the various interest groups affected: politicians, bureaucracies, macroeconomic stabilisation agencies, resident immigration consumers (RMC), public and private firms supplying services to new arrivals, social welfare agencies, immigration applicants, residents in general (RIG) and international humanitarian organisations such as UNHCR. RMC are residents with an interest in family or ethnic 'reunions' while RIG are other Australian- born, who derive only indirect costs and benefits from migration. RIG include the employed and the unemployed. The impacts of increased stability depend on the identity of the affected group, the uncertainty source and the effects of intake instability on society and the economy.

4. I Checklist c?f'Guiners and Losers from Stuble Policies

To make qualitative conclusions about the relative costs and benefits of instability we make ten qualitative judgements:

(i) There are two sources of instability. Demand-induced instability reflects policy instability (unstable pull factors). Supply-induced instability reflects changed desires to migrate (push factors).

(ii) Macroeconomic stabilisation authorities will not seek a stable intake.

(iii) That while forms of precommitment are sought by Humanitarian migration groups such groups do not seek numerically stable intakes because of a preference for flexibility.

(iv) Migration bureaucracies and State governments should not attach significant costs to intake variability so they do not strongly favour stable intakes.

(v) The main interest of RIG is to recruit migrants with high skills.

Clarke: Australian Migrotion Program 165

(vi) The main concern of RMC and ethnic lobbies is a family-based program.

(vii) There are instability costs imposed on producers facing demand variability. If such costs should be offset this is best done via sector-specific policies not by policies to stabilise intakes.

(viii) With supply instability the less-skilled will seek entry during recessions. The cost of pursuing stable intakes involves sacrificing skilled for unskilled migrants imposing ongoing costs in terms of fore- gone externalities. Transitory benefits from stability reflect ‘once-and-for-all’ reduced adjustment costs. Correctly dis- counted ongoing costs exceed transitory costs.

(ix) Given average desired intakes with variable skilled supplies, residents are not worse-off by retaining options to accept the skilled when available by pursuing unstable intakes.

(x) Self-interested politicians weigh heavily the views of those who see themselves (perhaps despite contrary facts) as inten- sively affected by intakes. This implies appearing to accept less migrants during recessions to appease the unemployed and more during booms to offset labour market pressures. There is a ‘vote-buying’ case for pursuing unstable policies.

(i) above classifies the main instability sources. (ii) is valid if stabilisation authorities either know which of the two main theories re- garding migration’s economic effects (stimu- lative or contractive in the short run’’) is correct or accept Foster’s (1992) view that impacts are too small for migration to be a sta- bilker. In either case there will be no interest in using intakes as a macro-stabiliser.” Such use seems ill conceived and so is eliminated at the outset.

Humanitarian organisations seek precommitment as guaranteed future support to help coordinate relief efforts. However they also

need flexibility to meet urgent short-term needs. Such flexibility exists under current Australian programs (for example, via the Spe- cial Assistance Category and Emergency Res- cue). With international catastrophes humanitarian agencies prefer discretion but do not want unstable ‘pull’ policies.

Australian State governments have argued strongly for stable intakes (see Mathews 1992) so (ix) needs defence. It is not disputed that migration authorities and State governments can (and should) use pricing, queuing and pooling schemes to reduce instability to reduce the costs of unstable service demands. Instability costs to residents can be reduced by ‘sharing’ them with applicants. However, even if such schemes are infeasible the costs of maintaining ‘buffer staffs’ to deal with unstable intakes are small. Clarke (1994) shows the cost to State governments (the major public provider of migrant services in Australia) of maintaining a buffer to deal with intake variations of 10 000 extra migrants per year as much less than one- tenth of one per cent of total State expendi- tures. This figure is an upper bound since it (unrealistically) assumes no short-term capac- ity to vary staffing or other costly inputs in meeting shocks.

Significant instability costs which cannot be ‘shared with’ migration consumers may produce hardships for public authorities. This is not however a reason for stabilising intakes. Such costs should instead be fully funded by the Commonwealth and, as Clarke (1 994) argues, the impact of these charges accounted for when drawing up migration plans so adjustment costs are internalised by the Common- wealth and thus reflected in plans.

(v) and (vi) are uncontroversial. RIG might support a family-based program for social co- hesiveness but evidence in CAAIP (1988) suggests a preference for economics-based migration. Altruism is strongest among immediate family with selfishness characterising more distant relations. There are well-recognised benefits to all residents from having a skilled intake both from unpriced externalities in labour markets and from externalities associated with ‘spillovers’ from knowledge-based skills (see Blanchard & Fisher 1989, ch. 9).

166 The Australian Economic Review 2nd Qiiarter I996

With respect to (vii) there are significant costs of varying at short-notice the human and capital inputs used to house intakes. Boom and recession in construction are often linked to migration policy: see Silberberg (1993). There are however two reasons why such costs do not provide a convincing rationale for stabilising intakes.

First, the adjustment costs associated with demand variability stem not from intake instability per se as much as unpredictability. They can be offset by providing quality demographic forecasts to sectors affected, with predictability offsetting variability. Even without predictability it is easy to overstate such costs. Admitting immigrants during recessions to boost housing demands is a ‘tail wagging the dog’ policy. This is particularly so given a substantial supply-induced fall in skilled migration demand during recessions since then ‘skill’ needs of RMC need to be sacrificed to the housing industry. Since (by hypothesis) the same average intake is maintained over the cycle, there is also a need to tighten intakes during the next cyclical boom when more skilled immigrants would be excluded.”

Second, the sectoral economic problems require addressing with specific not general policies to avoid ‘by-product’ problems. Admit- ting less-skilled migrants to boost housing demand during recession is less effective than a fiscal expansion aimed specifically at boosting housing by, for example, increasing the supply of public housing.

(viii) and (ix) seem plausible. Skill loss costs may last a generation or more. Such costs ac- crue to residents and firms rather than firms alone (who bear adjustment costs). Both RMC and RIG lose from stabilising supply-induced variability.

A referee has suggested the desirability of checking this claim empirically. Apart from the public sector adjustment costs (which are argued to be negligible) this is difficult because both private sector costs and the skill external- ity benefits are difficult to estimate. However private sector adjustment costs (regardless of size) should not be targeted for reason (vii). Skill benefits cannot be inferred from the ‘new growth’ literature but only need to be positive

for the argument to go through. Apart from be- stowing unpaid-for human capital benefits, the skilled pay more taxes and draw less on social security in terms of unemployment (and other) benefits (see Whiteford 1991) than the unskilled.

This can be illustrated by an example involving two social groups (RMC and RIG) and a planner seeking a fixed average intake of 100 000 over two periods. Suppose because of supply factors, in period one (the ‘boom’) 200000 skilled and 400000 unskilled migrants apply for admission. Suppose that 40 000 skilled and 50 000 unskilled self-select through demand-driven categories. In period two (the ‘recession’) suppose 50 000 skilled and 200 000 unskilled apply with numbers admitted through demand-driven categories being 25 000 and 30 000. Assume independent demands for entry across periods.

If the intake is stabilised at its mean then, in both periods, 50000 skilled and 50000 unskilled are admitted. A better policy is to admit in period one 145 000 applicants of which 50 000 are unskilled and 95 000 skilled. In period two admit only the 55 000 demand-driven of whom 25 000 are skilled. With this policy all demand-driven migrants are selected as before so RMC are no worse-off. There are however now 120 000 skilled not 100 000 so both RMC and RIG are better-off in terms of skill externalities. Society is better-off since all its members are better-off and planners hit mean targets. Even if family migration demands are accepted as an imperative, society gains from the flexibility to deal opportunistically with skilled migration demands by taking those with skills as available.

With respect to (x) the skilled intake falls en- dogenously during recessions so unstable policy allows markets to work. A stable intake proceeds by increasing numbers of the less- skilled during recession. By allowing supply effects to work politicians give the appearance of pursuing unemployment concerns. More- over, irrespective of whether migration is stim- ulating or contracting, the unemployed and those worried about losing jobs during recessions will favour cutbacks in immigration and will therefore support unstable intakes. Even if


additional discretionary intake cuts are made these are stabilising provided migration does not provide a net stimulus to aggregate demand. Assumption (ii) above precludes this possibility and suggests that ‘selfish’ politicians will not act in a socially-harmful way.

4.2 Net Gains from Unstable Intakes?

The arguments above suggest that the costs of enduring an unstable intake are less than the costs of stabilising it-particularly if appropriate auxiliary policies are in place. Stabilisation authorities are either unconcerned with intake size or use the intake as a discretionary stabi- h e r thereby destabilising it. Humanitarian organisations are less concerned with instability per se than with downward revisions of intakes. Government bureaucracies experience adjustment costs with instability but these costs are small in aggregate and transitional not ongoing. Where the States do experience significant costs this reflects inadequate compensation ar- rangements from the Commonwealth since such costs should be fully internalised when the Commonwealth makes its intake plans. Pri- vate firms such as those involved in construction experience costs from instability, however actions to alleviate such costs involve sector- specific policies if they call for any policy at all. Many of the costs accruing to the private sector are predictability not instability costs and can be offset by making plans public thus removing the crucial uncertain ingredient in demographic forecasts. Finally, even ‘vote- buying’ politicians benefit from the ability to make short-term intake variations.

5. Conclusions

This study analyses two ways of thinking about the case for forward planning and stability of the Australian migration intake. One is linked to policy precommitment and the other to closed-loop rolling plans which account for adjustment costs, community preferences and the value of enhanced intake predictability. Crucial to both is the need for intake control. With supply-induced instability, stable entry rules generate numerically unstable outcomes.

Supply-induced instability with numerically stable quota-determined migration brings about an unstable intake composition in terms of migrant attributes (for example, skills) and unstable regulations. This rationalises some policy maker ‘tinkering’ and emphasises that one type of stability (numerical or composi- tional) requires sacrifice of the other.

Even with intake control there are arguments against precommitment as open-loop plans. With substantial costs of varying policy it is best to utilise closed-loop procedures which use new information rapidly and reduce the need for abrupt changes. Objectives of building a reputation for ‘toughness’ or for reducing lobbying are best met by other means. Forward plans should be rolling plans which (i) account for impacts of current policies on future policies by estimating chain immigration effects, and (ii) link policies to long-term national objectives. If CAAIP’s (1988) recommendation is adopted, information about such values needs to be determined by a public program of consultations. The extent to which a program should be ‘opened up’ depends on political values and the extent to which ‘shrillness’ and ‘di- visiveness’ can be avoided. Even with a closed debate and private consultations, planned intakes should be public knowledge even if forecasts are subject to error.

How should adjustment costs and instability benefits be incorporated into planning? If agreement is reached on a desired average intake, the remaining concern is stability. There are three issues:

(i) Adjustment costs imposed on the private sector are of concern, however they do not provide a reason for stabilising intakes. They can be offset by providing high quality demographic forecasts. Fis- cal action based on public housing ex- penditure is a better way of stabilising activity in the housing sector than migration policies.

(ii) Residents generally benefit from an appropriately designed numerically unstable program relative to a stabilised program with supply shifts in migrant

I68 The Austrdimn Ecorzotnic Revim1 2nd Quarter I996

availability. When many skilled immigrant applications are available, accept- ances should increase.

(iii) Self-interested politicians face a ‘public relations’ task during recession. They may try to appease the unemployed or those fearing job losses by appearing to cut intakes even though recession auto- matically reduces entry demands. Insta- bility reflects a supply-induced cut that would be unavoidable anyway. Further discretionary cuts are stabilising provided intakes do not boost current aggregate demands.

This article identifies a case for planning intakes on the basis of long-term objectives. Ar- guments for intake stability however are infe- rior to those supporting well-chosen unstable policies.

First version received December 1994; ,final version accepted Januuty I996 (Eds).

Endnotes

1 . The Department of Immigration and Ethnic Affairs.

2. Moreover, subsidies and marketing determine first-best optima if migrants bestow skill externalities.

3. Rimmer mainly takes these costs to be Eng- lish language training costs.

4. From 1990-91 to 1993-94 targeted independent skilled migration fell from 30 500 to 12 300 while actual outcomes in this category fell from 35 128 to 9 I7 I-a fall of 25 957. Ac- tual demand pressure for entry within this category fell from 62 208 to 26785 applications-by 43 per cent. Assuming a proportional relation between applications and successful entry, the intake outcome would have fallen to 15 125 simply because of reduced demand pressure-this is 58 per cent of the observed decline-on this basis only 42 per cent can be attributed to a decline in the rel-

evant quota. Data for this calculation were sup- plied privately by DIEA.

5 . Since April 1991 the Humanitarian program has been set separately from the Migration Program within DIEA. Humanitarian migrants are treated here as part of the Migration Pro- gram.

6. Business people may have an exclusive preference for skilled migrants, ethnic lobbies for family-oriented migrants and church groups for Humanitarian migrants. Then there need not exist an individiid choice function repre- senting preferences. Even if preferences are non-lexicographic but extreme and diverse, a social ordering will not exist for Arrow theo- rem reasons. It may be impossible to summa- rise preferences by a social welfare function in ‘points test’ form.

7. For example, in 1988 Australia reintroduced ‘balance of family’ rules restricting entry by resident’s parents. In 1992 Canada restricted the sponsorship of resident’s married children.

8. Define the immigration rate as the annual gross immigration divided by average population. From 191 1 to 1950 the simple correlation between the Australian immigration rate and the United States rate was 0.54. From 1951 to 1991 it was -0.18. Qualitative arguments supporting a close relation between United States and Australian intakes are presented in Parkin and Hardcastle (1 993). As a referee points out, the flow of Mexicans to the United States is specifically a national issue. However much of Australian and United States migration draws from common sources such as European countries. In recent years about one-third of the intake for each country comes from non- Mexican members of APEC (see Clarke 1995).

9. Clarke ( 1 994) shows that, for Australia, nor- malised measures of immigration intake stability were about as high from 1870 to 1890 as post-WWII.

10. In 199 1 the United States admitted 704 000 (legal) immigrants. The migration rate was 0.2

Clarke: Australian Migration Program I69

per cent. The corresponding figures for Aus- tralia and Canada were 109 000 and 214 000 (0.6 per cent and 0.8 per cent) respectively. Therefore, while the United States currently has low migration rates, it is still, in absolute terms, a dominant influence on migration markets.

1 1. They may not be equivalent in other terms. A forward plan even subject to extensive revision can have decisive advantages for demographic forecasting over myopic procedures. This issue is addressed further in 3.2.3.

12. Discussions of Australian policies for dealing with illegal migrants raises interdependence issues relevant to the entire program. Aus- tralian strictness relative to United States laxity in dealing with ‘illegals’ provides incentives for them to look first at the United States as a safe haven. Conversely, should United States powers be strengthened, Australian problems with ‘illegals’ may worsen.

13. Clarke (1 994, ch. 3) provides evidence over ten post-WWII business cycles that, apart from the short 1976-77 and 1985-86 contractions, entry fell off as contraction intensified, though with a lag.

14. This can be seen in two ways. Firstly, as at June I99 1 22.7 per cent of the Australian population were born overseas. This understates immigration impacts because it ignores immigrant progeny. Also in the year to June 1991 43 per cent of population growth was due to immigration.

15. CAAIP saw that over one million, mainly British people, lived in Australia without having taken out Australian citizenship and with few incentives to do so.

16. The privacy issue is as important as ‘representativeness’. If submissions were public then they would be subject to discussion and issues of interest group bias would fade.

17. Former Prime Minister Hawke agrees with the ‘thrust’ of the ‘startling hypothesis’ that

‘there has been an implicit pact between the major parties to implement broad policies on immigration that they know are not generally endorsed by the electorate, and that they have done this by keeping the subject off the political agenda’. See Hawke (1993, pp. 7-8).

18. It is even difficult to get approximate esti- mates for housing because of problems of estimating adjustment costs. Omitting such inputs is unhelpful since then economic theory suggests a profit-maximising firm prefers variable prices to prices stabilised at mean values. An approach (not pursued) would be to ask industry organisations how they rank policies with different stabilities.

19. Suppose entry demands vary procyclically so migration is contractionary and stabilising by taking the heat out of labour markets-it contributes more to aggregate supply than demand. Migration is expansionaryldestabilising if migrants are ‘big spenders’ who rapidly build up commercial or domestic durable stocks.

20. The Foster evidence is convincing. It means the intake would only be cut in response to cyclically high unemployment for public relations reasons related to the re-election prospects of politicians. The view that migration has a net contractionary effect lies behind the prevalent (if implausible) argument that intakes should be cut when there is widespread unemployment because ‘immigrants rob jobs’. The argument that immigration is expansion- ary corresponds to the Housing Industry Asso- ciation view that the intake should be ex- panded during recessions to boost demand thus reducing unemployment: see Silberberg (1993).

21. Apart from being misjudged, such policies are likely to be ineffective. If the intake is ex- panded during recessions by lowering entry standards, the additional people will not contribute much to housing demand because of their low purchasing powers. Targeting migration policy to construction is likely to be ineffective.

170 The Australian Economic Review 2nd Quarter 1996

References

Betts, K. 1988, Ideology and Immigration: Aiistruliu I974 to 1987, Melbourne Univer- sity Press, Melbourne.

Blanchard, 0. & Fisher, S. 1989, Lectures on Mucroeconornics, MIT Press, Cambridge, Massachusetts.

Burstein, M., Hardcastle, L. & Parkin, A. 1993, ‘Immigration, management control and its policy implications’, in Immigration and Rejiigee Policy: Australia and Canudu Com- pared, eds H. Adelman, A. Borowski & L. Foster, Centre for Refugee Studies, York University, & Bureau of Immigration and Population Research, Melbourne.

Clarke, H. R. 1994, The Rutionalejiw Forward Planning and Stability in the Migration Pro- gram, Report for the Bureau of Immigration and Population Research, Melbourne.

Clarke, H. R. 1995, ‘How much economic con- vergence in APEC is due to trade in produc- tive factors rather than trade in goods?’, mimeo, School of Economics, La Trobe Uni- versity.

Clarke, H. R. & Smith, L. 1996, ‘Labour immigration and capital flows: Long-term Aus- tralian, Canadian and United States experience’, International Migration Review, forthcoming.

Committee to Advise on Australia’s Immigra- tion Policies 1988, Immigration: A Commit- ment to Austruliu, AGPS, Canberra.

Foster, W. 1992, Macroeconomic Effects of Change in the Size and Composition of Aus- tralia’s Migrant Intake: Results from the Ex- tended Access Economics Murphy Model, Bureau of Immigration Research Research Paper, AGPS, Canberra.

Gruen, F. & Grattan, M. 1993, Managing Gov- ernment, Labor’s Achievements and Fail- ures, Longman Cheshire, Melbourne.

Hawke, R. J. L. 1993, ‘Launch of The Politics of Australian Immigration’, BIPR Bulletin, no. 9, pp. 6-9.

Immigration Canada 1990, Report on the Con- sultations on Immigration ,for 1991-1995, Public Affairs Branch, Department of Em- ployment and Immigration, Ottawa.

Jupp, J. & Kabala, M. (eds) 1993, The Politics cgAustralian Immigration, Bureau of Immi- gration Research, AGPS, Canberra.

Lloyd, P. J. 1993, ‘The political economy of immigration’, in The Politics of Australiun Immigration, eds J. Jupp & M. Kabala, Bu- reau of Immigration Research, AGPS, Can- berra.

Mathews, R. 1992, Immigration and State Budgets, Bureau of Immigration Research, AGPS, Canberra.

Parkin, A. & Hardcastle, L. 1993, ‘Immigra- tion policies in the USA and Canada’, in The Politics of Australian Immigration, eds J. Jupp & M. Kabala, Bureau of Immigration Research, AGPS, Canberra.

Rimmer, S. J. 1991, The Costs of Multicultur- ulism, Flinders Press, Bedford Park, South Australia.

Shu, J. & Khoo, S. E. 1992, Australia’s Population Trends and Prospects, Bureau of Immigration Research, AGPS, Can- berra.

Silberberg, R. 1993, ‘Housing Industry Associ- ation policy on immigration’, mimeo, Hous- ing Industry Association, Canberra.

Whiteford, P. 1991, Immigrants and the Social Security System, Bureau of Immigration Re- search, AGPS, Canberra.

Documents

Forward Planning and Stability of the Australian Migration Program