Immigration as a Supply Side Policy.

Nature and Purpose of Immigration Policy• Immigration occurs when people enter and

settle in a country where they are not a native• Australia’s immigration policy is a strategic

supply-side approach to managing the number and composition of migrants coming to Australia from overseas.

• In recent years Australia’s immigration policy has emphasised the building of our nation.

Nature and Purpose of Immigration Policy

• Immigration policy is an essential part of the Federal Government’s strategy to increase the supply side of the economy and boost ‘sustainable economic growth rate’.

• Immigration adds to the pool of available labour resources.

• With more labour resources businesses will be able to expand their levels of production and increase their knowledge base.

Immigration Targets

• Each year the government sets immigration targets and bases entry on a number of criteria that are determined to meet Australia’s needs and interests.

• Migrants are selected under three basic schemes:1. Skilled Migration – next slide2. Family – selected based on a relationship to sponsor

in Australia3. Special and Humanitarian – generally refugees who

have been subjected to persecution or discrimination in their home country.

Skilled Migration

• Skilled migrants make up to about 70% of the total annual intake of immigrants.

• There are three categories of skills migration:– The general skilled migration category involves the immigration of

independent migrants who ‘are selected on the basis of their occupation, age, skills, qualifications, English language, ability and employability so that they can contribute quickly to the Australian economy’ (under 45)

– The Business Skilled Migration category seeks to ‘attract migrants with a proven track record of success in business or investment who will use their skills and experience by engaging in business or investment activities in Australia’

– The Employer Nomination category allows the employer to nominate a person with relevant skills or focus on attracting skilled immigrants to regional and low population growth regions.

Skilled Migration

• People with skills in professions where the government feels there are perceived skill shortages are given preference in the skilled migration categories.

• Professions with skill shortages include:– IT manager– Accountant– Architect– Medical professionals– Engineers– Most trades

Skill Shortages in Australia

• The ageing of the population and the strong economic growth as a result of the mining boom has created capacity constraints in the economy.

• When there are capacity utilisation pressures in the economy, the level of economic growth is restricted and inflationary pressures are more likely to arise.

• Immigration can increase the pool of labour resources to try and ease these capacity constraints.

Ageing Population

• Australia has an ageing population. • This means that a growing proportion of the

population is in older age groups nearing or beyond retirement.

• If no action is taken to correct the ageing of the population, perhaps through immigration, serious economic problems will arise.

Ageing Population

• The proportion of working age people is projected to fall, with only 2.7 people of working age to support each Australian aged 65 years and over by 2050 (compared to 5 working aged people per aged person today and 7.5 in 1970).

• The ageing of the population will see the number of people aged 65 to 84 years more than double and the number of people 85 years and over more than quadruple.

• Ageing of the population reflects the effects of a decline in fertility rates which commenced in the 1960s and increasing life expectancy

Ageing Population• The ageing of the population is the major factor

driving the slowing in economic growth. • As the proportion of the population of traditional

working age falls, the rate of labour force participation across the whole population is also projected to fall.

• The labour force participation rate for people aged 15 years and over is projected to fall to less than 61 per cent by 2049–50, compared with 65 per cent today.

Labour Force Size

Ageing Population• Population ageing will create substantial fiscal pressures.• Slower economic growth associated with ageing, increased

demand for age-related payments and services, expected technological advancements in health and demand for higher quality health services will add to these pressures.

• Ageing and health pressures are projected to result in an increase in total government spending from 22.4 per cent of GDP in 2015–16 to 27.1 per cent of GDP by 2049–50.

• As a consequence, spending is projected to exceed revenue by 2¾ per cent of GDP in 40 years time.

Ageing Population

• Immigration contributes to population growth and tends to reduce the rate of population ageing since migrants are younger on average than the resident population.

• Currently, around 89 per cent of migrants are aged less than 40 when they migrate to Australia.

• This compares with around 55 per cent for the resident Australian population.

Impact of Immigration on Sustainable Eco Growth

• Immigration increases the quantity and quality of our labour resources.

• More labour resources means that businesses can produce more, increasing our productive capacity and Aggregate Supply.

• Immigrants also bring their acquired skills and knowledge which can facilitate the growth in lead and innovation which may lead to productivity improvements.

• More labour resources and higher productivity leads to an increase in AS, leading to higher levels of economic growth without inflation

Impact of Immigration on Low Inflation

• In addition to the analysis set out regarding sustainable economic growth, immigration can also help relieve other cost inflationary pressures.

• By using immigration to address skill shortage it is possible to reduce wage inflation pressures which may cause cost inflation.

• HOWEVER, most immigrant workers bring with them a family who will not participate in the labour force.

• The increased population adds to AD, which may actually result in demand inflation pressures.

Impact of Immigration on Full Employment

• The government only approve skilled migration where there is a skill shortage so they are not taking the jobs of locals.

• In 2009 the government cut back the immigration of Accountants from 9000 to 6000 due to less employment as a result of the GFC

• However, some have suggested that the government has relied heavily on skilled immigrants at the expense of the structurally unemployed.

• Lack of spending on training and vocational education due to quick fix immigration

Immigration can improve living standards because:

• Increases the pool of available labour resources making it easier for businesses to expand. Helps to address the ageing population problem and promotes growth in real incomes.

• A more competitive economy may help lower unemployment and inflation

• Increases knowledge from immigrants• Increased connections with overseas markets

resulting in increased incomes and employment• Increases the tax base for the government to

provide essential services

Immigration can reduce living standards because:

• Leads to more rapid depletion of natural resources, increased population places greater demands on existing water supplies and land needed for housing and the growth of food.

• Increases Australia’s greenhouse gas emissions• Increases waste and the need to store it.• Increased road and rail congestion as infrastructure is

not increased in line with population growth• Likely increase in house prices and rent, therefore

adding to the housing affordability problem in Australia• Possible increase in social tension as immigrants

assimilate into society.