Immigration policies and the three p’s
Over the next 40 years, the number of older people of retirement age (65-84) is expected to double. This means that, as a percentage of the total population, those over 65% will increase from 13% in 2010 to 23% in 2050 and those of a working age will fall from 67% to 60%. This has negative consequences for future rates of economic growth (and living standards) because:
The three P's of Population, Participation and Productivity are considered the key drivers of sustained economic growth and improvements in longer term living standards. The relationship between the three P's and real GDP is depicted in the diagram re-produced from the Treasury documents. [The fourth Intergenerational Report will be released in 2014 but students can read the third one by clicking here]
Skilled immigration and population
Australia's ageing population has made it imperative that population growth increase in order to protect against the declines in the labour force participation rate that have already started to occur, and which are forecast to fall as low as 61% by 2050). A lower participation rate is projected to have a negative influence on Aggregate Supply, meaning that future economic growth will rely heavily on improvements that can be made to the size of the (skilled) population and the rate of productivity growth.
The rate of growth in real GDP per person over the next 40 years is expected to fall from an average annual rate of 3.3% to 2.7%. Without a well targeted immigration program to increase the size of the population and help offset falls in participation, Australia's growth in material living standards (as measured by changes in real GDP per person) will clearly by compromised.
Skilled immigration and participation
Between 2000 and 2010, Australia's labour force participation rate increased from 63.1 per cent to 65.9 per cent, with 94% of the increase accounted for by the arrival skilled migrants. Since then it has declined to 65.3% by April 2013 despite the continuing high rates of skilled immigration. This highlights the importance of immigration in helping to cushion the impact of an ageing population. Without immigration there is no doubt that Australia's participation rate would reach 61% long before 2050 as forecast in the third Intergenerational Report. This would accelerate the decline in economic growth and budget pressures that are anticipated in the future.
Skilled immigration and productivity
Skilled migrants will tend to have a positive influence on Australian rates of productivity growth because, on average, they are more likely to be higher skilled than the average Australian worker and arrive with the experience and flexibility of having worked in different environments, conditions and circumstances. By definition, their entry into Australia is primarily based on their ability to 'fill a gap' in the economy that has been created by a skills shortage. This of course helps to boost productivity if the role they perform would otherwise be left unfilled or undertaken by workers with an inferior skills set.
Whilst the government recognises the need for a larger population and the role that immigration plays, it is cognisant of the demands placed on infrastructure, general services and the environment. Accordingly, it continues to undertake longer term planning in areas like infrastructure funding and support for housing development. Importantly, it seeks to ensure that Australia's immigration program is carefully targeted such that new immigrants can help to reduce the pressures that stem from an ageing population, rather than add to them.