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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Immigration and the government's economic goals

By boosting aggregate supply or productive capacity of the economy, immigration will help to increase rates of sustainable economic growth as discussed earlier.  Without an effective immigration program to help offset the negative impact from an ageing population, future rates of growth will no doubt be lower.  

The extent to which demand inflationary pressure (coming from the added demand for goods and services by immigrants) is outweighed by the supply side benefits (coming from the addition to supply and productive capacity) depends on the nature of any immigration program.  Given that Australia's emphasis is primarily biased towards skilled migration (rather than humanitarian or family), it is likely that current immigration will help to reduce inflationary pressure over time, thereby assisting with the government's goal for low inflation.

With respect to Full Employment, Australia's targeted program will tend to place downward pressure on the unemployment rate.  This despite the contention made by many observers (such as the union movement) that 'immigrants take Australian jobs.'  Skilled migrants will take jobs that are largely unfilled and therefore help to restrain growth in wages and costs, which helps to maintain relatively low prices and create demand and employment for others.  In addition, all migrants will add to Aggregate Demand (e.g. via the demand for food, clothing and shelter), increasing output and creating an increase in the demand for labour and employment.   The relationship between skilled immigration and unemployment statistics can be seen the chart below, which supports the contention that skilled immigration has helped to reduce the unemployment rate in Australia since the late 1990s.

Given the current focus of Australia's immigration program, with an emphasis on skilled immigration, arguably the effect on the government's goal for greater equity in the distribution of income is a favourable one.  Given that immigration helps to maintain stronger rates of economic growth, employment and incomes, the average Australian is likely to be made better off.  With lower unemployment rates, the reliance on welfare falls and the incidence of absolute poverty should decrease.  In addition, lower inflation will also assist lower income earners relative to higher income earners.  

Immigration should also have net benefits for external stability.  This is related to the ability of an effective immigration program to boost aggregate supply levels, alleviate capacity constraints and reduce inflationary pressure in the economy.  With lower rates of inflation, Australia's international competitiveness improves, boosting net exports and reducing pressure on the CAD and NFD (and/or net foreign liabilities).  The increased connectedness with overseas markets can also directly boost exports.  However, this is likely to be constrained somewhat by the higher propensity for import spending by immigrants.

Skilled immigration and unemployment since 1997-8

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