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Using the immigration intake to offset an aging Australian population.

April 20, 2019 - 18:18 -- Admin

The Australian population is both aging and
increasing in size.  Even with zero net
immigration the total population will not fall until after 2035. It would then revert
to around current levels by 2060. 

With net migration held between 200-280,000
the population by 2060 will increase from current levels of 25m to from
38-43m.   Without immigration the
dependency ratio – the ratio of children aged 0-14 years plus people aged 65+
to the total population – would change increase from around 52% today to
between 74% in 2060.  With net immigration
between 200-280,000 this change would be restricted to from 61-63%.  T can be seen that with very high rates of
immigration sustained for more than 40 years the proportion of non-dependent
people in the Australian population increases by around 15%.

This possibility has led ANU demographers,
such as Allen (2018), to argue for high immigration intakes to “service” the increasingly
dependent population.  

Several points:

1. The phenomenon of population aging is now
the norm globally. According to the UN (2017) Japan and virtually all of Europe
will experience population decline over the next 50 years.  China’s population will peak at 1.4 billion in
2025 and then steadily fall with its current dependency ratio of 37% growing to
70% in 2050.  India, shortly to become
the most populous country is also experiencing dramatic aging.  Africa is also experiencing rapid aging.

Globally the world’s population is aging
(UN, 2017).  In wealthy developed
countries such as Australia the aging process is running ahead of that
prevailing in some developing countries so there is likely to be a window of
opportunity for recruiting younger immigrants from such countries. But it
should not be assumed that an abundant supply of skilled younger immigrants would
continue to be accessible.

If young immigrants are only forthcoming at
much higher wages then  the  market broadening gains from immigration are
lower.

2. 
The implication of successfully seeking to stabilize our dependency
ratio using immigration in the range 200-280,000 is an increase in our
population of between 52-72% by 2060. 
The bulk of this population increase will occur in Sydney and
particularly Melbourne that will become mega-cities with populations that are
70% higher at around 8 million. Thus a relatively small change in dependency is
only achieved with a vast boost to our population sixe.

3. There are not large gains in reducing
dependency when immigration is increased from 200 to 280,000.   As the
PC (2005) argued you would need huge
rates of immigration – up to 400,000 annually – to have significant impacts on
dependency.

4. Using the immigration intake to reduce
dependency is, at best, a temporary measure since immigrants will have the similar
fertility and mortality as the resident population.  Their segment of the population will also
“age”.   It is an exaggeration to refer to the policy
as a Ponzi scheme as critics have done but the criticism has some validity.

Most importantly there are alternatives to
seeking to rely on immigration to offset the effects of increased dependency.  The demographic shift will result in
market-based adjustments as well as deliberate public policies.  

In market terms, in an aging population
with less young workers and without offsetting immigration one will observe
tighter labour markets with higher wages and less unemployment, lower returns
to capital and generally reduced values for assets such as housing, land and non-internationally
traded equity capital. Moreover these assets are primarily held by the old and
sought for purchase by the young.  Also bequests
would be shared among fewer people though, as wealth levels would fall net, so
wealth-transfer effects would be offset. 

For the young, therefore, although tax
burdens might be higher to offset the higher social security and health
benefits, there would be offsetting advantages.  Wages would be bid up particularly in the services
sector while housing costs confronting young couples seeking to form households
would be lower and the young would receive larger bequests. 

Public policies with respect to aging will
likely be driven partly by the political economy issues. In the past political
parties has pursued electoral advantage by appealing to ethnic lobbies.  However, already in the 2019 Federal election
campaign, Labor has sought advantage by appealing to the self-interest of
younger voters at the expense of the retired. 
There have already been moves to limit tax benefits from superannuation and
retirement savings and there is a bipartisan commitment on the part of the
major political parties to increase the “retirement age” (the age of
eligibility for the pension) from 65.5 to 70 years by 2035.

These policy drivers will become more
intricate as the proportion of older voters grows.  Indeed pressures might even develop from older
Australians to increase immigration intakes to boost asset values and to reduce
service costs.

Using the immigration intake to alter our
population age structure only works if we dramatically expand our population
size and, even then, it only has relatively small effects.  Much lower levels of immigration will result
in market and policy-driven responses to population aging that will mitigate
its worst effects without causing a huge increase in our population.

References
 

L
Allen, 2018, ‘Migration Helps Balance Our Aging Population – We Don’t Need a
Moratorium, The Conversation, July
23.

Productivity
Commission 2005, Economic Implications of
an Ageing Australia
, Research Report, Canberra.

R.
Smith, 2018, ‘Melbourne Population to Soar Past Sydney Within Decade”,  News Corporation Website, https://www.news.com.au/finance/economy/australian-economy/melbourne-population-to-soar-past-sydney-within-decade/news-story/e88a537f61de7b74c2897d102a40cc10,
Accessed 20 April, 2019.

United
Nations, Department of Economic and Social Affairs, Population Division (2017).
World Population Ageing 2017 – Highlights
(ST/ESA/SER.A/397).