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Using the immigration intake to offset an aging Australian population.

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 immigration 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 increase from around 52% today to 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 size.

3. There are not large gains in reducing dependency when immigration is increased from 200,000 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).

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