Skilled migration

 

  • Firms cannot themselves allow migrants in, it must be done through the government

 

3 P's Framework:

  • Population - measured by amount of working age population who are employed

  • Participation - measured by average hours worked per working person aged over 15

  • Productivity - measured by average output per unit of input

 

1. Population

  • Expected to have fall in population growth between now-2060

    • From 1.3% p.a. avg - 0.8% p.a. avg

    • Main causes is falling fertility rate and border closure during covid

 

  • Aus has an ageing population

    • By 2060, Aus 65+ are expected to make up 23% of the population/ 8.9mil ppl

    • Participation rate therefore is expected to fall 3%

  • Slowdown in population growth AND ageing population can cause:

    • Falling labour participation increase labour costs and decrease labour productivity + economic growth

    • Likelihood of skills shortages will be higher, causing capacity constraints

    • Gov finances will be under pressure as there will be lower tax receipts and higher transfers

    • Budget deficits will need to be funded leading to higher public debt

 

  • Influenced by: fertility rate, life expectancy and net overseas migration

 

2. Participation

  • Decline in participation rates accelerate the decline in economic growth + make it difficult to maintain inflation due to poor labour supply and higher labour costs

  • Would worsen if immigration rates declined

  • Leads to further deteriorations in the budget (transfers) --> higher public debt

 

3. Productivity

  • Lowered productivity rates due to declining competition, high regulatory burden, slower regulatory and economic reform, underinvestment in tech

  • Rises in productivity can somewhat offset the effects of a declining population

 

 

Target skilled migration for the 3 P's

Population

Participation

Productivity


  • Immigration aids with falling fertility rate and ageing population

 

  • Without increasing size and quality of workforce, need heavy reliance on productivity improves (SKILLED immigration) - but not enough to rely solely

 

  • Lack of well-targeted policy results in persistent capacity constraints, slowed economic growth, inflationary pressures, reduced LS


  • When immigration policy is specific and targeted, those with the most required/demanded for skills become part of Aus labour force

 

  • Contributes to rise in participation in labour market, relieving capacity constraints


  • Skilled migrants' entry is based on their ability to fill shortages

 

  • Productivity is enhanced as they perform their role better than someone with inferior skill set

 

  • Entrepreneurs also improve innovation and productivity

 

 

Impact on AD:

  • Higher population will place greater demands on society (infrastructure, general services, environment)

  • Can worsen capacity constraints in the short term but will be offset by long term gains due to greater efficiencies, productive capacity and AS

 

 

Productive capacity/AS:

  • Well targeted immigration program improves productive capacity and AS by allowing firms to increase production of G&S when they had previously been restricted

 

  • Higher QUANTITY of labour assists with alleviating capacity constraints where AD exceeds AS

  • Higher QUALITY of labour increases efficiency, so productivity increases and maximum output per unit of input rises

 

 

International competitiveness:

  • Australian relative prices to foreign competition falls due to lowered costs of production (wages, capital) --> improved IC

  • Higher productivity encourages innovation --> better quality --> higher IC

 

 

Low and stable inflation:

Demand inflation:

  • Short term increase in consumer demand and expenditure --> demand pull inflation rises as AS is unable to meet AD

 

Cost inflation:

  • New migrants will have skills required by employers --> higher labour availability and alleviated capacity constraints --> greater AS

  • Lower cost push inflation which can offset rise in demand inflation

 

 

SSEG:

Demand view:

  • Higher AD --> encourages higher national output --> higher economic growth (give supply side is able to meet demands_

 

Supply view:

  • Skill migration increases rates of SUSTAINABLE economic growth by meeting higher rates of AD that could not have previously been met

  • Without effective immigration program to offset ageing population and low fertility rates, future rates of economic growth will be restrained as a natural 'ceiling' to how much Aus can produce will be hit

 

Full employment:

  • Downward pressure on unemployment rate

 

  • Will not 'take' Australian jobs because skilled migrates who are well targeted will take jobs that are unfilled domestically --> help to restrain wage growth

 

  • Migrants will also add to AD more broadly, increasing output and a general increase in demand for labour everywhere

 

 

Living standards:

Benefits:

  • Increased diversity, tolerance, connectedness, cultures, ideas

  • Larger population and economy --> increase in real GDP

  • Larger populations mean gov programs have benefits from 'economies of scale'

  • Improvement in self-worth and moral standing in the international community by contributing resettlement of refugees

 

Costs:

  • Added strain on nation's physical and natural resources, adding to congestion and resource depletion

  • Contributes to shortages on essential goods/services (housing affordability crisis)

  • Potential pressure on social cohesion

  • Possible loss of wage growth as demand for labour falls