economics

Immigration myths demolished by economics journalist

The main justification given for Australia's current record high levels of immigration, that is that solves the Skill shortage has been disputed in a recent article by Sydney Morning Herald economics Editor Ross Gittins.

... Clearly, the Government believes high levels of skilled migration will help fill vacancies and thus reduce upward pressure on wages.

That's true as far as it goes. But it overlooks an inconvenient truth: immigration adds more to the demand for labour than to its supply. That's because migrant families add to demand, but only the individuals who work add to supply.

Migrant families need food, clothing, shelter and all the other necessities. They also add to the need for social and economic infrastructure: roads, schools, health care and all the rest.

... So though skilled migration helps reduce upward pressure on wages at a time of widespread labour shortages, immigration's overall effect is to exacerbate our problem that demand is growing faster than supply.

Whilst Gittins has shown up yet another logical flaw in the case for immigration, his own position, or at least the position as represented within this relatively short article, has its own potential logical inconsistencies.

Whether immigration should be used to depress wages, even if Gittins disputes that this is occurring, should be open to question. The picture that pro-immigration economists like to paint is of everyone's wages shooting to the stars unless immigration is ramped up dramatically. In fact, the normal effect in countries such as the US, Canada and the UK is for wages to be depressed although incomplete measures of inflation and the Gross Domestic Product (GDP), a flawed measure of prosperity, conceal much of this effect. On top of that, the averaging of incomes disguises what is happening at the bottom end of the income spectrum as the income distribution gap widens. In Australia, the resources boom further masks this effect as skilled, semi-skilled and even a few unskilled workers are in a position to obtain higher wages, but these are not spread uniformly across the community and, furthermore, incur considerable ecological cost, and a cost to future generations.

If Gittins is right and the extra demand created by meeting the need in new immigrants overcomes their counter-inflationary effect, it is, nevertheless, clearly unsustainable, that is unless the migrants are bringing with them wealth from the countries they are coming from. Even then, this can't be sustainable in the longer term once that wealth is consumed. All this demonstrates that the economic case against immigration can be problematic, although not anywhere near as problematic as the economic case for immigration.

However, the case against immigration on the grounds of its effects on housing affordability and, more critically, on our environment are far more clear and indisputable. On housing, Gittins writes:

The wonder of it is that, despite the deterioration in affordability, house prices are continuing to rise strongly almost everywhere except Sydney's western suburbs.

Why is this happening? Probably because immigrants are adding to the demand for housing, particularly in the capital cities, where they tend to end up.

They need somewhere to live and, whether they buy or rent, they're helping to tighten demand relative to supply. It's likely that the greater emphasis on skilled immigrants means more of them are capable of outbidding younger locals.

In other words, winding back the immigration program would be an easy way to reduce the upward pressure on house prices.

The role immigration plays in ratcheting up housing costs has been understood by property speculators for years. That is why they openly lobby the Federal Government for higher immigration.

On the environment, Gittins shows that immigration must necessarily add to Australia's Greenhouse gas emissions as most immigrants were coming form countries with lower ecological footprints and lower.

The other great cost only implied in this article, is the sheer destruction of our ecological life support system. The clearing of farmland and bushland for housing and the excessive demands upon our natural resources including fresh water, made necessary by continued population growth threaten to turn this country into a barren desert within decades at most.

Gittins concludes:

... leaving aside the foreigner-fearing prejudices of the great unwashed, the case against immigration is stronger than the rest of us realise - and stronger than it suits any Government to draw attention to.

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