Australia’s Decline in Its Economy Softened by High Immigration

Australia's Decline in Its Economy Softened by High Immigration

Australia’s economic growth has lasted 25 years without having to worry so much about the recession. It was 25 amazing years of prosperity and a badge of honour which a number of governments have tried to claim the success as their own.

A lot has been written regarding the economic reforms which occurred in the 80’s, and how important it was in setting up Australia for this quarter centure of expansion. Aside from this, the mining boom was also a great help of massive proportions.

However, the role that migration has played has often been underappreciated. A large increase in migration has greatly provided growth in the GDP, keeping the country safe out of the reach of recession. It has also hidden a very ugly secret, in spite of its record run, a lot claim that they have not felt its benefits.

Since the GFC, Australia has, in fact, seen per capita income go backwards, and it has just recovered recently.

The latest data shows that there is a small downturn in the ratio of long term arrivals to departure.

It’s a picture that misleads, though. The truth is that migration to the country is still going on at a record pace, and much of it is fired up by the ‘temporary’ migrants, as a lot of them are not even included in the data.

These temporary migrants include international workers on 457 visas, as well as working holiday and bridging visa holders, some students, all who are able to work in general, and many of whom end up living and working in Australia for good.

According to data, there were almost 2 million temporary visa holders within the country as of the 30th of September of last year, an increase which is almost 5 per cent in just a year.

And even if the visitor visa category is removed from the aggregate numbers of temporary migration, the number of temporary migrant entrants in total are at 1,608, 460, which is actually a rise of 4.3 per cent in just a year.

The overall growth in Australian population has averaged 1.7 per cent over the past 10 years, which is more than double the rate in the United States for the same time frame.

Despite all the bad press the government is getting regarding asylym seekers and boat people, there has been bipartisan support for a considerable increase in migration to

Australia for quite some time now.

The equation is not complicated at all: More individuals means that there is more economic activity which provides the government more reason to keep going on about excellent management of the economy.

However, more individuals hardly mean that the living standards of those who are already a part of the population have also risen. For those who are already here, it could possibly have a grave economic effect.

Greater competition for jobs result from the arrival of new workers, which in turn can suppress wages. The most recent data reveal that the growth in wages in the country has scored a record low of just 1.9 per cent per annum.

More people in the country also mean that the demand for scarce services and goods become harder. When there is already a narrow supply of a particular good, it could result to prices rising up.

The distortion of housing and labour markets due to population growth

The most obvious example perhaps is housing, where the prices keep rising in the 2 biggest location magnets for new migrants in the country, Melbourn and Sydney, putting them just out of the reach of a lot of first time home buyers.

Over the last 5 years, house prices in Sydney have risen more than 70 per cent

”The unemployment rate at the moment is tracking at around 5.75 per cent – that is about 0.75 per cent higher than we would consider full employment, which is 5 per cent,” Mr Gareth Aird, the Senior Economist at the Commonwealth Bank, stated. ”That means there is spare capacity in the labour market.”

”So I think if you had a lower immigration rate at a time where there is spare capacity in the labour market that is not a bad thing,” Mr Aird continued on to say.

”On top of that, we have got incredibly strong house price growth still, and if you’ve got more people you’ve got more upward pressure on house prices,” he said. ”So, at a time when house prices are still running pretty hot, some cooling in demand through lower immigration isn’t a bad thing either.”

Bigger pie, but more mouths to feed

Why do so many people feel like they are not benefitting from the country’s economic expansion? The reason, quite simply, is because they have not.

Wages have not gotten bigger, as the prices of essential goods, such as shelter, have gone up.

High migration makes it almost impossible for the country to fall into recession.

The reason why the economy of Australia keeps getting bigger is because there are now more people who are operating it. It is good for business because wages are kept generally low, and more people can buy goods. It is also good for the government because economic growth is looking far more stronger than it is.

But is it good for the ordinary workers?

As Mr Philip Low, the new governor for the Reserve Bank, stated, the role of a good economic policy should be to raise people’s standard of living and not just make the economy and the population bigger. But what is good about Australia is there is always room for improvement. And no doubt that in one way or another, we are going to figure out a way to improve the lives of everyone involved.