Migration and the economy
How do migrants affect the economy?
Migrants contribute to economic growth by supporting consumption on the demand side of the economy. Migrants can also boost the supply capacity of the economy by growing the working age population, increasing participation rates, lifting productivity, as well as leading to increased investment by firms.
Migrants support population growth
Over the last 20 years, net overseas migration has directly contributed around 60 per cent of Australia’s population growth. As well as contributing directly to our population growth, migration has also contributed to our natural increase, because migrants coming to Australia are younger on average than the resident population, and also more likely to arrive at an age where they will have children.
Migrants help curb population ageing and increase labour force participation
Migrants tend to be younger than the average Australian. As result the migration program plays an important part in counteracting some of the negative effects of Australia’s ageing population. This includes increasing the proportion of people working and paying income tax, and reducing the proportion of people drawing on government services.
Migration improves Australia’s labour force participation rate because younger age groups (which migrants predominantly fall into) tend to have higher workforce participation rates than older age groups and many migrants are required to work by their visas. From 2000 to 2016, the Australian-born population lowered the participation rate by 2.1 percentage points, while the overseas-born more than made up for this negative effect, adding 3.6 percentage points to the labour force participation rate.
Migrants can lift the productivity of our workforce
Migrants, particularly in the skill stream, improve productivity and help businesses to source skills that are difficult to develop at short notice. In addition, the increased diversity that migrants bring is likely to play an important role in helping Australian businesses to innovate in the face of intensified global competition and technological change.
In some ways, migration mirrors trade in the benefits it can bring to an economy. In general, migrants can bring with them productive skills and preferences for goods and services that are different to those of the local born population. These differences can generate wealth that would otherwise not exist by enabling specialisation of activity and international trade in goods and services. In contrast to international trade, migration realises these benefits onshore rather than across borders. However, the gains from migration would be greater than the gain from international trade in goods and services when the migrant has access to more opportunities or resources in Australia than in their home country.1
Migrants can help lift average incomes
Because migration tends to lift labour force participation and productivity, migration helps to lift average incomes in Australia. Indeed, in the Australian context, the Productivity Commission estimated that gross domestic product per person would be around 7 per cent higher in 2060 if NOM is maintained at 0.6 per cent of population compared to a scenario with zero net overseas migration, or an average of 0.15 per cent higher growth each year.2
Fast population growth can bring challenges
This is especially true for Australia’s major cities where growth, driven by migration, has been concentrated. Concentrated population growth has created vibrant cities that attract jobs and communities and deliver innovation and productivity. But it has also heightened existing pressures on infrastructure, housing, services, communities and the environment.
It is likely that our cities will continue to grow as Australians and newly arrived migrants alike seek to take up the opportunities that Australia’s cities provide. But this population growth needs to be sustainable. It needs to occur at a rate where infrastructure and services can be put in place to match the growing population. If this does not occur, the result is increased congestion, housing pressures, pollution and lack of support and amenity. This has adverse consequences for quality of life.
1 Treasury and Department of Home Affairs, 2019, Shaping a Nation.
2 Productivity Commission, 2016, Migrant Intake into Australia