Participation rate will lift us, not population

In their article about the 2021 Intergenerational Report, Peter McDonald and Jeromey Temple argue for a strong permanent immigration rate to avoid having three million temporary migrants in the country in 2061 (‘‘ IGR’s population forecasts rest on ‘brave’ migration assumptions’’ , June 29), because the latter would be “politically unsustainable” .

What is likely to be politically unsustainable is another 13 million people in the country, irrespective of whether they are native born, temporary migrant or permanent migrant. Rapid population growth brings a raft of problems such as housing unaffordability, high youth unemployment, congestion, pollution, loss of natural habitat and difficulty in achieving greenhouse reduction targets. Total GDP will rise with a bigger population but there is no guarantee it will translate into bigger GDP per capita, a better measure than total GDP of living standards.

Of the three Ps (population, productivity, participation), McDonald and Temple argue that the greatest of these is productivity. They correctly note that as we move to a more service-based economy it is difficult to achieve productivity increases, unlike manufacturing, where robotics can make a huge difference. What they fail to acknowledge, however, is that productivity falls in cities that grow past a certain size and, rest assured, our major cities will be the ones that absorb most of the extra 13 million people.

Recent research by the Australian Housing and Urban Research Institute (AHURI) has found that traffic jams and unaffordable housing are the cause of an apparent decline in economic growth and productivity in the capital cities. The report says that when workers confront growing housing expenses, households may be unable to relocate to where they can earn a better salary. At the same time, some businesses have difficulty obtaining employees or contractors they want at rates that allow them to remain competitive in a global market. Endless growth of our cities may not be such a good idea after all.

And let us not forget participation. As the percentage of people of working age declines from 6 to 2.7 people compared to people over 65 (as the IGR projected), wages will rise and people will be more inclined to join or rejoin the workforce – to participate. Perhaps in the end, of the three Ps, the greatest will be participation.

Jenny Goldie Australian Financial Review 2 July 2021

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