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For more than a decade, the Productivity Commission (PC) has debunked the common myth that immigration can overcome population ageing.

Original source: https://www.macrobusiness.com.au/2017/05/technology-not-immigration-solution-population-ageing/ 

By Leith van Onselen

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For more than a decade, the Productivity Commission (PC) has debunked the common myth that immigration can overcome population ageing. For example:

  • PC (2005): “Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”.
  • PC (2010): “Realistic changes in migration levels also make little difference to the age structure of the population in the future, with any effect being temporary“…
  • PC (2011): “…substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age… It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts”…
  • PC (2016): “[Immigration] delays rather than eliminates population ageing. In the long term, underlying trends in life expectancy mean that permanent immigrants (as they age) will themselves add to the proportion of the population aged 65 and over”.

In a nutshell, trying to overcome an ageing population through higher immigration is a Ponzi scheme.  It requires ever more immigration, with the associated negative impacts on economic and social infrastructure, congestion, housing affordability, and the environment.

The obvious question that follows is, if immigration is not the solution to the ‘problem’ of population ageing, then what is? Enter Japan, whose population is ageing quickly:

And whose labour market is tight, with Japan’s unemployment rate recently hitting a 22-year low of just 2.8% (if only Australia was so lucky!):

Rather than open the immigration spigots for a short-term fix, and in the process crush-load infrastructure and housing, Japan has instead taken the high tech route of engaging in automation. From Reuters:

Desperate to overcome Japan’s growing shortage of labor, mid-sized companies are planning to buy robots and other equipment to automate a wide range of tasks, including manufacturing, earthmoving and hotel room service.

According to a Bank of Japan survey, companies with share capital of 100 million yen to 1 billion yen plan to boost investment in the fiscal year that started in April by 17.5 percent, the highest level on record.

It is unclear how much of that is being spent on automation but companies selling such equipment say their order books are growing and the Japanese government says it sees a larger proportion of investment being dedicated to increasing efficiency. Revenue at many of Japan’s robot makers also rose in the January-March period for the first time in several quarters.

“The share of capital expenditure devoted to becoming more efficient is increasing because of the shortage of workers,” said Seiichiro Inoue, a director in the industrial policy bureau of the Ministry of Economy, Trade and Industry, or METI.

If the investment ambitions are fulfilled it would show there is a silver lining as Japan tries to cope with a shrinking and rapidly aging population. It could help equipment-makers, lift the country’s low productivity and boost economic growth…

The way Japan copes with an aging population will provide critical lessons for other aging societies, including China and South Korea, that will have to grapple with similar challenges in coming years.

 

Despite Australian commentators often labeling Japan an ‘economic basket case’, the facts do not back this assertion up. In addition to having an unemployment rate Australian workers could only dream of, as well as a relatively affordable housing market, Japan’s GDP growth per capita has been highly respectable, as it has been for most other nation’s with declining populations:

ScreenHunter_15564 Oct. 18 16.58

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In fact, economists at MIT recently found that there is absolutely no relationship between population ageing and economic decline. To the contrary, population aging seems to have been associated with improvements in GDP per capita, thanks to increased automation:

ScreenHunter_18202 Mar. 26 13.24

If anything, countries experiencing more rapid aging have grown more in recent decades… we show that since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita… on the contrary, the relationship is significantly positive in many specifications.

If Australia was truly a ‘clever’ country like Japan, it would manage population ageing by: 1) better utilising existing workers, given there is significant spare capacity in the labour market; and 2) where required resort to technological solutions.

The last thing that Australia should be doing is running a mass immigration program which, as noted many times by the PC cannot provide a long-term solution to ageing, and places increasing strains on infrastructure, housing and the natural environment.

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By Leith van Onselen

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