Sat, 06 Jun 2020

Make no mistake: Migrants crucial to post-COVID-19 recovery

Independent Australia
08 Apr 2020, 16:52 GMT+10

Because Australia is a migrant settler nation, recessions here have special characteristics.

In Australian recessions, recent immigrants and temporary visa holders tend to be amongst the first to be laid off.

The design of the new job keeper payment will accelerate the sacking of most temporary visa holders, other than New Zealand citizens who can access the job keeper payment and a small number who may be able to get the job seeker payment.

All other long-term temporary entrants and possibly also provisional visa holders who cannot get a job, likely to number well in excess of a million people, will have to either depart if they can afford to or become destitute.

If only 30 per cent of long-term temporary entrants depart, net migration in 2020 would be even lower than during the Great Depression when it fell to negative 12,117 in 1931.

If 50% of long-term temporary entrants depart, Australia would experience negative population growth for the first time since 1916. The only two other years we have had negative population growth was 1795 and 1779.

Not even during the Great Depression did Australia experience negative population growth.

Current Government policy appears designed to simultaneously achieve negative population growth, exacerbating the recession and making recovery much more difficult, as well as flood Australia's charities with destitute people in numbers possibly exceeding the Great Depression.

Chart 1 shows that during the Great Depression, the fall in net migration was very closely correlated with the rise in unemployment which peaked at near 20% in 1931:

Source: ABS Cat 3105 and Dimsdale and Horsewood, The causes of unemployment in interwar Australia.

Chart 2 shows the situation for the recession of the 1980s when unemployment peaked at 10.4% in 1983-84 while net migration fell to 46,800.

Source: ABS Cat 6202 and 3101

During the early 1980s recession, the relative rise in unemployment (from around 6% to 10% and then down to still a very high 8%) and the relative fall in net migration (from 125,000 to 46,800) was not nearly as dramatic as during the Great Depression when unemployment increased from around 4% to almost 20% and net migration fell from 49,401 to negative 12,117.

Source: ABS Cat 6202 and 3101.

The correlation between rising unemployment and falling net migration was much closer during the recession of the early 1990s (see Chart 3) than during the 1980s recession. The relative rise in unemployment (from around 6% to almost 11%) and the relative fall in net migration (from 172,900 to 34,900) was much larger than during the recession of the early 1980s but not nearly as large in relative terms as during the Great Depression.

By contrast, after the Global Financial Crisis (GFC) unemployment in Australia increased from 4.2% in June 2008 to only 5.8% in June 2009 before beginning to decline.

Net migration fell from 315,690 in 2008 to 246,900 in 2009 and 172,040 in 2010 before again increasing. This was a large fall in absolute terms but a smaller fall in relative terms compared to the Great Depression and the recessions of the 1980s and 1990s. Recovery of net migration was also faster.

The other extraordinary feature of Australia's economic performance after the GFC was that, unlike most other developed nations, Australia did not experience an actual recession (two-quarters of negative GDP growth).

Unemployment increased by only 1.6 percentage points from top to bottom with a net migration decline of only 45.5% compared to:

During the early 1990s recession, a 4.8 percentage points rise in unemployment with a net migration decline of 79.8%; During the early 1980s recession, a 4.7 percentage points rise in unemployment with a net migration decline of 62.7%; and During the Great Depression, a 15.7 percentage points increase in unemployment with a 125% decline in net migration.

Another significant feature of Australia's economic performance after the GFC was that actual hours worked per month per adult aged 15+ fell from 108.1 prior to the GFC to only 103.6 before recovering.

Source: ABS Cat 6202 and 3101.

Hours worked per month per adult fell even further during the recession of the 1980s but that is likely to reflect lower female participation. By comparison, during the recession of the 1990s, this same measure fell from 106.4 to 98.9 before recovering (see Chart 4).

So what can we expect in terms of the depth of the coronavirus recession and the speed of recovery?

Three issues to consider are:

Firstly, the length and depth of the recession, and in particular the extent to which unemployment rises and average hours worked per month per adult falls, will depend not just on the length of time it takes before we overcome the virus but also on the effectiveness of the Government's support measures to keep the maximum number of people connected to their employers.

Secondly, if net migration does move significantly into negative territory, history tells us that correlates with much higher levels of unemployment, as well as larger numbers of people who become destitute. Thus a policy to force net migration down faster will make recovery all the more difficult.

Finally, the developed world will need to emerge from the coronavirus recession at a time its population is ageing rapidly (see Chart 3).

Source: UN Population Division.

The working-age to population ratio of the developed world (including China) peaked soon after the GFC. This ratio has declined significantly since that time and will steadily decline much further.

Population ageing since the GFC has contributed to slowing global economic growth and to Australia's slow growth of the last decade.

This is highlighted in the steady decline in the average hours worked per month per adult in Chart 4.

Research on population ageing confirms everything Peter Costello told us in his first two Intergenerational Reports about its impact on economic growth.

Population ageing in the developed world and in Australia will add to the challenge the Government faces in designing its recovery from the coronavirus recession.

The key will be to stop the curve in Chart 5 from falling too sharply.

Recovery from that decline can be assisted if the Government does not insist on forcing Australia to experience negative net migration and possibly negative population growth, combined with a massive increase in the number of destitute people in Australia.

Abul Rizvi is an Independent Australia columnist and a former Deputy Secretary of the Department of Immigration, currently undertaking a PhD on Australia's immigration policies. You can follow Abul on Twitter @RizviAbul.

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