AVOIDING US-STYLE DEMOGRAPHIC STAGNATION: THE ROLE OF AND IN ’S POST-PANDEMIC RECOVERY

STEPHEN KIRCHNER | NOVEMBER 2020 The United States Studies Centre at the University of is dedicated to the rigorous analysis of American foreign policy, economics, politics and culture. The Centre is a national resource, that builds Australia’s awareness of the dynamics shaping America — and critically — their implications for Australia.

The Centre’s Trade and Investment Program examines trends, challenges and opportunities in the trade and investment relationship between Australia and the United States. It places the Australia-US economic relationship in the broader context of Australia’s relations with the rest of the world and promotes public policy recommendations conducive to the growth and integration of the Australian, US and world economies.

UNITED STATES STUDIES CENTRE Institute Building (H03), City Rd The University of Sydney NSW 2006 Australia +61 2 9351 7249 [email protected] USSC.EDU.AU

Research conclusions are derived independently and authors represent their own view, not those of the United States Studies Centre. Reports published by the United States Studies Centre are anonymously peer-reviewed by both internal and external experts. TABLE OF CONTENTS

Executive summary 02

Introduction 03

Demographic stagnation in the United States 06

The effect of the pandemic on Australia’s net overseas migration 11 and population growth

Scaling up managed isolation and quarantine 12

Reconnecting with COVID-free jurisdictions 13

Post-COVID migration and population policy 14

Capturing flight from Hong Kong Special Administrative Region 20

CANZUK free migration area 20

Pro-natalist policies 21

Immigration and national security 21

Conclusion 22

Endnotes 24

About the author 29

This publication may be cited as: Stephen Kirchner, “Avoiding US-style demographic stagnation: The role of immigration and population growth in Australia’s post-pandemic recovery,” United States Studies Centre at the University of Sydney, November 2020. Cover photo: Getty EXECUTIVE SUMMARY

› Even before the COVID-19 pandemic, the › Australia will experience a permanent loss United States was experiencing its weakest of population and productive potential population growth in a century, a product because the assumes no of record-low fertility and a more restrictive future make-up of lost NOM, but this is a approach to immigration. US annual policy choice that could be offset with a population growth was running at an annual more liberal approach to immigration in the rate of just 0.5 per cent. future.

› Australia’s pre-pandemic population growth › Restoring and then exceeding rate was running around three times faster pre-pandemic levels of NOM will be than the United States at 1.4 per cent. essential to economic recovery.

› Immigration and population growth have › In the short term, Australia needs to scale historically been a key source of US national up its managed isolation and quarantine power and dynamism and major drivers of capacity to be able to safely process more innovation and . But the international arrivals, which are currently Trump Administration has embarked on capped at 5,575 per week. one of the most significant tightenings in › immigration policy in US history and used While largely the responsibility of state the COVID-19 pandemic to opportunistically health authorities, there is a strong case for accelerate this anti-immigration agenda. the federal government to fund a significant scaling up of existing capacity to facilitate › Yet US public opinion on immigration has a progressive, risk-based reopening of the become more favourable, not less, over the international borders, while recovering last 25 years. In the latest polling, for the first some costs from users. time, more Americans want an increase in › immigration than a decrease. The pandemic affords an opportunity to rethink the immigration policy and › Under a zero net migration scenario, the US planning framework. The government’s population could be expected to peak at pre-pandemic reduction in the planning 333 million as soon as 2035 and then enter cap on permanent migration from 190,000 a period of absolute decline to a low of 320 per annum to 160,000 should be set aside million by 2060. indefinitely as non-binding in the short run and too restrictive in the long run. › In Australia, the October Budget assumes net overseas migration (NOM) is only › The National Population and Planning 154,000 in 2019-20 and -72,000 in 2020- Framework the government released 21, and -22,000 in 2021-22, well below the in February contains useful inter- previous peak of nearly 316,000 in the year governmental coordination and to December 2008 and the first negative transparency mechanisms. However, it is a NOM since 1946. process that risks state government capture of federal immigration policy. › As a consequence, Australia’s population growth is expected to decrease to 1.2 per › The government should link immigration cent on an annual basis in 2019-20 and just and population growth to both pandemic 0.2 per cent in 2020-21 and 0.4 per cent in recovery and national security imperatives 2021-22, the slowest growth since 1916-17. to increase public support against a backdrop of elevated unemployment.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 2 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY INTRODUCTION

“We lead the world because, unique among nations, we draw our people — our strength — from every country and every corner of the world. And by doing so we continuously renew and enrich our nation. While other countries cling to the stale past, here in America we breathe life into dreams. We create the future, and the world follows us into tomorrow. Thanks to each wave of new arrivals to this land of opportunity, we’re a nation forever young, forever bursting with energy and new ideas, and always on the cutting edge, always leading the world to the next frontier. This quality is vital to our future as a nation. If we ever closed the door to new Americans, our leadership in the world would soon be lost.” President Ronald Reagan Final speech as President of the United States, 19 January 19891

“Why are we having all these people from shithole countries come here?” President Donald Trump White House meeting with Congressional lawmakers, 13 January 20182

Even before the COVID-19 pandemic, the United little evidence for a populist groundswell against States was experiencing its weakest popula- immigration, although there is a deep partisan tion growth in a century, a product of a record- divide between Republican and Democrat voters low fertility rate and a much more restrictive on the issue. approach to immigration. US annual population In Australia, there is also little evidence from growth was running at an annual rate of just 0.5 opinion polls to suggest that the electorate views per cent in 2019. By contrast, Australia’s popula- immigration per se as a growing problem. Polls tion growth rate was running around three times by the Scanlon Foundation going back to 2007 faster at 1.4 per cent for the year ended March consistently find a majority in favour of the prop- 2020. osition that immigration is ‘too low’ or ‘about Immigration and population growth have histori- right,’ with the exception of 2010.4 The lack of a cally been a key source of US national power and clear trend in the response to this question does dynamism, as well as major drivers of innovation not suggest immigration is seen as a growing and entrepreneurship. But the Trump Adminis- problem. tration has launched one of the most significant Among developed countries, Australia scores tightenings in immigration policy in US history just below , Iceland and and used the COVID-19 pandemic to opportun- on Gallup’s Global Migrant Acceptance Index.5 istically accelerate its anti-immigration agenda. An overwhelming 88 per cent of Australians say Yet, ironically, US public opinion on immigration that their city or area is a good place for migrants has become more favourable, not less, over the to live. Only Canada, New Zealand and last 25 years. In the latest polling, for the first time, report a stronger positive response to this ques- more Americans want an increase in immigra- tion.6 The response to this question is unchanged tion than a decrease. Seventy-seven per cent of since 2010, which is yet again inconsistent with Americans say immigration is ‘a good thing for the notion that the electorate perceive immigra- this country.’3 As with public opinion on inter- tion per se as a growing problem. Politicians have national trade in goods and services, there is

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 3 likely underestimated the electorate’s tolerance is a strong case for the federal government to for immigration. The public are able to distinguish fund a significant scaling up of managed isolation between immigration as such and the problems capacity and quarantine to facilitate a reopen- caused by an inadequate public policy response ing of the international borders while recover- to population growth. That said, anti-immigra- ing some of these costs from international arriv- tion sentiment is historically correlated with the als. Managed isolation and quarantine capacity unemployment rate, so the pandemic downturn should be demand-driven, eliminating the need can be expected to weigh on pro-immigration to ration entry into Australia. Australia should also sentiment in the short term.7 Historically, nega- reopen its border to COVID-free jurisdictions tive economic shocks in the such as and the Pacific islands, as it has United States and Australia have with New Zealand, regardless of whether these TO AVOID US-STYLE been triggers for major policy jurisdictions reciprocate. DEMOGRAPHIC changes aimed at restrict- STAGNATION AND A Restoring pre-pandemic levels of net overseas ing immigration.8 However, PERMANENT LOSS migration will be essential to economic recovery. OF POPULATION the pandemic shock may be The pandemic affords an opportunity to rethink AND PRODUCTIVE exceptional in that the collapse the immigration policy and planning framework POTENTIAL, AUSTRALIA in cross-border people flows the federal government adopted prior to the NEEDS TO RESTART has dramatised their economic pandemic. The government’s pre-pandemic NET OVERSEAS benefits. MIGRATION IN THE reduction in the planning cap on permanent SHORT TERM AND With Australia’s international migration from 190,000 per annum to 160,000, CHANGE ITS APPROACH borders largely closed and reaffirmed in the October 2020 Budget, should TO IMMIGRATION AND POPULATION POLICY net overseas migration turning be set aside indefinitely. The annual budget plan- IN THE LONG TERM. negative, population growth is ning cap is unlikely to be binding in the short expected to fall to a rate of just term. It is also too small a permanent migration 0.2 per cent in 2020-21 and 0.4 program in the long term. Australia had net over- per cent in 2021-22,9 similar to the pre-pandemic seas migration around 150,000 in the late 1940s population growth rate in the United States. To and early 1950s, around 2 per cent of the resident avoid US-style demographic stagnation and a population, with a much smaller housing stock permanent loss of population and productive and public infrastructure.11 potential, Australia needs to restart net over- The National Population and Planning Frame- seas migration in the short term and change its work the government released in February approach to immigration and population policy contains useful inter-governmental coordina- in the long term. tion and transparency mechanisms. However, it In the short term, Australia needs to scale up is a process that risks state government capture its managed isolation and quarantine capacity of federal immigration policy. State govern- to be able to safely process more international ments find it easier to argue for cuts to immigra- arrivals, currently capped at just 5,575 a week.10 tion than to implement reforms to ease capac- The government has assumed that this capacity ity constraints. Australia’s demographic future is not scalable, but this is more a self-imposed should not be held hostage by the failings of state resourcing constraint rather than a problem with and local . operational or technical feasibility. While largely the responsibility of state health authorities, there

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 4 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY Getty

Australia is likely to face growing skills shortages The deterioration in the national security environ- amid increased international competition for ment associated with the rise of China also makes skilled workers. Like the temporary migration augmenting Australian national power through program, the skills-based permanent migration population growth a strategic imperative. Austral- program should be uncapped for those meet- ian policymakers should explicitly link immigra- ing its eligibility criteria, with market-determined tion and population growth to pandemic recov- wages and labour demand then regulating net ery and national security imperatives in order migration flows. Given that Australia and the to reduce the salience of parochial considera- United States are close substitutes for prospec- tions and local politics in the population debate. tive migrants, the inward turn taken by the United The early post- II approach provides States provides Australia with an opportunity to a model for pro-immigration and population tap the global talent flows that would normally growth narratives that Australian governments go to the United States. Australia should also aim could usefully emulate. to capture prospective human and investment from Hong Kong and pursue greater international labour market integration through its agreement negotiations.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 5 DEMOGRAPHIC STAGNATION IN THE UNITED STATES

Population is a key element of national power and an underrated source of national security.12 US national power and economic dynamism during the 20th century was built in large part on mass migration during the 19th century. Yet before the onset of the pandemic, the United States was experi- encing an unprecedented demographic stagnation, with population growth falling to its lowest level in a century at an annual rate of just 0.5 per cent (Figure 1). Whereas population growth in the first decade of this century averaged close to 1 per cent, in the second decade it has averaged just 0.7 per cent.13

Figure 1. Annual percentage change in the population in the United States and Australia

Australia United States

2.5

2.0

1.5

1.0

0.5

0 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

Sources: Australian Bureau of Statistics; US Census Bureau

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 6 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY Figure 2 shows the components of the recent decline in US population growth.

Figure 2. The United States’s population change and components Change from year earlier, persons, ’000s 2,500 Population change

2,000 Natural increase Net migration 1,500

1,000

500

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: US Census Bureau

After recovering from a slump due to the global financial crisis in 2008, net migration reached a peak for the current decade in 2016 before declining after the election of President Trump, while natural increase has also been in decline due to record low fertility rates. Natural increase plays a larger role in US population change than in Australia, where net migration dominates natural increase over the same period (Figure 3). Compared to the peak in the 1990s, the contribution of net migration to the growth of the working-age population in the United States fell by 60 per cent between 2010 and 2018.14

Figure 3. Australia’s population change and components Change from year earlier, persons, ’000s 450 Population change 400 350 Natural increase 300 Net migration 250 200 150 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Australian Bureau of Statistics

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 7 Figure 4 shows the total fertility rate for Australia and the United States. Both are at record lows at around 1.7. Australia’s October 2020 Budget assumes the total fertility rate falls from 1.69 in 2019-20 to 1.58 in 2021-22, with some recuperation to 1.69 by 2023-24.

Figure 4. Total fertility rate in the United States and Australia

4.0 Australia 3.5 United States 3.0

2.5

2.0

1.5

1.0

0.5

0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Sources: Australian Bureau of Statistics; Federal Reserve of St Louis FRED database

In the United States, immigration levels are campaign trail [in 2016], almost exclusively notionally set by Congress, unlike in Australia, via executive fiat, ignoring a Congress he had where immigration policy is determined by the originally pledged to work with on systemic executive. But under the Trump Administration, reform. Lawmakers, who remained grid- as in other areas of policy, the executive has locked on immigration, sat by as the admin- increasingly usurped the role of Congress. Even istration reshaped the system in ways unseen before the pandemic, the Trump Administration in decades, executing — with methodical significantly tightened immigration policy through detail — a plan to drastically narrow human- more than 400 executive orders. The Migration itarian benefits, increase enforcement, and Policy Institute summarises recent developments decrease legal immigration. in US immigration policy as follows: The arrival of the COVID-19 pandemic ‘Trump’s election brought into mainstream during Trump’s fourth year in office turbo- political discourse the previously fringe idea charged many of these efforts. It gave the that legal as well as illegal immigration is a administration an opening — in the name of threat to the United States’ economy and public health and concern for the growing security... economic crisis — to finish off many of the remaining items on its agenda, including After pledging to take one of the most activist suspending the issuance of visas to certain agendas on immigration in modern times, categories of immigrants and non-immi- the administration has delivered on nearly grants, and effectively ending asylum at the everything the president promised on the southern border.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 8 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY Because the Trump administration has Even before Trump’s executive order, caps pursued these reforms unilaterally, succes- on H-1B visas were referred to as ‘America’s sor administrations could, in theory, undo national suicide’ because of their role in ration- each change. However, by working at a ing skilled migration.19 The Trump Administra- rapid-fire pace to accomplish more than tion’s more restrictive policies have seen denial 400 policy changes on immigration…they rates increase from 6 per cent in FY 2015 to 21 may have guaranteed some longevity. It per cent in FY 2019 for new H-1B petitions for is unlikely that a future administration will initial employment.20 The rules have since been have the political will and resources to undo made even more restrictive.21 all of these changes at anywhere near a The arbitrary quantitative THE EFFECT OF similar pace.’15 cap on H-1B visas for which THIS TIGHTENING IN demand routinely exceeds IMMIGRATION POLICY The effect of this tightening in immigration policy supply makes little sense. ON MIGRATION TO THE on migration to the United States has been UNITED STATES HAS BEEN The requirement that holders dramatic. Between FY 2016 and FY 2018, appli- DRAMATIC. BETWEEN of F-1 student visas leave the cations for green cards that give foreigners the FY 2016 AND FY 2018, United States on completing APPLICATIONS FOR right to live and work in the United States fell by 17 their studies also misses the GREEN CARDS THAT GIVE per cent to their lowest number in half a decade. opportunity to capture and FOREIGNERS THE RIGHT Temporary visas are also down 17 per cent. Two of retain this newly acquired TO LIVE AND WORK IN the main pathways for entry to the United States THE UNITED STATES human capital within the are employer-sponsored H-1B visas for skilled FELL BY 17 PER CENT TO United States. At the same workers and F-1 visas for students. President THEIR LOWEST NUMBER time, refugee admissions IN HALF A DECADE. Trump’s Buy American and Hire American exec- have collapsed to the lowest utive order in 2017 introduced more restrictive level since the modern US refugee resettlement policies for both visa types.16 The executive order program began in 1980. For the FY beginning 1 explicitly linked a tighter immigration policy to the October 2020, refugee admissions have been Trump Administration’s protectionist agenda. Yet reduced to just 15,000, a record low. In previous the literature shows that previous reductions in the decades, the United States took as much as half H-1B visa cap lead to the of jobs with the world’s refugees.22 The overwhelming major- the foreign affiliates of US firms.17 ity of asylum-seekers are now denied access to 23 A 22 June 2020 executive ordering barring as the United States. many as 200,000 foreign workers and their During the pandemic, in conjunction with Canada dependants on non-immigrant H1-B and L-1 visas and Mexico, the United States has closed its was notable for its impact on the US companies border to tourists and introduced various ad hoc that rely on the employment of foreign work- travel bans and threatened to rescind student visas ers. Dany Bahar and his co-authors found that for those not attending in-person classes, threat- this order lowered the value of US Fortune 500 ening the deportation of as many as one million companies by around 0.5 per cent or US$100 foreign students. Even without these restrictions, billion. The effect was much more pronounced the prevalence of COVID-19 in the United States, for firms that had maintained or increased their along with social and political unrest has made the reliance on foreign workers during the years prior United States less attractive to prospective foreign to the order.18 Rather than increasing employ- students, workers and migrants. ment of US workers, the executive order is likely to increase the employment of foreign workers with the overseas affiliates of US firms.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 9 Migration flows have been a powerful engine of the OECD and one-third of high skilled migrants US innovation and entrepreneurship. Migrants globally.30 With the United States closing its doors account for an extraordinary share of both. and Australia potentially a close substitute for the Inflows of foreign science, technology, engineer- United States for prospective migrants along many ing and mathematics (STEM) workers explain dimensions, a more liberal approach to immigra- between 30-50 per cent of aggregate produc- tion in Australia could be expected to attract immi- tivity growth in the United States between 1990 grants either rejected or deterred from the United and 2010.24 Immigrants to the United States States. As Sherrell argues, ‘the Trump Adminis- ‘account for 37 per cent of total US innovation, tration presents the best opportunity we will ever despite only making up 16 per cent of the inven- see to present Australia as a place of welcome tor workforce.’25 One in every 11 new patents in and innovation, a place where your visa won’t be the United States is attributable to a Chinese or torn up if you have the “wrong” passport.’31 While Indian migrant in the .26 the United States has traditionally been the top Migrants account for around 27 per cent of US desired destination for the world’s 158 million entrepreneurship.27 Immigration and population potential migrants, Australia ranks equal fourth growth are also important drivers of new busi- with France, trailing Canada and (Table ness formation, particularly small business.28 1).32 With the United States tightening immigration policy, Canada is likely to take over from the United Under a zero net migration scenario, the US States as the main competitor for the top talent population could be expected to peak at 333 Australia seeks. Canada’s permanent migration million as soon as 2035 and then enter a period of program for the period 2020-22 aims to admit absolute decline to a low of 320 million by 2060.29 one million new residents, between 310,000 While zero net migration is an unlikely prospect, and 350,000 per year,33 compared to Australia’s the much more restrictive immigration policy program of only 160,000. instituted by the Trump Administration will see the United States track closer to this scenario and Australia is already second only to the United its demographic peak, while losing many of the States in attracting migrant inventors34 and has benefits of immigration and population growth. a number of bespoke visa programs designed to attract global talent. But to make the most of The United States, , Canada the opportunity presented by the United States’s and Australia normally receive around 70 per inward turn, Australian needs to liberalise and cent of high-skilled migrants to the OECD, with expand its own migration program. the United States taking close to a half share for

Table 1. Top desired destinations for potential migrants

To which country would you 2010-2012 2015-2017 Estimated number of like to move? (%) (%) adults (in millions) United States 22 21 158 Canada 6 6 47 Germany 4 6 42 France 5 5 36 Australia 4 5 36

Source: Gallup World Poll, 2015-2017

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 10 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY THE EFFECT OF THE PANDEMIC ON AUSTRALIA’S NET MIGRATION AND POPULATION GROWTH

Australia enjoyed net overseas migration of nearly 316,000 in the year to December 2008. 220,500 people in the year ended March 2020.35 The pandemic is also expected to have a nega- Permanent migration in 2019-20 consisted of tive effect on fertility rates. As a consequence, 140,366 persons, down from 160,323 in 2018- Australia’s population growth is expected to 19, with nearly 70 per cent through the skilled decrease to 1.2 per cent on an annual basis in migration program.36 Note that some permanent 2019-20 and just 0.2 per cent in 2020-21 and 0.4 migrants transition from other visa categories and per cent in 2021-22, the slowest growth since may already be resident in Australia. Temporary 1916-17.39 migration numbers are uncapped, but the stock The government’s October Budget attributes of temporary migrants in Australia is typically the reduction in population growth ‘mainly… around 1.6 million. In addition, there are normally to measures to limit the spread of COVID-19,’40 around 300,000 people in Australia on visitor although weaker economic visas who mostly do not count as temporary conditions also play a role. This migrants.37 Although temporary migrants are the AUSTRALIA WILL implies that the reduction in larger influence on the level of the population SUFFER A PERMANENT population growth is mostly in the short term, in the long run, the perma- LOSS OF POPULATION expected to come from border nent migration program has the larger influence AND PRODUCTIVE controls and other public health POTENTIAL, BECAUSE on population growth as only some temporary measures. Australia will suffer THE GOVERNMENT migrants transition to permanent migration visas. a permanent loss of popula- ALSO ASSUMES NO ATTEMPT IS MADE TO Since the mid-2000s, NOM has contributed the tion and productive potential RECOUP THIS LOST majority of Australia’s population growth. Most because the government also POPULATION GROWTH recently, NOM contributed 61.8 per cent to total assumes no attempt is made THROUGH FUTURE population growth of 1.4 per cent for the year to recoup this lost population INCREASES IN NET to March 2020.38 Australia’s estimated resident growth through future increases OVERSEAS MIGRATION. population as of the March quarter 2020 was in NOM. But this is an implied 25.7 million people. policy choice, not just a technical assumption. A more liberal approach to immigration could help Since then, pandemic-related international Australia to avoid a permanently lower popula- border closures have seen net overseas migra- tion relative to a ‘no pandemic’ counterfactual. tion collapse. The border is currently closed to all arrivals on visitor and temporary migration visas, Australia has seen a robust debate over the while in-bound flights and managed isolation and growth and level of its population over much of quarantine have limited capacity for those still its history.41 However, the pandemic has dram- able to enter Australia. Thousands of Australians atised the benefits of immigration by forcing an who want to return home are currently unable experiment with nearly closed borders. Coupled to do so. Repatriation is thus in competition with with domestic lockdowns, this has seen one of immigration for scarce inbound capacity. In the worst economic downturns in our history. To addition, Australian citizens and permanent resi- be clear, this is not to argue against these meas- dents are not allowed to depart Australia without ures, only to highlight their economic effects. authorisation. Safely reopening the international border should be a much higher priority for government as part In the October 2020 Budget, NOM is assumed to of post-pandemic recovery efforts. The govern- be only 154,000 in 2019-20 and around -72,000 ment has yet to present a strategy for reopening in 2020-21 and -22,000 in 2021-22, the lowest the border to large-scale international arrivals. since 1946 and well below the previous peak of

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 11 SCALING UP MANAGED ISOLATION AND QUARANTINE

Inbound migration is currently affected by a One option is for the federal government to combination of international and national border fund increased capacity to be provided by state controls, the increased cost and inconvenience governments, while recovering some costs from of international travel, limited airline, managed users. A more graduated, risk-based approach isolation and quarantine capacity and airport to managing international arrivals would help to closures and a global economic downturn limit costs. The government should aim to put in reducing labour demand. With the course of the place a demand-driven system that alleviates, if pandemic uncertain both domestically and inter- not eliminates, the need to ration international nationally, it remains unclear how long inbound arrivals. As things stand, the government lacks migration will be affected. However, any signifi- a strategy for safely reopening the international cant increase in international border in a way that would best contribute to arrivals during the pandemic pandemic recovery efforts. By way of compari- THE CURRENT SYSTEM will require a significant scal- son, the government spent more than $9 billion HAS INSUFFICIENT CAPACITY TO SUPPORT A ing up of managed isolation over four years on the detention and deterrence SIGNIFICANT REOPENING and quarantine. Even with of asylum-seekers at a cost of $400,000 per OF THE BORDER. THIS the current border controls person in offshore detention.42 The government IS ASSUMED TO BE in place, demand for travel has previously shown itself willing to shoulder LARGELY A RESOURCING to Australia exceeds the a substantial fiscal burden to prevent a small PROBLEM THAT CAN BE existing capacity to safely number of international arrivals in the name of ALLEVIATED THROUGH ADDITIONAL PUBLIC process international arriv- border integrity. It should be willing to shoulder FUNDING AND USER als, which is currently a similar burden to facilitate the reopening of the CHARGES RATHER THAN capped at 5,575 per week borders. AN INSURMOUNTABLE through Sydney, , OPERATIONAL PROBLEM. and . The current system has insuffi- cient capacity to support a significant reopen- ing of the border. This is assumed to be largely a resourcing problem that can be alleviated through additional public funding and user charges rather than an insurmountable oper- ational problem. While scaling up to pre-pan- demic arrival numbers may not be feasible, demand is likely to fall short of these numbers for the near term. Longer term, Australia needs to be able to safely process large-scale interna- tional arrivals from the rest of the world or be condemned to being internationally isolated for the remaining duration of the global pandemic.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 12 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY RECONNECTING WITH COVID-FREE JURISDICTIONS

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As other countries are successful in suppressing Australia should aim to join up with as many the virus, Australia should reopen its border with countries as possible in a COVID-free travel those countries as soon as possible, as it has with bubble, although the full benefits of such a New Zealand. It is not necessary for the COVID- bubble will only be realised through the suppres- free jurisdiction to reciprocate. For example, it sion of the pandemic within Australia. The ability would be desirable to open the border to travel to connect with other COVID-free jurisdictions from Taiwan and the Pacific Islands, subject to and increase inbound and outbound migration their own outbound border controls. Normal visa is an important benefit of having suppressed or conditions specifying the length of stay should be eliminated the virus domestically. relaxed to reflect return border controls. Allowing all in-bound travel from the Pacific Islands (not just as part of the Pacific Labour Scheme) would serve Australia’s strategic interests by supporting their economic resilience.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 13 POST-COVID MIGRATION AND POPULATION POLICY

Even with a scaled-up system of managed isola- viate them. The process could become a vehi- tion and quarantine, inbound migration and cle for reform-resistant state governments to other cross-border people flows are likely to be reduce inward migration rather than opening affected by concerns about the safety of travel, up, effectively fitting migration to supply-side its increased cost and inconvenience, as well policy failures in areas such as housing and infra- as depressed labour market conditions, all of structure. Land use and zoning restrictions have which can be expected to reduce the demand been particularly resistant to reform and are the for cross-border migration. fundamental cause of problems with housing In the absence of a vaccine affordability. Governments are also averse to THE AFTERMATH OF THE or a moderation in infec- introducing congestion charges that could alle- PANDEMIC AFFORDS 44 AN OPPORTUNITY TO tiousness and mortality of viate infrastructure constraints. EXPERIMENT WITH the virus, depressed migra- The National Population Planning Framework UNCAPPING THE tion levels could persist for should be used as a lever to increase pressure on PERMANENT SKILLED many years. AND FAMILY-BASED the states to reform. Instead, it risks becoming a MIGRATION PROGRAMS The pandemic and its after- process through which the states capture federal TO SUPPORT THE math should prompt a immigration policy and co-opt it to a parochial RECOVERY IN NET rethink of the government’s political agenda. For example, the NSW Govern- OVERSEAS MIGRATION. Planning for Australia’s ment used the former COAG process to argue Future Population state- for immigration to NSW to be more than halved, ment from September 2019 and the subsequent from 100,000 to 45,000. NSW Premier Gladys National Population and Planning Framework Berejiklian has hailed the new ‘bottom-up’ plan- released in February 2020. The framework ning process as ‘a huge victory.’45 proposes some useful transparency and In line with the 2019-20 Budget announcement, inter-governmental coordination mechanisms. the Planning for Australia’s Future Population Under the framework, the newly established Statement reduced the planning cap for the Centre for Population is mandated to prepare permanent migration program from 190,000 to a population plan every three years in consul- 160,000, reducing permanent migration visas by tation with state and territory governments, as 120,000 over the forward estimates. This reduc- well as release an annual population statement. tion was made even before the Framework was While originally a COAG initiative, these meas- established. The cap was reaffirmed to the Octo- ures will continue under the new National Cabi- ber 2020 Budget, although the number of Family net arrangements. Stream Places within the cap has been increased The Framework was developed to facilitate from 47,732 to 77,300 on a one-off basis for 2020- ‘managing and planning for population changes’ 21, presumably reflecting an expectation that on the assumption that ‘better population plan- skilled migration will be weaker. The refugee intake ning will help overcome capacity constraints in will be reduced from 18,750 to just 13,750 over the Australia’s biggest cities.’43 This objective will only next four years.46 In the wake of the pandemic, the be achieved if the planning process focuses on planning cap on permanent migration of 160,000 easing capacity constraints to accommodate is unlikely to be binding given expected net migra- long-term growth in immigration and popula- tion numbers. Even before the pandemic, perma- tion. The risk in such a process is that it might nent migration numbers would sometimes fall seem easier to politicians to trim population short of the federal budget’s planning cap, as was growth to fit these constraints than it is to alle- the case in 2019-20. The planning cap should be

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 14 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY set aside. Immigration policy should instead focus replacement demand as Baby Boomers exit the on rebuilding NOM and then making up for lost labour force and with a growing skew to skilled inbound migration during the pandemic to avoid occupations.47 The pandemic downturn will likely a permanent loss of population and productive reduce this demand, but labour supply will still potential. struggle to keep pace without a significant contri- bution from migration. The aftermath of the pandemic affords an opportunity to experiment with uncapping the Experience with Australia’s uncapped Temporary permanent skilled and family-based migration Work Skilled Visa program shows that skilled programs to support the recovery in NOM. The migration increases the wages of native workers skilled occupations list and other criteria for and induces native workers to specialise in occu- permanent migration visas could be maintained, pations with a high intensity of communication but without quantitative limits on visa numbers. and cognitive skills. Uptake of the visas corre- Qualitative criteria could also be relaxed while lates with economic activity, with visa numbers NOM is below pre-pandemic levels. The current self-regulating based on economic conditions. skills classifications need to be updated and It should be noted that firms are required to pay broadened in any event. foreign workers a minimum salary equal to at least that of comparable native workers.48 The skills-based permanent migration program has been used by the government to micro-man- Since the mid-1990s, Australia’s permanent age labour market imbalances. In the long run, migration program has been weighted more the government should allow the size of the heavily to skills-based than family migration. permanent migration program to self-regu- Uncapping the permanent migration program late based on current and prospective labour could see this balance shift back towards family demand and the level of wages in the targeted migration, although eligibility criteria would still skill and occupational categories. Rising wages serve to limit overall numbers. However, migra- due to shortages in segments of the labour tion policy has likely over-weighted human capi- market will attract, while falling wages reflecting tal over family and social networks in predicting excess supply will deter prospective immigrants, migrant success. At least one study comparing although the absolute level of wages relative to the experience of Asian migrants to Australia overseas may dominate wages growth in attract- and the United States suggests that migration ing prospective migrants. The market is more outcomes in the United States are better than likely to send the right signals about prospective in Australia despite, or possibly because, of the shortages or a surplus of skilled workers. The greater weight on family migration in the United temporary migration program already operates States relative to Australia.49 on this basis, albeit with a floor on wage rates. The 2019-20 Budget and the Planning for Austral- Qualitative criteria would still serve to limit over- ia’s Future Population Statement also sought to all migrant numbers, but without arbitrary caps. divert 23,000 of the planned 160,000 places in Following recovery from the pandemic, Australia the permanent migration program to regions, is likely to face skills shortages amid grow- defined as ex-Sydney--Perth-Bris- ing international competition for skilled work- bane-Gold Coast.50 The stated rationale was to ers. Pre-pandemic, additional labour demand ‘take pressure off the big capitals,’ which were through to 2024 was projected at 4.1 million job said to suffer because ‘freeways have slowed, openings, with more than half resulting from trains are sometimes at crush capacity and hous-

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 15 ing construction has not always kept pace.’51 But mentary skills. My previous United State Studies these shortfalls are domestic policy and planning Centre report, Globalisation and labour produc- failures. Curbing migration just makes these fail- tivity in the OECD: What are the implications for ures even more costly. post-pandemic recovery?, shows how open- ness, including to cross-border people flows, is Diverting migrants to the regions will only make an important driver of the level of productivity them less productive. Migrants typically enjoy in the long run. higher wage rates, reflecting higher productivity,52 than natives, but this higher productivity depends Diverting migrants to the regions and smaller on migrants being able to access the higher cities holds the migration program hostage to a paying jobs that are typically found in big cities. misdirected regionalism and regional politics that The ‘place premium’ that applies to cross-bor- is bad for national productivity growth. There are der migration likely applies to a lesser degree also questions about how the government can to internal migration.53 Migrants are attracted to enforce the diversion of migrants to the regions big cities for the same reasons as natives. People given the pull of the big cities. It is likely that are more productive and better compensated internal migration is already distorted by hous- in big cities due to agglomeration effects. Talent ing supply and infrastructure failures pushing tends to cluster in cities where migrants can take people out of cities. Mandating immigration to advantage of proximity to those with comple- the regions will at best induce substitution with internal migrants if nothing is done to alleviate these capacity constraints in big cities.

Congestion and pecuniary like higher house prices are partly a reflection of agglomera- tion effects. In net terms, it is likely there are posi- tive externalities from increased urban density. Australia’s cities are, if anything, lacking in popu- lation density. Sydney is the 99th largest urban area in the world by population but 46th in terms of land area. That puts Sydney 934th in terms of , in between those other heaving metropolises of Cuiaba in Brazil (933rd) and Krasnoyarsk in Russia (935th). Melbourne is 101st by population, 34th by land area, but only 968th by population density, equal with in Canada.54 This lack of density reflects maxi- mum density caps and other restrictions on new residential developments, such as building height restrictions.55 Housing supply needs to be liber- ated to accommodate a larger migration program and to improve housing affordability for natives. Trimming migration to fit a housing stock that is being artificially restricted by state and local

Getty governments holds Australia’s future economic development hostage to parochial politics.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 16 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY The economics of population, productivity and living standards

The long-run relationship between population an important determinant of trends in fertility and real GDP per capita is viewed somewhat and mortality rates, as well as a driver of net ambiguously by economic historians and econ- migration.59 Endogenous growth theory implies omists. There is little argument that population that population growth may also drive techni- growth and net migration have contributed to cal change, although this literature is divided on ‘extensive’ , that is, in the size whether the relationship between population of the economy. There is less agreement on their and productivity is positive or negative. Jones contribution to ‘intensive’ growth, that is, growth maintains that US and world growth is driven in real national income per capita, a widely used by research effort that is proportional to popu- proxy for average living standards. lation.60 Romer shows that ‘an increase in the labour force can reduce the rate of technological Economists have generally approached this change’ because labour scarcity drives innova- question in a growth accounting framework tion.61 The implications of Romer’s model find based on standard neoclassical growth models historical support in Habakkuk’s study of the and assumptions. The contribution popula- United States and the United Kingdom in the 19th tion makes to real output in these models is via century.62 the size of the labour force and hours worked, augmented by technology and human and phys- Another stream in the endogenous growth tradi- ical capital. Improvements in productivity are the tion maintains that population growth results in main driver of economic growth and average more generalised non-labour scarcities and living standards in the long run.56 short-run pecuniary externalities that in turn drive long-run technical change. In this tradition, Neoclassical growth models with constant the transmission mechanism from population returns to scale imply that growth in labour inputs growth to technical change is much broader and yields only transitory effects on the level of output more mundane than the research and devel- and is thus broadly neutral for long-run growth in opment (R&D) and human output per worker. However, population growth channels that have been the usual focus of the can also subtract from economic growth and endogenous growth literature. The contribution living standards to the extent that it leads to a of population growth to knowledge growth is reduction in capital per worker and thus lower difficult to measure and model and has tradi- productivity.57 There is no necessary connection tionally been neglected in favour of more tracta- between population and capital accumulation ble models and relationships. Simon,63 Simon or technology in these models. The empirical and Kuran,64 Kuznets65 and Boserup66 have cross-country growth regression literature exem- nonetheless shown a positive long-run relation- plified by Mankiw, Romer and Weil has typically ship between population growth, population found negative, though modest, effects on the density, innovation and technological change. level and growth rate of national income from This perspective is related to the observation that population growth, usually mediated through the real commodity prices tend to decline in the long steady-state capital-labour ratio and/or changes run.67 This stream of endogenous growth theory in labour force participation rates.58 suggests the possibility of a positive long-run Population may be endogenous to real GDP relationship between population and the level of per capita. The level of real GDP per capita is real GDP per capita that is at odds with the impli-

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 17 cations of standard neoclassical growth models high population growth rate...has exercised a and the empirical cross-country growth regres- negative effect on the improvement in our aver- sion literature. age living standards.’71 Jolley reached a similar conclusion in relation to immigration.72 Students of Australian economic history have for the most part neglected the long-run rela- The implications of population growth and net tionship between population and the level of per migration for per capita income has often been capita income. Most of the interest in demogra- considered in the context of contemporary policy phy on the part of economic historians has been debates, particularly in relation to the economic confined to the implications of immigration and implications of population ageing. While not the age structure of the strictly historical in focus, this modelling is often population for the business informed by historical data and calibrated on PROJECTED THROUGH cycle and the expenditure the basis of historical relationships. In contrast TO 2060, A ZERO NET 73 OVERSEAS MIGRATION composition of economic to demographers like McDonald, Guest and SCENARIO YIELDED A growth rather than the McDonald argue that a decrease in fertility could SEVEN PER CENT DECLINE determination of per capita lead to a modest improvement in future living IN REAL GDP PER CAPITA, income over time.68 Pope standards in Australia.74 Their conclusions are WHEREAS A ONE PER CENT is notable in examining specific to their simulation model, which adopts NET OVERSEAS MIGRATION the relationship between standard neoclassical assumptions, including SCENARIO YIELDED AN INCREASE OF THREE PER population growth and constant returns to scale and exogenous technol- CENT, A 10 PERCENTAGE per capita income for the ogy. The modest improvement in living standards POINT DIFFERENTIAL period 1900-30.69 Adopt- arises from the reduction in investment needed IN LIVING STANDARDS ing standard neoclassical to maintain the capital-labour ratio and the simu- BY THE END OF THE assumptions, Pope argued lation’s implication that future increases in taxes PROJECTION PERIOD. that since growth in net due to an ageing population will have only a very migration exceeded capi- small negative impact on future labour supply. tal accumulation, immigration had likely lowered McDonald and Temple present ‘a partial anal- Australia’s stock of capital per worker and thus ysis of the impact of migration on Australia.’75 productivity, increasing real GDP, but lowering The results are obtained by running the federal real GDP per capita. Pope blamed Australia’s Treasury’s Intergenerational Report (IGR) demo- historically poor per capita economic growth graphic projections through the Productiv- on immigration, arguing that Australia traded-off ity Commission’s demographic model. While living standards against a bigger population to not an economic model, their conclusions are satisfy the ‘populate or perish’ imperative. consistent with standard models and the Treas- This view has support from other economic ury’s IGR projections in arguing that ‘the impacts historians. Kuznets, although sympathetic to the of migration upon the rate of growth of GDP per view that population growth has positive implica- capita derive from the impact of migration upon tions for long-run improvements in living stand- the proportion of the population that are in the ards, also thought that a low capital-labour ratio labour force which, in turn, is determined largely was implicated in Australia’s relatively low per by the extent of population ageing.’ Immigration capita GDP growth between the 1860s and the boosts real GDP per capita, but only by increas- early post-World War II period.70 Gruen’s 1986 ing hours worked due to a slowing in popula- Shann Memorial Lecture maintained that ‘our tion ageing. This conclusion is characteristic of

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 18 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY models that limit the contribution of population per capita, whereas a 1 per cent NOM scenario growth and immigration to real GDP per capita yielded an increase of 3 per cent, a 10 percentage to the direct contribution made by labour inputs. point differential in living standards by the end of Although immigration is widely thought to have the projection period. had little or no impact on the age structure of the A common theme running through this literature population historically, McDonald and Temple is the very restricted role given to population and argue it may have some impact in the future. net migration in driving growth in real GDP and The Productivity Commission’s 2006 report real GDP per capita. This role is usually confined Economic Impacts of Migration and Population to the direct contribution of labour inputs and the Growth concluded that ‘migration has relatively role of the capital-labour ratio in driving produc- small but generally benign economic effects.’ The tivity. There are some exceptions to this approach report modelled an increase in skilled migration found in the literature. Nevile argued that popu- of 50 per cent (an additional 39,000 migrants lation growth leads to improved productivity each year for 20 years), which raised the popu- growth through the ‘Salter effect,’ named after lation level by 3.3 per cent, with real GDP per the work of Australian economist Wilfred Salter.77 person rising 0.71 per cent. The modelling for In contrast to Romer, Salter maintained that faster the Commission also assumed that immigra- population growth gives rise to a more modern tion subtracts from labour productivity due to and productive capital stock. Nevile’s approach a decrease in the capital-labour ratio. As the is otherwise conventional in maintaining that the Commission readily concedes, it is inherently Salter effect must compete with the role of immi- difficult to quantify and model factors such as gration in diluting the capital-labour ratio and the gains from trade and increased competi- productivity. tion, much less the role of innovation, so these Overall, the conclusions reached by economists considerations are omitted from the modelling. in the neoclassical tradition about the contribu- The Commission’s 2006 modelling and conclu- tion of population growth to growth in living sions do not differ substantially from the major standards reflect the trivial way in which popu- Australian studies into the economic implica- lation enters the neoclassical growth framework. tions of immigration conducted in the 1970s The endogenous growth literature provides a and 1980s, including economic modelling for much richer basis for considering the economic the 1988 Fitzgerald Committee of inquiry, which benefits of population growth, not least because concluded that ‘the positive effects of immigra- it takes the roles of innovation and entrepreneur- tion on the economy are necessarily limited. ship seriously. They can account for only a fraction of total economic growth.’76

More recently, in its 2016 report on the Migrant Intake into Australia, the Productivity Commis- sion modelled a number of net migration scenar- ios relative to a business-as-usual scenario in which NOM was held at its long-run histor- ical average of 0.6 per cent of the popula- tion. Projected through to 2060, a zero NOM scenario yielded a 7 per cent decline in real GDP

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 19 CAPTURING FROM HONG KONG SPECIAL ADMINISTRATIVE REGION

China’s increasingly repressive policies towards nies that have their regional headquarters based the Hong Kong Special Administrative Region there and might consider relocating to Australia.78 (HKSAR) are likely to see increased outward However, the new visa arrangements are mainly migration from Hong Kong on the part of its expa- focused on temporary migration. Uncapping triate population and those Hong Kongers with the permanent migration program could be international migration rights such as UK passport expected to increase the number of permanent holders. Foreign firms are also likely to reconsider visa pathways. The Australian government should HKSAR as a location for regional operations. The also follow the United Kingdom’s lead in provid- Australian government has already relaxed visa ing a permanent visa pathway to British National arrangements for Hong Kong and is seeking to (Overseas) citizens ordinarily resident in Hong attract some of the 1,000 international compa- Kong to move to Australia.

CANZUK FREE MIGRATION AREA

Pandemic border closures notwithstanding, market integration. One proposal is to create a Australia and New Zealand already enjoy largely free migration zone taking in Canada, Australia, free cross-border migration and a high degree New Zealand and the United Kingdom (CANZUK), of labour market integration. Migration flows possibly as part of a free trade zone.79 In princi- between Australia and New Zealand are self-reg- ple, such an agreement could also be extended ulating based on relative economic conditions in to the United States. Given the common language the two economies. An obvious question to ask and cultural affinity between these countries and is whether public policy should aim to extend similar occupational and other standards, there this free migration zone to other countries with a is considerable scope for cross-border labour view to capturing the benefits of greater labour market integration between these economies.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 20 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY PRO-NATALIST POLICIES

Population growth is also a function of natu- Australia’s realised fertility rates are below the ral increase, the net of births and deaths. As stated preferences of Australians for around 2.5 with other advanced, high-income economies, children, as well as self-reported expected fertil- Australia’s fertility rate has been on a declin- ity rates, pointing to the possibility of a ‘baby ing trend and is currently around 1.74 babies gap.’83 But based on international evidence on the per woman,80 slightly above the United States responsiveness of fertility to government bene- rate of 1.71, which is a record low for the United fits, the budget cost of an additional baby was States.81 The Australian government’s October estimated in 2008 at around $300,000.84 Immi- 2020 Budget assumes a decline in fertility to 1.58 gration, particularly skilled migration, is econom- in 2021-22. Economic downturns typically have ically more cost-effective than pro-natalist poli- a negative effect on fertility. Australia’s fertility cies in boosting population growth. However, rate last peaked in 2008 before the onset of the policies designed to reduce the cost of living can global financial crisis, coincident with the peak in be expected to lower barriers to family formation net migration, contributing to strong population and fertility, without a direct cost to the govern- growth in that year. The COVID-19 pandemic is ment. For example, improving housing afforda- also assumed to lower fertility, at least temporar- bility by increasing housing supply, as already ily, although with the expectation of some recu- recommended in this report, could be expected peration post-pandemic.82 to lower a significant obstacle to both preferred and realised family size at no direct cost to the budget.

IMMIGRATION AND NATIONAL SECURITY

As already noted, population is a key element of the national power of Australia’s most impor- national power, determining the size of the econ- tant alliance partner. As Andrew Carr has argued, omy and the ability to resource a defence force ‘we can no longer have two separate conversa- and foreign diplomatic presence. It is widely tions about population size and a dramatically accepted that Australia’s strategic environment worsening security environment. These issues has deteriorated in the last decade, yet this grow- need to be relinked.’85 Making the connection to ing sense of insecurity has not been matched by national security and post-pandemic recovery a desire on the part of policymakers to augment imperatives will help politicians make the case for Australia’s strategic weight through immigra- more immigration at a time when the unemploy- tion and population growth. The government ment rate is likely to remain elevated. This was an is assuming that Australia will be a permanently important element in how the government sold smaller country due to the pandemic, but this the benefits of immigration to Australians in the is partly a policy choice about the future level early post-World War II period when Australia of immigration and not just the effects of the sustained net overseas migration at an annual pandemic. rate of around 150,000. Significantly, the post- war period was also one characterised by record Demographic stagnation in the United States is a growth in the housing stock.86 threat to Australian national security by reducing

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 21 CONCLUSION

Even before the pandemic, the United States was the mid-’70s isn’t hard at all, nor is copy- suffering major demographic stagnation, with a ing long-standing German commuter-rail population growth rate at century lows. Presi- practices. These easy things feel hard only dent Trump’s draconian tightening of immigra- because we’ve become accustomed to a tion policy has seen net migration to the United political culture that can barely do anything States fall to the lowest level at all.87 in a decade. Immigration THE AUSTRALIAN In contrast to the United States, Australia has has long been a key source GOVERNMENT HAS maintained its demographic dynamism, at least of US national strength and LAUNCHED A NUMBER prior to the pandemic, with a population growth OF BESPOKE VISA dynamism. In particular, it rate around three times faster than the United PROGRAMS TO ATTRACT has been a major driver of States. The collapse in net overseas migration GLOBAL TALENT, BUT THE US innovation, technolog- as a result of the COVID-19 pandemic affords an MIGRATION PROGRAM ical leadership, new busi- SHOULD ALSO AIM TO opportunity to rethink migration and population ness formation and entre- BOOST OVERALL MIGRANT policy. The federal government has launched preneurship. Demographic NUMBERS TO RECOUP a number of bespoke visa programs to attract PANDEMIC LOSSES AND stagnation now threatens global talent, but the migration program should AVOID A REDUCTION IN the future power and pres- also aim to boost overall migrant numbers to AUSTRALIA’S LONG-RUN tige of the United States. recoup pandemic losses and avoid a reduction PRODUCTIVE POTENTIAL. Without significant net in Australia’s long-run productive potential. migration, the US population will go into outright decline as soon as 2035. The Prior to the pandemic, the government sought to changes the Trump Administration has wrought trim the permanent migration program and put in to the US immigration system are unlikely to be place a population planning process that risked significantly unwound by a new US administra- state government capture of federal immigra- tion, if only due to political inertia. tion policy. Some state governments find it easier to argue for cuts in migration than to champion Matt Yglesias, in his recent book One Billion the reforms needed to increase the capacity Americans: The Case for Thinking Bigger, reaches to accommodate increased migrant inflows. conclusions about the United States that are Instead, the population planning process should arguably also applicable to Australia: be used to leverage greater reform efforts from Letting more hardworking and talented the states. foreign-born people move here is not hard. An immediate priority is to scale up existing On the contrary, it’s keeping people out managed isolation and quarantine capacity to that’s hard. Providing financial support so facilitate an increased number of international that Americans can have as many children arrivals. The current limited capacity is a func- as they say they’d like to is a big change, but tion of limited resourcing rather than opera- there’s nothing particularly difficult about tional feasibility or public health requirements. it. Letting builders make whatever kind of A risk-based approach to processing interna- housing their customers want to buy is tional arrivals should facilitate this scaling up. The easy. Shifting economic activity to places government should also reopen the borders to where land and buildings are cheap is a COVID-free jurisdictions like Taiwan and the little more difficult, but it’s hardly a voyage to Pacific Islands, as it has with New Zealand. the moon. Copying a traffic-management paradigm that implemented in

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 22 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY Longer term, the federal government should use Selling the benefits of immigration and popula- the post-pandemic recovery period to experi- tion growth to the electorate will be made easier ment with uncapping the permanent migration if the government connects the benefits of popu- program. The skills-based program can be run lation growth to national security imperatives on a similar basis to the temporary migration arising from Australia’s deteriorating strategic program, with labour market conditions and environment. Liberating housing supply from qualitative selection criteria largely regulating existing constraints would improve housing migration flows. The family program could also affordability for immigrants and natives alike. The be uncapped subject to existing eligibility criteria. early post-World War II period, when Australia The migration program should aim to capture enjoyed net migration rates around 150,000 migration flows that might otherwise be deterred annually, provides a model in which population from the United States, as well as capturing growth was linked to economic reconstruction prospective human capital flight from Hong Kong. and national security concerns, while Austral- ia’s governments facilitated record growth in the Australia’s free trade agreement negotiations housing stock to accommodate a growing popu- should also aim to liberalise the cross-border lation. Higher rates of unemployment will make flow of labour, with a focus on creating a Cana- this narrative a harder sell in the short run but da-Australia-New Zealand-United Kingdom should be easier for governments to promote free migration zone. Greater labour mobility will as labour market conditions improve and skills complement the increased trade and investment shortages become evident. flows sought through these agreements.

UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY 23 ENDNOTES

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UNITED STATES STUDIES CENTRE | TRADE AND INVESTMENT PROGRAM 28 THE ROLE OF IMMIGRATION AND POPULATION GROWTH IN AUSTRALIA’S POST-PANDEMIC RECOVERY ABOUT THE AUTHOR

DR STEPHEN KIRCHNER Program Director, Trade and Investment United States Studies Centre

Dr Stephen Kirchner is Program Director, Trade and Investment, United States Studies Centre at the University of Sydney. He is also a senior fellow at the Fraser Institute in Canada, where he has contributed to research projects comparing public policies in Australia, Canada and New Zealand.

Previously, he was an economist with the Australian Financial Markets Association and has been a research fellow at the Centre for Independent Studies, a senior lecturer in economics at the University of Technology Sydney Business School and an econo- mist with Standard & Poor’s Institutional Market Services based in both Sydney and Singapore. He has also worked as an advisor to members of the Australian House of Representatives and .

Stephen holds a BA (Hons) from the Australian National University, a Master of Economics (Hons) from Macquarie University, and a PhD in Economics from the University of .

Acknowledgements

The author would like to thank two anonymous reviewers for comments on an earlier version of this report.

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