Why are NSW bureaucrats calling for a radical surge in immigration? Here’s their economic logic

Did you hear that senior bureaucrats in New South Wales are pushing for an aggressive surge in immigration?

They say Australia should welcome 2 million migrants over the next five years, at roughly 400,000 people a year.

They say we need to make up for the lost population growth we experienced during the pandemic.

Why would they push for something so extreme?

I’ll show you where the logic comes from.

The ‘three Ps’

Economists have competing theories about where economic growth comes from.

But one school of thought, which has been embraced by Australia’s Treasury officials, says growth originates from three sources:

• Population
• Participation
• Productivity

Together, they’re called the “three Ps.”

According to the theory, the larger your population, and the more people who participate in your labour force, the more workers you have.

And the more productive they are, the more they can produce over time.

Those three factors determine your economy’s long-run potential growth rate.

If you can lift the trend rate of growth of any of them, you’ll lift the potential growth rate of the economy itself.

But when you learn to think in those terms, it’s not long before you start to wonder how you might play around with those “three Ps” to engineer growth.

For example, what if you kept population and participation steady, but you cranked up productivity?

The thought experiments can be fun.

But let’s get a bit more serious.

If three Ps become two?

Economists have been wondering if Australia is getting close to hitting the growth limit of one of those Ps: Participation.

See the graph below.

Since the late 1970s, the proportion of all working-age people who participate in the labour force has increased from roughly 60 per cent to a recent high of 66.3 per cent.

It’s been driven by huge numbers of women entering the workforce, as the old male breadwinner model of the post-war economy was abandoned.

But how much higher can that participation rate go?

It’s taken more than 40 years to increase 6 percentage points. Are we nearing its natural limit?

If so, the consequences could be significant.

It means we won’t be able to boost the long-term growth rate of the economy by lifting the participation rate any higher. That lever is exhausted.

So, let’s turn to productivity.

If two Ps become one?

Productivity is very important.

It’s difficult to measure, but economists say it’s the key driver of long-term improvements in our material standard of living.

It’s a measure of the rate at which goods and services can be produced for each unit of input (labour, raw materials, capital etc).

According to the Productivity Commission, the average Australian worker produces about as much in one hour today as it took a full day’s work to produce at Federation in 1901.

It says this improvement in productivity has allowed incomes to rise even while working hours have fallen and Australian households have been able to enjoy more leisure.

However, officials say our productivity performance has recently become woeful.

They say in the decade before COVID-19 hit our shores, Australia experienced the slowest per person growth in incomes, and output, in sixty years.

They say the consequences of the slow growth in productivity can be seen in what’s happened to households.

They say gross national income (GNI) per person grew strongly between 1999-00 and 2011-12, but then it fell until 2015-16 before then growing at a slower rate until 2018-19.

They say if pre-2011-12 growth rates (1959-60 to 2011-12) had persisted until 2019-20, then GNI would have been about $11,500 per person in 2019-20.

“That is, average incomes would have been about a tenth higher than they were had this faster growth persisted,” the Productivity Commission said in June.

So let’s get back to the 3Ps.

As you can see, something serious has happened to our productivity growth.

If policymakers knew how to fix it you’d think they would.

So where do you turn for some serious economic growth?

The last P standing

According to the 3Ps framework, all you have left is population.

But since you can’t force Australians to have millions more children to boost population growth, you have to turn to immigration.

That’s why bureaucrats in the New South Wales public service have advised the state’s Premier, Dominic Perrottet, to push a “national dialogue on an aggressive resumption of immigration levels,” as the Australian Financial Review reported.

They say it will be “a key means of economic recovery and post-pandemic growth.”

Now you know where they’re coming from.

Source : https://www.abc.net.au/news/2021-11-15/radical-surge-in-immigration-three-ps-of-economic-growth/100619410