A few weeks ago I wrote about a demographic “wipe-out” facing Australia in the face of a sustained downturn in immigration in the wake of the global pandemic. This generated a fair amount of discussion and controversy. Which is all to the good.
Now, I would like to counter with a piece from microbusiness which argues that our focus on a growing population is unnecessary, and that worries about a downturn in migration and an ageing population are misplaced. Australians have an awful lot to worry about in 2020 already (like, the Wallabies’ inability to scrum) so let’s try to remove at least the demographic source of angst for the Lucky Country.
Macrobusiness is reporting on a publication by Sustainable Population Australia entitled “Silver Tsunami or silver lining? Why we should not fear an ageing population”. While it is focussed on Australia, some of the arguments that it raises are applicable throughout much of the developed world where low fertility rates and concerns about declining working aged populations have led to calls for continued high levels of immigration (see especially Western Europe).
But according to the authors of the report, the concerns about blown governmental budgets due to a shortage of workers are misplaced. Therefore, the calls for continued high immigration are trying to solve a problem that doesn’t exist. Although the proportion of the population that is aged over 65 will rise, this cohort will never be the majority and will settle at around a third of the population if the population stops growing.
But won’t having a third of the population at retirement age in itself be a problem for the Australian economy? What about the dependency ratio: the number of taxpaying workers for every “dependent” elderly and young person?
The authors of this report argue that this assumes that all elderly are actually dependent on those of working age. And that none of those who are elderly will be in the workforce. But the same demand for workers and fewer working-aged people will see unemployment and underemployment drop. So, for example, Japan has roughly double the proportion of older citizens as Australia but has about the same proportion of people in employment. The theory is that improved wages and conditions will attract more people into the workforce as the population ages.
At the same time, the fear of increased health costs as the population ages should not be overblown. The main drivers of increased health costs is increased total population and the increasing provision of health costs for each person. Indeed, internationally there is little relationship between the extent of population ageing and the national expenditure on health. (That doesn’t account for universal pension costs, however. For example, in New Zealand the pension is available from 65 and is not means-tested.)
The default answer to population ageing for many societies is to increase immigration to keep the proportion of the elderly population down. But there are drawbacks with this policy response.
The first is that high immigration can contribute to youth underemployment, wage stagnation and rising inequality.
The second cost is that a rapidly increasing population places great strain on infrastructure. The authors argue that the costs of extra infrastructure to support this population growth outweighs the extent to which this population growth lessens pension, health-care and aged-care burdens.
Finally, accelerated population growth due to immigration exacerbate housing costs and encourage the rise of part-time and insecure work. This makes it harder for those currently of working age to save for their retirement and thus make them more reliant on a generous pension scheme to live when they stop work.
Now, we might not agree with all of the conclusions of the authors, but it is important to hear the counter-argument to ever-increasing immigration and population growth. And that is without considering the social and non-financial costs that can come with large scale immigration. If we have a top-heavy population pyramid, then the default answer of large-scale immigration must be critically analysed. Do the alleged costs and benefits measure up?