Last weekend, the Albanian government confirmed that it would increase the number of permanent immigrants to Australia to its highest level ever after the Jobs and Skills Summit next month.

The October federal budget is expected to increase the number of permanent non-humanitarian migrants to 200,000 from the current 160,000.

The move follows relentless lobbying by business, real estate and education groups seeking to ease skills shortages and stimulate demand for their goods and services.

If the figure of 200,000 materializes, it would represent the largest permanent migration program in the country’s history. As shown in the following graph, the number of non-humanitarian migrants in Australia has never exceeded 190,000, with an additional 13,750 places earmarked for humanitarian migration:

The Albanian government has also pledged to expedite the processing of 570,000 temporary visa applications that are currently awaiting approval.

As a result, Australia will face its largest net overseas immigration (NOM) next year – essentially net arrivals of permanent and temporary migrants – easily eclipsing the all-time high of 316,000 recorded in 2008 under the reign of the Rudd government:

With the Albanian government intent on increasing immigration and therefore population growth to its highest level ever, it is worth considering the implications for the economy and Australians.

Companies to win, workers to lose

At the aggregate level, having more people in the economy spending and consumption are positive for economic growth.

Companies will benefit from having more consumers to sell to in addition to having a larger pool of workers to choose from: a win-win from their point of view.

The impact on ordinary Australians of the rise of immigration is less positive.

The main reason Australia’s unemployment rate has plunged to its lowest level in nearly half a century is that the country has gone from importing more than 180,000 workers each year via immigration pre-Covid to the loss of thousands of migrant workers during the pandemic.

Despite massive stimulus injected into the economy to ease lockdowns, the rate of job creation across Australia has lagged behind the pre-Covid trend:

Yet the resident unemployment rate plunged to its lowest level since 1974, while the employment-to-population ratio hit its highest level on record:

The main reason why the Australian labor market has become so tight is that the supply of labor has slowed sharply during the pandemic, thanks to the sharp reduction in the number of foreign workers:

If the pre-Covid level of immigration had been maintained during the pandemic, there would currently be around 400,000 more workers in the Australian economy. In turn, Australia’s unemployment rate would be much higher than it is now.

Professor Bill Mitchell, Chair of Economics and Director of the Center of Full Employment and Equity (CofFEE) at Newcastle University, estimates that Australia’s unemployment rate would have been 5.7% in June if the immigration had remained at pre-pandemic levels. This is 2.2% higher than the actual 3.5% reported by the Australian Bureau of Statistics.

So it stands to reason that the surge in immigration to its highest level ever in 2023 will aggressively increase labor supply, leading to higher unemployment.

In turn, wage growth will slow as labor shortages ease and more workers search for available jobs.

Higher Immigration May (or May Not) Mean Lower Interest Rates

Since strong immigration would ease labor market pressures, increase the unemployment rate and slow wage growth (all other things being equal), there may be less pressure on the RBA to increase interest rate.

This is effectively the scenario Australia has faced over the past decade when annual immigration has been strong, unemployment has remained high and wage growth has stagnated.

There is however a catch. The Australian rental market is already incredibly tight with a national vacancy rate of just 1.2% and national rents rising at an annual rate of 9.5% – the strongest growth in decades, according to CoreLogic:

Rents currently make up around 6% of the consumer price index (CPI) – the main inflationary measure used by the Reserve Bank of Australia (RBA) to set interest rates.

Logically, the importation of hundreds of thousands of migrants into Australia in 2023 and beyond will dramatically increase demand for housing, inflating rents and putting upward pressure on the CPI. And that will offset the inflationary benefits of slower wage growth.

Ordinary Australian tenants will be the biggest losers, as they will suffer lower wage growth at the same time as their cost of living rises alongside rent growth.

There are wider distributional impacts to consider

The main beneficiaries of high immigration are those who have already accumulated assets and capital, namely the already entrenched interests, the wealthy and corporations. Think big business, the real estate industry, and the education and migration industry.

On the other hand, record immigration will kill the economic recovery for Australians, who will suffer lower wage growth and higher rent inflation, in addition to having to compete harder for places in hospitals, schools, social housing and other social services.

Adding hundreds of thousands of users each year will also increase congestion in our infrastructure, such as road and rail networks, which will necessarily reduce productivity.

Finally, should we think about how Australia can possibly meet its 43% emissions reduction targets and protect its environment as it imports hundreds of thousands of new energy consumers and users every year?

After all, population multiplied by consumption units equals total environmental impact.

Leith van Onselen is Chief Economist at MB Fund and MB Super. Leith previously worked at Australian Treasury, Victorian Treasury and Goldman Sachs.

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