Reserve Bank governor Dr Philip Lowe thinks Australia’s strong population growth in recent years is a wonderful thing, and he sings its praises in a speech this week.
I’m not sure he’s right. Like most economists and business people, Lowe is a lot more conscious of the economic benefits of population growth than the economic costs. As for the social and environmental costs, they’re for someone else to worry about.
But whatever your views, you’ll be heaps better informed after you’ve seen what he says about our changing “population dynamics” and absorbed his tutorial on demography.
Over the past decade, our population has grown at an average rate of about 1.6 per cent a year. This is faster than in previous decades. It’s also faster than every advanced economy bar Singapore.
Most other rich countries – including the US and Britain – grew by well under 1 per cent a year over the period. The populations of Italy, Russia and Germany were stagnant, and fell in Japan and Greece. China’s annual growth averaged only 0.5 per cent.
What’s driving our growth is increased immigration, of course. Over recent times, net overseas migration has added about 1 per cent a year to the population, with “natural increase” (births minus deaths) adding only about 0.7 per cent.
Our rate of natural increase is pretty steady. It perked up a bit a decade ago, but quickly resumed its slow decline, as more couples have smaller families and some have none.
Net migration, by contrast, goes through a lot of peaks and troughs – which, not by chance, correlate well with the ups and downs of the business cycle.
We think of the government controlling immigration with a big lever (making it “exogenous” or coming from outside the system, as economists say, pinching the word from medicos) but many demographers see immigration as “endogenous” or determined within the system.
This has become truer as permanent migration becomes dominated by workers with skills we need, rather than by family reunion, and there’s more temporary migration by overseas students and skilled workers brought in by employers to fill a temporary shortage.
The resources boom showed temporary skilled migration was great at helping us control (wage-driven) inflation, one of Lowe’s primary concerns as boss of the central bank.
But I worry our young people are paying the price for this greater macro-economic flexibility. We’re schooling our employers not to bother training plenty of apprentices ready for the next shortage because it’s easier to wait until the shortage emerges and then pull in a tradesperson or three from overseas.
Sorry, back to Lowe’s speech. He notes that growth in the number of people here on temporary visas adds to the size of our population. For instance, there are now more than half a million overseas students studying in Australia.
Here’s a stat you probably didn’t know: about a sixth of foreign students are permitted to stay and work here after finishing their studies. This boosts our population. Always a man to look on the bright side, Lowe reminds us it also boosts the nation’s “human capital”.
Plus, he’s too polite to say, it does so free of charge. It’s a neat trick: we charge foreign parents in developing countries full freight to educate their children, then allow the best of 'em to stay on.
But wait, there’s more: we also benefit from our stronger overseas connections when foreign students return home, Lowe says.
Now for his big reveal. Particularly because of our emphasis on skilled workers and students (as opposed to bringing out nonna and nonno), the median age of new migrants is between 20 and 25, more that 10 years younger than the median age of the rest of us.
At the time of Treasury’s first intergenerational report in 2002, our present median age of 37 was expected to rise rapidly to more than 45 by 2040. But after the past decade of increased immigration of young people, the latest estimate is that the median age will be only about 40 by then.
“This is a big change in a relatively short period of time, and reminds us that demographic trends are not set in stone,” Lowe says.
This means that, on the question of population ageing, and looking at the latest projections over the next quarter of a century, we compare well with other advanced economies, he says.
First, our median age of 37 makes Australia one of the youngest countries. We are ageing more slowly than most of the others, meaning we’re projected to stay relatively young. This is better than earlier projections suggesting we’d move to the middle of the pack.
Second, we have a higher fertility rate than most rich countries. Australians tend to have larger families than those in many other countries. (Note, not large, but larger than the others.)
Third, our average life expectancy is at the higher end of the range, and is expected to keep rising.
Fourth, our old-age dependency ratio – people 65 and older, compared to people of working age, 15 to 64 – is rising, but less quickly than in most other countries.
And our relative youth and higher fertility rate means our dependency ratio is expect to stay lower than other countries’ for the next 25 years or so. Only then is it projected to rise rapidly.
The first intergenerational report expected that the disproportionate bulge of baby boomers reaching normal retirement age would lead to a steady decline in the proportion of people participating in the labour force.
It hasn’t happened. The reverse, in fact – for fascinating reasons I’ll save for another day.
To economists, this slower rate of population ageing – that is, slower rise in the old-age dependency ratio – is great news. It means the economy’s growth in coming years won’t slow as much as they were expecting (see point above about the participation rate).
It also means ageing will put less pressure on future federal and state budgets. But let me give you a tip: there are so many other pressures we probably won’t notice its absence.