The impact of difference

Immigrants indeed tend to be quite different than U.S. natives. Differences in education levels illustrate this. Only about 5 percent of U.S.-born workers aged 25 and older have not completed high school versus over one-quarter of immigrants. In addition, immigrants are almost twice as likely as U.S.-born workers to have a Ph.D. U.S. natives, in turn, are more likely than immigrants to have completed high school or to have attended college. Immigrants are far more likely than U.S. natives to be at the extremes of the education distribution, which increases the economic gains from immigration.

The quote above is taken from the testimony of Madeline Zavodny before the Joint Economic Committee of the US Congress. It neatly sums up the standard economic argument about comparative advantage, how a worker with different skills to the ‘average’ US resident will produce additional gains. It also highlights how a nations geography can heavily influence domestic immigration policy. The fact that a full 25 per cent of US immigrants have not completed high school is not wholly an active policy decision. This reflects the economic pull that drives Latin American emigration (the heavy family focus on the US immigration program is an active choice).

What struck me about this quote was how this situation does not strictly apply in Australia yet there is a consensus that Australia has a world-leading immigration program. Are we missing out on the gains from comparative advantage?

Skilled migration has come to dominate immigration over the past 20 years, reducing the flow of lower skilled immigrants. In addition, the children of past immigrant generations show similar (and in some circumstances better) results in education and labour market participation than Australians. These factors have meant the differences between ‘Australians’ and ‘Immigrants’ are markedly smaller than those seen in the US, mostly for lower skilled people. Of course, Australia has much more control and ability to influence how many immigrants will end up in society. There are differences at the high skilled end, with newer immigrants in particular being, on average, more skilled than the average Australian.

Despite these similarities between lower skilled Australians and immigrants, Australia has very substantial economic gains from existing immigration policies. This is predominantly from higher skilled immigration. This paper by Mark Cully, former Chief Economist of the Department of Immigration and Citizenship, demonstrates the positive impact of immigration on labour participation from 2000-10 while this report shows the substantial fiscal impact of newly arrived immigrants.

Would a sudden influx of lower skilled migrants, say opening up freedom of movement with all Pacific countries, have negative consequences? Undoubtedly yes, in terms of adjustment social and cultural costs as well as some negative economic impact on existing lower skilled workers in the short term. However it is unclear if overall this would have positive or negative consequences. New research from Michael Clemens at the Centre for Global Development highlights how for every 3.0-4.6 seasonal farm migrants in North Carolina, an additional US job is created over the long term. While North Carolina has a very different economy and demography to urban Australia, there are industries, such as horticulture and more broadly in agriculture, that are more comparable.

Australia has a strong policy tradition of the ‘settler’ immigrant. People come from overseas and settle, becoming future Australian citizens. The shift to temporary migration is changing these notions. In the (near) future, we’ll have to have a proper policy discourse around the benefits and costs of lower skilled immigration. Immigration advocates, from Glenn Withers (credited playing a major part in introducing the Points-test) to the Centre for Independent Studies, strongly encourage high skilled immigration based on the economic benefits. Yet we already have very small instances where lower skilled migrant populations are a strong factor supporting an entire industry, such as meat slaughtering.

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