Benefits from immigration

With immigration again a hot political topic, Ross Gittins has waded into the debate, with his latest contribution seeking to skewer the economic argument for high immigration. Gittins referred to the Productivity Commission’s 2006 report into immigration which found that, among other things, a 50% increase in skilled immigration could boost GDP by 4 per cent after 20 years. The Commission also predicted that real income would increase marginally, with all the income gains accruing to the new migrants.

Without addressing all of Gittins arguments (and I propose to write a longer piece with my views on immigration), two points are worth mentioning. The first is his suggestion that there is a lack of evidence for scale effects.  Gittins was largely referring to benefits of scale in the provision of public goods. If twice as many people use a road, there is benefit in spreading the cost across that greater number. Alternatively, the larger number of people may make that road viable to build. However, there is a more important scale effect that we need consider; that of the extent of the market. As said by Adam Smith:

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.

It is on this basis that freedom of trade has created so much wealth. Picture the basket of goods that we would be able to buy if there was no movement of goods across borders.  Immigration, through both the enlargement of the  market and the provision of labour, has similar effects. With many services reliant on the location of labour and consumers, and there still being many obstacles to trade, free movement of people allows increased opportunity for specialisation and gains from trade.

The second point concerns the huge gains to the immigrants who come to Australia. Gittins uses the Productivity Commission’s finding that most of the income increase goes to the new immigrants to downplay the potential benefits of immigration. How should we value the chance for an immigrant to come to Australia and take advantage of  a wealth of opportunities not present in their home country? It must count for something. Of all the methods tried to raise the wellbeing of the world’s poor, migration to a developed country is still the most sure-fire bet.

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