Finding confirms economic impact of migration is very small, but probably positive.

THE overall economic impact of migration is very small, but positive.

WE used to be told to "populate or perish". The new message seems to be: "populate or fail to prosper". And for the population to increase at a rapid rate, we need to embrace a substantial migration intake, year in, year out.

But is this message really incontrovertible? Is it possible that per capita income and productivity will rise even without rapid population growth?

In 2006, the Productivity Commission undertook a research project on this very topic. In the final report, the link between population growth, including migration, and national per capita income was explored. It still makes for interesting reading.

By way of background, here are the basic facts on the migration program. Following a reduction in annual permanent migration intakes in the mid-1990s, the program was cranked up significantly in 2000-01. It has been rising ever since. The program was deliberately skewed towards skilled visas, and away from family visas.

In addition to the increased number of permanent migrants, there has been an even larger increase in the number of temporary migrants, including overseas students with work rights; 457 visa holders; working holidaymakers; and a number of other visa categories. This increase in the number of temporary migrants has made the analysis of the impact of migration on economic outcomes more complicated.

Even counting the number of migrants has been made more complex by the changing definitions of the Australian Bureau of Statistics and the fact that many temporary migrants, particularly overseas students, will become permanent migrants in due course.

So what is the link between migration and population growth? While the contribution of migration has varied, on average, about half the rate of population growth has been due to migration. By any standard, this is a substantial contribution.

According to the population forecasts contained in the Intergenerational Report, migration is expected to continue to make an even larger contribution to population growth into the future.

Does migration offset an ageing population? Overall, there is an insignificant difference in the age profile of the Australian and overseas-born populations. Earlier in the decade, 44 per cent of the Australian born population was aged between 25 and 44 years of age compared with a figure of 43 per cent for immigrants.

Certainly, the more recently arrived skilled migrants are younger. Some two-thirds of those coming to Australia on skilled visas are aged between 25 and 44 years of age. (It it is very difficult to obtain a skilled visa to enter Australia if you are over the age of 50.)

But, of course, migrants also age. So the extent to which migration slows the ageing of Australia's population is easily overstated; the effect is in fact quite modest.

When assessing the impact of population growth and migration on economic outcomes, it is absolutely imperative to work on per capita figures. There is no point arguing that higher population growth leads to higher absolute economic growth if per capita incomes are lower. This is frequently overlooked in this debate.

So what were the key findings of the Productivity Commission's report? The first thing to note is that the impact of increased migration on per capita income is trivial -- of the order of less than 0.75 per cent after 20 years.

Within this result, there are both positives and negatives. On the positive side, migrants have slightly higher rates of labour force participation, work longer hours than local workers and add to the skills profile of the workforce. But over time, the differences between migrant and local workers become smaller. On the negative side, higher migration leads to capital dilution (as it takes some time for capital to adjust to the higher population numbers) and a decline in the terms of trade.

There are also winners and losers within the population. The migrants themselves are winners, but this gain is at the expense of local workers whose relative wages are driven down by the influx of skilled migrants. The owners of capital are also winners. Home owners will be able to relate to this result. But benefits also flow to those businesses in the sectors favoured by the increased demand of the migrants themselves -- building products, housing construction and parts of retailing are examples.

Faced with shortages of skilled workers, it is not surprising that affected businesses also see virtue in high rates of migration, including temporary migrants. In this way, they can be relieved of a part of their training effort, as well as enjoying lower wages than would otherwise be the case.

The research of the Productivity Commission confirms the findings of many previous studies -- that the overall economic impact of migration is very small, but probably positive. And that the benefits mainly accrue to the migrants themselves.

A migration program emphasising skilled entrants generates bigger economic gains than one based on family entrants. But the link between higher rates of population growth, spurred by increased skilled migration, and higher rates of per capita income growth is not significant.

Judith Sloan is honorary professorial fellow at the Melbourne Institute of Applied Economics and Social Research at the University of Melbourne. She was the commissioner in charge of the research report, Economic Impacts of Migration and Population Growth, released in 2006 by the Productivity Commission.