Economics of Immigration

Economics of Immigration

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Economics of Immigration Immigration and the Australian Economy P. N. (Raja) Junankar Honorary Professor, Industrial Relations Research Centre, UNSW Australia, Emeritus Professor, Western Sydney University and Research Fellow, IZA, Bonn, Germany

ECONOMICS OF IMMIGRATION: IMMIGRATION AND THE AUSTRALIAN ECONOMY Editorial matter, selection and introduction P. N. (Raja) Junankar, 2016 Foreword G. C. Harcourt, 2016 Chapter 2.1 John Wiley & Sons, Inc., 1998; Chapter 2.2 AGPS Press, Australian Government Publishing Service, Commonwealth of Australia, 1990; Chapter 2.3 AGPS Press, Australian Government Publishing Service, Commonwealth of Australia, 1994; Chapter 2.4 AGPS Press, Australian Government Publishing Service, Commonwealth of Australia, 1993; Chapter 3.1 John Wiley & Sons, Inc., 2005; Chapter 3.2 John Wiley & Sons, Inc., 2008; Chapter 3.3 World Scientific Publishing Co Pte Ltd, 2010 Softcover reprint of the hardcover 1st edition 2016 978-1-137-55524-3 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission. In accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 2016 by PALGRAVE MACMILLAN The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of Nature America, Inc., One New York Plaza, Suite 4500 New York, NY 10004-1562. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. ISBN: 978 1 349 71716 3 E-PDF ISBN: 978 1 137 55525 0 DOI: 10.1057/9781137555250 Distribution in the UK, Europe and the rest of the world is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Library of Congress Cataloging-in-Publication Data is available from the Library of Congress A catalog record for this book is available from the Library of Congress A catalogue r ecord for the book is available from the British Library Typeset by MPS Limited, Chennai, India.

To the memory of the late Professor David Pope An eminent scholar, A wonderful colleague, and A great friend.

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Contents List of Figures and Tables Foreword by G. C. Harcourt Preface and Acknowledgements viii xvi xvii 1 Introduction 1 2 Impact of Immigration on Recipient Economy 19 2.1 Immigration and the Australian Macroeconomy: Perspective and Prospective 21 2.2 Immigration, Wages and Price Stability 35 2.3 Immigration and Australia s External Account Balances 105 2.4 Recent Immigrants and Housing 160 3 How do Migrants Fare in the Labour Market? 249 3.1 Do Migrants Get Good Jobs? New Migrant Settlement in Australia 251 3.2 Do Migrants Get Good Jobs in Australia? The Role of Ethnic Networks in Job Search 273 3.3 Are Asian Migrants Discriminated against in the Labor Market? A Case Study of Australia 301 Index 335 vii

List of Figures and Tables Figures 1.1 Immigration and the economy 9 2.1.1 Immigration and the macroeconomy 22 2.1.2 Population growth and growth in output per head in Australia 23 2.1.3 Gain in GDP per capita by skill level of intake, 1987 2030 24 2.1.4 Steady-state multipliers: impact on productivity growth 25 2.2.1.1 Net migration rate 39 2.2.1.2 Australia: Consumer Price Index (1980 81 = 1.00) 39 2.2.1.3 Australia: inflation and unemployment rates 40 2.2.1.4 Inflation and unemployment scatter: Australia 1960 1989 50 2.2.1.5 Generalised model of international migration and Australian unemployment 51 2.2.2.1 The model 55 2.2.2.2 Permanent and long-term arrivals and departures 57 2.2.2.3 Short-term arrivals and departures 57 2.2.2.4 Skills index 58 2.2.2.5 Wage and price inflation 59 2.2.2.6 Wage inflation and unemployment rate 59 2.2.1.B.1 Consumer Price Index, Nominal Wages Index and Implicit Price Deflator (GDP) 1860 61 to 1988 89 85 2.2.1.B.2 Exports Price Index and Imports Price Index 1969 70 to 1988 89 85 2.2.1.B.3 Percentage change for Exports Price Index and Imports Price Index 1870 71 to 1988 89 86 2.2.1.B.4 Percentage change for Consumer Price Index, Nominal Wages Index and Implicit Price Deflator (GDP) 1861 62 to 1988 89 86 2.2.1.C.1 Refugee, arrivals 92 2.2.1.C.2 Target numbers and long term and permanent arrivals 93 2.2.1.C.3 Target numbers and settler arrivals 93 viii

List of Figures and Tables ix 2.3.2.1 Rates of natural increase, total increase and net migration 108 2.3.2.2 Australian immigration and current account balance, 1958 92 109 2.3.2.3 Long-term and permanent movements, 1948 91 111 2.3.2.4 Immigration by visa category of entrants 113 2.3.2.5 Current account and merchandise trade balances as a percentage of GDP, 1959 92 115 2.3.2.6 Components of the balance of merchandise trade as a percentage of GDP, 1959 92 116 2.3.2.7 Australian rural and manufacturing exports as a percentage of GDP, 1969 92 117 2.3.2.8 Australian terms of trade, 1860 1992 117 2.3.2.9 Components of the balance of services as a percentage of GDP, 1959 90 119 2.3.2.10 Components of the balance of net income as a percentage of GDP, 1959 90 120 2.3.2.11 Components of the balance of net unrequited transfers as a percentage of GDP, 1959 90 121 2.3.3.1 Short-run linkages between immigration (arrivals) and the current account balance in the CIE model a simplified version 125 2.3.3.2 Interactions between immigration (arrivals) and the current account balance in the Access Economics Murphy model 126 2.3.4.1 A simple model of immigration and the current account 130 2.3.4.2 Actual and simulated exports 142 2.3.4.3 Actual and simulated imports 143 2.3.5.1 Immigration program and arrivals 152 2.3.5.2 Percentage error between immigration program and arrivals 152 2.4.1.1 Australian net migration and Sydney house prices 161 2.4.1.2 Simple supply and demand in the housing market 162 2.4.2.1 Composition of immigrant net gain, by place of origin 186 2.4.3.1 Net long-term and permanent movements 191 2.4.3.2 Net induced movement of longer than twelve months 192 2.4.3.3 Permanent movements 193 2.4.3.4 Permanent migration to the major urban areas 194 2.4.3.5 Permanent immigrants as a percentage of urban population 195

x List of Figures and Tables 2.4.3.6 Net internal migration, major cities 196 2.4.3.7 Refugee and SHP arrivals, by State of intended residence 199 2.4.3.8 Immigration by visa category of entrant 200 2.4.3.9 New Zealanders arriving in Australia, by State of intended residence 201 2.4.3.10 Disaggregation of contributions to household formation, 1981 86 202 2.4.3.11 New residential building 207 2.4.3.12 Total number of dwellings completed in New South Wales, Victoria and Western Australia 208 2.4.3.13 Value of alterations and renovations 208 2.4.3.14 Public housing inventory increases, Australia, 1960 61 to 1988 89 210 2.4.3.15 Dwelling prices for capital cities and for Australia 212 2.4.3.16 Private and government housing rents 213 2.4.4.1 Nature of occupancy, by period of residence, for overseas-born, 1986 215 2.4.4.2 Housing tenure by household heads in Australia, 1986 216 2.4.4.3 Housing tenure by period of residence for overseas-born household heads in Australia, 1986 217 2.4.A1.1 Tenure type and weekly income for overseas-born 235 2.4.A1.2 Nature of rental occupancy and weekly income for overseas-born 236 3.1.1 Composition of migrants by source country 256 3.1.2 Educational qualifications of migrants in LSIA 1 and LSIA 2 257 3.1.3 Distribution of good jobs (objective) by visa category 260 3.1.4 Distribution of good jobs (subjective) by visa category 260 3.2.1 Total effect of time on the conditional probability to get a good job (objective definition, Model 1) 292 3.2.2 Total effect of time on the conditional probability to get a good job (objective definition, Model 2) 293 3.2.3 Total effect of time on the conditional probability to get a good job (objective definition, Model 3) 294 3.2.4 Total effect of time on the conditional probability to get a good job (subjective definition, Model 4) 295 3.2.5 Total effect of time on the conditional probability to get a good job (subjective definition, Model 5) 296

List of Figures and Tables xi Tables 2.2.1.1 JOANNA and ORANI base run results 46 2.2.1.2 Price inflation, Australia 1960 84 48 2.2.1.3 Nominal wage change determination, Australia 49 2.2.2.1 Price inflation (1960 q3 to 1989 q2), instrumental variable estimation 61 2.2.2.2 Wage inflation (1960 q3 to 1989 q2), instrumental variable estimation 62 2.2.2.3 Unemployment rate (1960 q3 to 1989 q2), instrumental variable estimation 63 2.2.3.1 Results of the unit root tests in the inflation and migration variables 68 2.2.3.2 Results of the cointegration tests: quarterly inflation and migration variables Inflation = [P(t) P(t 1)]/P(t 1) 69 2.2.3.3 Results of the cointegration tests: quarterly inflation and migration variables Inflation = log(p(t)) log(p(t 1)) 70 2.2.3.4 Results of the cointegration tests: annual inflation and migration variables Inflation = [P(t) P(t 4)]/P(t 4) 71 2.2.3.5 Results of the cointegration tests: annual inflation and migration variables Inflation = log(p(t)) log(p(t 4)) 72 2.2.3.6 Summary of regressions and results of causality tests: quarterly inflation as the effect Inflation = [P(t) P(t 1)]/P(t 1) 74 2.2.3.7 Summary of regressions and results of causality tests: quarterly inflation as the cause Inflation = [P(t) P(t 1)]/P(t 1) 75 2.2.3.8 Summary of regressions and results of causality tests: annual inflation as the effect Inflation = [P(t) P(t 4)]/P(t 4) 76 2.2.3.9 Summary of regressions and results of causality tests: annual inflation as the cause Inflation = [P(t) P(t 4)]/P(t 4) 77 2.2.3.10 Summary of regressions and results of causality tests: quarterly inflation as the effect Inflation = log(p(t)) log(p(t 1)) 78 2.2.3.11 Summary of regressions and results of causality tests: quarterly inflation as the cause Inflation = log(p(t)) log(p(t 1)) 79

xii List of Figures and Tables 2.2.3.12 Summary of regressions and results of causality tests: annual inflation as the effect Inflation = log(p(t)) log(p(t 4)) 80 2.2.3.13 Summary of regressions and results of causality tests: annual inflation as the cause Inflation = log(p(t)) log(p(t 4)) 81 2.2.A1 A comparison of the ORANI and JOANNA long-run closure: base run assumptions 84 2.2.B1 Australia: average rates of inflation (per cent) 87 2.2.D1 Summary statistics 96 2.3.2.1 Percentage indicators of income owed abroad, selected years 110 2.3.2.2 Overseas-born income recipients income quintiles by period of residence and birthplace, September-December 1986 114 2.3.2.3 Potential funds brought into Australia by immigration category, financial years 1983 84 to 1988 89 ($A million) 122 2.3.2.4 Potential funds transferred to Australia by immigrants issued visas in 1988 89 122 2.3.4.1 Exports equation (annual data) 136 2.3.4.2 Exports long-run elasticities (annual data) 137 2.3.4.3 Marginal effects of immigration on exports ($m per 1000 persons) 137 2.3.4.4 Marginal effects of immigration on exports (as percentage) 138 2.3.4.5 Imports equation (annual data) 138 2.3.4.6 Imports long-run elasticities (annual data) 140 2.3.4.7 Marginal effect on imports ($m per 1000 persons) 140 2.3.4.8 Current account balance equation (annual data) 140 2.3.4.9 Current account balance long-run elasticities (annual data) 141 2.3.4.10 Exports (quarterly data) 144 2.3.4.11 Exports long-run elasticities (quarterly data) 145 2.3.4.12 Imports (quarterly data) 146 2.3.4.13 Imports long-run elasticities (quarterly data) 146 2.3.4.14 Current account balance (quarterly data) 147 2.3.4.15 Current account balance long-run multipliers (quarterly data) 147

List of Figures and Tables xiii 2.3.4.16 Imports impact of visa categories (quarterly data) 149 2.3.4.17 Summary of the impact of immigration on current account (annual data) long-run multipliers 149 2.3.4.18 Summary of the impact of immigration on current account (quarterly data) long-run multipliers 149 2.4.3.1 Components of population growth in major city statistical divisions, 1986 87 197 2.4.3.2 Average annual population growth rates for major cities, 1966 88 (per cent) 197 2.4.3.3 Potential funds brought into Australia by immigrants, by visa category from 1983 84 to 1988 89 ($A million) 203 2.4.3.4 Potential funds transferred to Australia by immigrants issued visas in 1988 89, by visa category 203 2.4.3.5 Overseas-born income recipients: income quintiles by period of residence and language, September December 1986 204 2.4.3.6 Occupied private dwellings, by structure, 1981 86 209 2.4.3.7 Immigration of construction trades people 209 2.4.4.1 Nature of occupancy and weekly income of overseas-born persons settled by or before 1983 (per cent) 219 2.4.4.2 Nature of occupancy and weekly income of overseas-born persons settled after 1983 (per cent) 219 2.4.4.3 Proportion of home-owners/purchasers among immigrant and non-immigrant income units, by age and, for immigrants, by period of residence, 1986 219 2.4.4.4 Affordability index for immigrants, by tenure and country of origin 223 2.4.4.5 Likelihood of income units being in housing stress, by country of birth of reference person and by tenure type, 1988 224 2.4.4.6 Likelihood of income units being in housing stress, by year of arrival of reference person in Australia and by tenure type, 1988 225 2.4.A1.1 Category of settler arrival (number) 232 2.4.A1.2 Household structure of Australian-born and of immigrants by birthplace, 1986 233 2.4.A1.3 Average percentage share of occupier s equity in dwelling, by duration of residence, 1986 234

xiv List of Figures and Tables 2.4.A1.4 Extent of home-ownership/purchase among immigrants and non-immigrants, by country of birth, 1986 234 2.4.A1.5 Tenure distribution of overseas-born, by State (per cent) 234 2.4.A1.6 Distribution of tenure types of overseas-born by capital city and rest of the State (per cent) 235 3.1.1 Migrants by visa category 253 3.1.2 Labour market status, LSIA 1 and LSIA 2 254 3.1.3 Changes in labour force status, LSIA 1 and LSIA 2 255 3.1.4 Probability of a good job (Subjective) 262 3.1.5 Probability of a good job (Objective) 264 3.1.A1 List of variables 270 3.2.1 Estimations of the probability to obtain a good job (Objective definitions) decomposition of the marginal effects 282 3.2.2 Estimations of the probability to obtain a good job (Subjective definitions) decomposition of the marginal effects 286 3.3.1 Main characteristics of Migrants 303 3.3.2 Estimates of χ 2 : testing the significance of Asian dummies in Probit model 307 3.3.3 Decomposition of unemployment probability gap between Asian and Non-Asian Migrants 310 3.3.4 Decomposition of unemployment probability gap between Asian and Non-Asian Male Migrants by age group (Young: Age 30; Middle Age: 30<Age 45; Old: Age>45) 312 3.3.5 Decomposition of unemployment probability gap between Asian and Non-Asian Female Migrants by age group (Young: Age 30; Middle Age: 30<Age 45 & Old: Age>45) 313 3.3.6 Decomposition of unemployment probability gap between Asian and Non-Asian Male Migrants by levels of education 314 3.3.7 Decomposition of unemployment probability gap between Asian and Non-Asian Female Migrants by levels of education 315 3.3.8 Decomposition of unemployment probability gap between Asian and Non-Asian Male Migrants by English-speaking ability 316

List of Figures and Tables xv 3.3.9 Decomposition of unemployment probability gap between Asian and Non-Asian Female Migrants by English-speaking ability 318 3.3.10 Decomposition of unemployment probability gap between Asian and Non-Asian Male Migrants by visa category 320 3.3.11 Decomposition of unemployment probability gap between Asian and Non-Asian Female Migrants by visa category 322 3.3.A1 Estimates of Probit model for Males 327 3.3.A2 Estimates of Probit model for Females 329 3.3.A3 Estimates of Probit model for Females (without Asian dummies) 331 3.3.A4 Estimates of Marginal Effects based on Probit models 332

Foreword Immigration has always been a controversial subject, not least in Australia and now. Emotions run high, and prejudice and xenophobia are often just below the surface. Raja Junankar does his readers a great service by presenting in these essays thorough, evidence-based critical analysis of all aspects of the immigration process. He has first-hand experiences of attitudes to, and problems of, immigrants through his time, first, in the UK, and then in Australia. He is a humane and passionate person, and these traits rightly underlie all his scholarly work, but his excellent scholarly attitudes ensure that he brings critical but powerful analysis, both theoretically and empirically, to all his writings. His many writings provide the basis to destroy current myths and attitudes, and this makes the present collection of essays invaluable. This volume contains a moving tribute to the late Professor David Pope with whom Raja often collaborated, and to whom the volume is dedicated. The author has also collaborated in these papers with other like-minded researchers from the same or related disciplines. All told, this volume is indispensable in the current climate of soul-searching and debate about immigration and asylum seekers. Professor Emeritus G. C. Harcourt School of Economics, UNSW Business School xvi

Preface and Acknowledgements When I was a student at the London School of Economics I became aware of the issue of immigrants in Britain. The British newspapers were full of stories about immigrants, often derogatory stories about welfare cheats (dole bludgers). In an infamous statement in 1968, a former Conservative Minister, Enoch Powell, warned that immigration would lead to Rivers of Blood in the streets of Britain. Also, in 1978, Margaret Thatcher was afraid that Britain was being swamped by people of a different culture. As a migrant from India, my interest in this subject was not only an academic interest. Somehow, I never published anything about immigration to Britain. When I migrated to Australia I joined the Australian National University where I met and worked with (the late) Professor David Pope, a well-known authority on immigration. It was a fortuitous meeting that fed my research interests. Through David I met other demographers and academics who worked on immigration. This collaboration with David, and then subsequently with Professor Glenn Withers and Dr Cezary Kapuscinski, led to our joint work for several years. Much of this work was done under the auspices of the Bureau of Immigration Research (now defunct), an Australian Commonwealth government agency. Subsequently, at the University of Western Sydney I collaborated with Dr Stéphane Mahuteau on a project funded by the Australian Research Council. This led to researching the plight of migrants in the labour market. Work with another colleague, Professor Satya Paul, continued this research. I am indebted to the Bureau of Immigration Research and the Australian Research Council for the financial support that helped our research. This volume is a selected collection of my published papers over many years that investigate issues of immigration and the Australian economy. xvii