A comparison of immigration growth and fertility growth as alternative solutions to Australia's ageing population problem

The combined effects of the post World War Two 'baby boomers' approaching retirement age and a decreasing fertility rate is predicted to cause Australia's worker ratio to increase from 2011. This raises the policy issue of how future tax revenue can be generated to finance the increase in social expenditure necessary to support theincreasing number of dependents. This paper explores fertility growth and immigration growth as alternative policy options to increase the size of the future labour force. Inaddition to exploring the impacts on employment of these alternative policies, theimpact on various other economic variables is investigated. -- The increase in skilled immigration under recent immigration policy changes is found to improve employment outcomes for recently arrived new-immigrants relative to thosewho arrived prior to the policy changes. A logit analysis of the second Longitudinal Survey of Immigration to Australia data reveals that the probability of employment forless-skilled immigrants is significantly related to post-secondary education, Australian qualifications and English language skills. The future employment rate of new immigrants is predicted to increase as less-skilled immigrants who invest in educationpost-arrival enter the labour force. -- Forecasts generated using the Murphy Model (MM2) for various demographic scenarios reveal that gradually increasing immigration levels from 2010 produces a more favourable worker ratio than alternative scenarios. Economic forecasts at 2011 indicate that, in addition to increasing the worker ratio, gradually increasing immigration impacts positively on other economic indicators. Gradually increasing immigration increases labour productivity, is non-inflationary, increases per capita consumption, reduces the income gap, and increases income for the pre-immigration population. Unemployment is marginally increased in the medium-term, as is the ratio of the current account deficit to GDP. However, as productivity and GDP increase overtime, unemployment and the ratio of the current account deficit to GDP are expected to decrease.