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Population and ageing nonsense … again

Fearmongering about Australia’s ageing population has ramped up again recently. The headline in the image below is a classic example.

Source: Australian Financial Review

Three years ago, I wrote a report about the myths surrounding the population and ageing debate. Find that report here. It debunks much of the nonsense analysis we see repeated uncritically in the mainstream press. I discuss some of the main points below.

Ageing does not imply fewer workers

Currently, Australia’s population is the oldest it has ever been on average. The population share aged over 65 has increased from about 12% to 16% since 2000. Despite this, the proportion of the population working is the highest ever. Over 64% of all Australians, including children and the elderly, are currently working. That’s up from 59% two decades back in 2000.

The one-third increase in the share of over-65s is roughly the same proportional increase we can expect over the next half-century. Yet for some reason, we are meant to panic about it.

Another weird aspect of the ageing debate is how one argument is silently transformed into another. The main argument is that ageing means fewer people aged 15-64s compared with those over 65. But this is somehow transformed into fewer workers supporting non-workers (and sometimes further transformed into stories about your personal tax bill). But this does not need to follow, as the above data shows.

In fact, there is an increasing share of over-65s who are working and a declining share of under-19s. There are now more over-65s working full-time than under-19s working full-time. So why don’t we adjust our age structure metrics to reflect actual modern working lives? I would argue if we did that it would be obvious that there is nothing to fear about ageing (below, LFPR means Labour Force Participation Rate).

Ageing isn't related to economic growth

A 2017 study by economists at the Massachusetts Institute of Technology (MIT) found

“...that even when we control for initial GDP per capita, initial demographic composition and differential trends by region, there is no evidence of a negative relationship between aging and GDP per capita; on the contrary, the relationship is significantly positive in many specifications.”

The charts below show a similar relationship.

The relentless uncritical talk of the perils of ageing in Australia’s mainstream media has given a distorted view of the world. There is more detail about the growth and ageing issue in my report.

High immigration doesn’t change the age structure much anyway

This is the most bizarre part of the whole story. We know every immigrant ages at the same rate as everyone else. Even if you believe that ageing is a problem because the proportion of workers in the economy might decline (despite the facts) the solution is to get more people working.

The effect of immigration on the age structure is not linear. In fact, it is easy to show that a large effect on the age structure can be achieved by relatively few migrants. Age structure simulations have shown that

“the largest and demographically most efficient impact of immigration on ageing occurs with the first 50,000 net migrants and that the impact reduces significantly with each additional 50,000 net migrants.”

I show this in the charts below. By the end of the century, an immigration rate of 50,000 per year reduces that share of the population aged over 65 by 3%. The next 50,000 per year only further decreases this population metric by 1.5%. The next 50,000 after that decreases the metric by less than 1%.

In short, to get twice as large an effect as the first 50,000 per year immigration on the ratio of over 65s as a share of the population (if indeed you care about that metric), you would need to not just double the rate of immigration but quadruple it to 200,000 per year.

So what?

If you want a big Australia, then make your argument for it. But don’t pretend that the age structure of the population is the reason why.

 

Dr Cameron Murray is an Economist and co-author of the Book Game of Mates. Subscribe to his written work at Fresheconomicthinking.substack.com. This article is general information.

 

31 Comments
John V
January 29, 2023

The Government systems and legislation are not keeping pace with the need or desire of people who wish or need to work past the Aged Pension Retirement Age (currently 65 1/2 years old) to the point of discriminating against this section of the workforce.

I am about to turn 70 years old and am choosing to retire from my Qld Gov. job. Upon turning 65 I received a letter from Q Super stating that now I had reached Aged Pension age my Income Protection Insurance would cease. So unlike any of my fellow workers if I broke a leg or had an illness once I had used up my Sick Leave I was on my own, yet I did exactly the same work and received the same pay.

A second discrimination relates to an employee who is made redundant/retrenched. If I was put off work the day prior to reaching the Aged Pension age then I would be entitled to receive my full
redundancy/retrenchment payment tax-free with a bonus payment entitlement in lieu of notice.

Yet if I am made redundant/retrenched any date after reaching the Aged Pension age then any payment is taxed at 30% and I am not entitled to any bonus payment in lieu of notice.

As we are a minority group with no spokesperson nothing will be done about it.

These discrimination are purely on the basis of age, no matter how much healthier we are than our co-workers.

Jason
January 28, 2023

The government needs to set a migration target and link this to a dwelling target. Eg if Australia is to absorb up 500000 workers/ students in a year then 500000 extra rooms need to be built that calendar year. If there is a shortfall of say 200000 rooms then the next year's immigration target needs to be capped at 300000.

Obviously there are wealthy vested interests pushing for migration without the housing to accommodate them and preaching that the free market will respond (eg rent increases meaning that people will divide rooms and live in garages). However we all need to be made to make the cake and eat it. We may then have a sensible debate about housing and migration policy.

PS Norway is a very wealthy and modern country without the migration

Franzl
January 26, 2023

Hi, John robertson, where do all the reports come from claiming that a large number of children live in poverty? - In a wealthy country like Australia? - shameful !!! How many elderly widows are sleeping rough?
And to all the previous discussions about population, - Is it not the case that robotic tools replace young workers who support families and pay no income tax which includes social security payments in Australia? There may well be times when abnormal circumstances like pandemics, war efforts and new developments are soaking up the unemployed workforce, but how long will that situation last?

David Jeanes
January 23, 2023

By keeping our population as low as possible we keep our quality of life as high as possible. The best way to ruin a country in every conceivable manner is to bring more people into it. Federal Labor ought to be looking after our environmental but in their infinite stupidity want to bring more migrants in.

Former Treasury policy maker
January 24, 2023

Really? You'd rather we only had 1 million people? How would that result in an economically efficient society capable of supporting the medical services, the sport, the arts, not to mention the transport infrastructure etc that makes for a high standard of living?

David Edwards
January 24, 2023

Reductio ad absurdum...one million is an extreme reaction. But consider the countries of Luxemburg (c.900,000), Slovenia, Latvia Lithuania Estonia, Iceland (c, 350,000)...all advanced countries with high GDP and all able to be capable of supporting a high-level economy and standard of living on small populations. If u want to get more extreme: consider Monaco, Andorra, Liechtenstein, San Marino...micro-states with some of the highest standards of development in the world. Population size isn't everything!

Lyn
January 24, 2023

And Austria with about 8million or so where all the above admirably supported, plus free Uni education & free for students from other EU countries & don't even try to get a train 10seconds late as it will have slid out of station silently on time without a warning whistle, that's efficiency.

Mark
January 24, 2023

Those countries are tiny in nature compared to Australia though.

8 million living in Australia to keep our population low and have a good quality of life, So Melbourne and Sydney are populated and we leave the rest of the country empty?

We have an estimated 3.6 million people due to retire over the next 10 to 15 years. Cost of living pressures and hits to financial situation of many may drag that out by a couple of years but it still remains that soon we will have less per person not working than we currently have. We are going to need more people coming here and working to make up for the numbers that won't be.

Gael
January 25, 2023

I agree David.
The tax bill and cost to people in Australia will be enormous and possibly untenable if climate change continues. The greatest contributor to climate change are the demands from the huge number of humans on this poor little planet.
Workers can be obtained from overseas on a work visa only without migration with the increase in demands being a massive cost to our country, the natural environment and our quality of life.
Large populations are not the answer to modern day problems

David Edwards
January 22, 2023

One aspect of this whole debate is never mentioned:- over-65 Australians are now more productive than their grandparents. We are living longer, better (thank you, Medical Science!) and the old sequence of retire at 65, have world trip, pursue hobby, die at 72-75 (males) no longer applies. Thanks to modern technologies, over 65's are far more employable than ever before, even the retired ones support the economy by (wise) investments, volunteering, Gran'ma duties, etc. The need to absorb more and more bodies onto an already bulging Eastern Seaboard and the environmental encroachments is foolish. And just wait til the next drought, where the water storage and dam systems will be woefully inadequate for the expanding populations since the Warragamba Dam was finished in the early 1960's.

Steve
January 21, 2023

Housing. A big investment for most people - houses aint cheap! So the big question is who builds them? People or entities with enough financial capacity. Now we have a problem that the incentives to build housing for renting (lets be real, never will we be in a situation where everyone can own a house; we'll always have people who rent) are seen as some sort of rort by the easily offended amongst us. But governments decades ago gave up on public housing in any meaningful scale, expecting the private sector to be motivated by some financial gain (is there really any other motivation?). People can't sleep in cars but investors shouldn't be encouraged to profit from renters. Square peg, round hole. Disclosure - I have never (and never intend to) owned property for rental purposes. Too many eggs in too few baskets to risk the tenant from hell for me.

Ian
January 20, 2023

Does "working" mean eaning a taxable income or does it just mean doing something that earns money? I would've thought the argument to undercut would've been which age group is paying the most tax rather than who is busy doing something.

Bill
January 20, 2023

I am finding it increasingly difficult to find a car park at popular sea-side venues. Is this a consequence of increased population levels? How does this situation show up in statistics, positive or negative? It seems to me to be a lowering of my standard of living.

George
January 22, 2023

exactly - more people eating of the same pie so there will be less for each; - as usual population growth is all about the money (interested parties and their lobbyists) - forget about standard of living for the rest of us, the hoi polloi and of course the all important GDP (another economic Ponzi Scheme) !

S2H
January 20, 2023

If I was being cynical, I would say migration is a simpler way for politicians to increase the headline GDP number rather than pursue complex and/or unpopular policy measures to improve productivity. I recognise the need for migration to plug some holes in the workforce (good luck running a health system without overseas trained doctors) and it's the reason we've got a diverse, pluralistic and multicultural society today; but like others have said, I'd welcome a conversation on what means for the environment and social issues like housing.

Andrew Smith
January 20, 2023

Interesting but disagree with some points, on 'Ageing does not imply fewer workers' there is clear no data &/or sources offered, trends of how many retirees work or how much and relevance of headline &/or per capita growth?

For example, much of our population is temporary e.g. international students, like local students, will not be earning high incomes nor will increasing numbers of retirees, 'immigration' is not defined (social science 101?) then 'net migration' is cited but not the NOM?

The latter has confused many in Australia, measured under the 'nebulous' UNPD defined NOM net overseas migration (used only in Anglosphere?), expanded in 2006 (nobody noticed) to 12/16+ months, spiked headline population, media headline sinc. real estate, but described as 'immigration' suggesting permanence, but it's mostly 'temporary churnover' of 'net financial budget contributors' e.g. students, to support increasing numbers of seniors?

OECD data is far more descriptive and stark data vs. ABS/UNPD annual or quarterly churn over snapshots, and backgrounded by global population data from same UNPD which is alleged to have been inflated (by high fertility forecasts & locally the NOM mechanism), in turn many Australians do not realise our population is now padded out with temporary residents.

The OECD working age cohort demographic trends and comparisons are here https://data.oecd.org/chart/6Xm9

OECD data like much of the OECD shows Australia fertility has been below replacement for generations, permanent population is stagnant, baby boomer 'bubble' is in transition to retirement, working age cohort has passed the 'demographic sweet spot' (meaning increasing retirees vs. PAYE tax payers etc.), young population <15 years has been declining ('70 30% now <20%) and increasing dependency ratios.

Australia is in competition with the work for net migration churnover, and modest permanent immigration, so as suggested in comments, budget revenue and public services need to be supported, as does infrastructure etc., but on the latter, it's neither static nor permanent. Now, even Japan has immigration.....

Jenny Winthrop
January 20, 2023

I agree with this assessment. All the other commenters are looking at their own anecdotal evidence and personal circumstances ie. I can't get a car park therefore Australia is getting too big.

The author has provided little compelling evidence to demonstrate his points. His arguments on GDP are vague at best. Notice how his chart doesn't even include Japan, Germany, and Korea, where ageing is very prevalent?

And as mentioned, his last point is simple maths, it doesn't prove anything.

A contrarian argument for the sake of contrarianism doesn't make it right.

Margit
January 22, 2023

And what is wrong with a declining population? Australia's population has been increasing in leaps and bounds, mainly due to immigration. It has exceeded the natural carrying capacity of the land. If we would manage a NOM of zero and then have a declining natural birth rate, our population would slowly but surely downsize, leaving more room for other species to recover. Of course, it may not please some people's lifestyles, but a simpler and healthier (physically and mentally/intellectually) lifestyle would be preferable to what we have now.

Andrew Smith
January 23, 2023

Because it's not declining but ageing in an urban nation; two different issues while the NOM is a 'barometer' not a concrete target (due to multiple visa types) and 'net zero' would require Australia shutting all borders and movement for locals and outsiders?

However, the headline number or estimated population is kept high, for now by improved health & longevity, baby boomer 'bubble' and significant temporary churn over; the latter support budgets for more seniors for a secure retirement, and a future for coming generations.

There is neither credible scientific research nor evidence linking immigration and/or population to environment degradation. In the past, nations which had a much lower population but also had appalling Dickensian urban environments with low health & social outcomes for most citizens.

Kevin Spencer
January 20, 2023

I don't think there has ever been an election to confirm our Government's migration policy. I can't see any need for a big Australia and the population increase is destroying our wildlife and environment. Let's bring it on

Gael
January 20, 2023

I agree 100% Kevin. The large political parties don't really have a population policy bar increase, increase, inc
Amazingly the Green Party are also for more population growth on 'humanitarian' grounds without questioning the impact on the natural environmentn. And to what end?
The discussion often centres around 'standard of living' but that doesn't measure our 'quality of life' that is destroyed both in Australia and on the planet. More congestion on roads, in the air and living quarters; more pollution with noise, air, soil, ocean and more; higher costs with the cost of climate change and lots more.

Alan Mac
January 19, 2023

I agree with some of your points, however (& I am generalising of course), the older the population, the less they will consume/spend - and that has major ramifications for economic growth.

The over-65's (generally!) are not out there working for the fun of it, it's a financial necessity. This group are NOT out purchasing new houses, cars, furnishing those houses etc. etc. I also understand the argument that we need to lower our consumption rate of the previously mentioned items, but that is a different debate. Your section "Ageing isn't related to economic growth" doesn't provide enough detail and looks like cherry-picked data to be honest, and I'm too lazy to look into it further!

With reference to your comment on 50,000 imigrants providing lesser return each time you apply also has holes. It's basic maths if you continue to only dilute by 50,000 each time. You would need to increase your intake by a PERCENTAGE - not a fixed figure each time. According to government projections, Australia's population will be between 37 and 62 million by the end of the century. If we split that down the middle and go for 45 million, then 50,000 is only 0.11% imigration - yes woefully inadequate and even your 200,000 is only 0.44%! CURRENT immigration is approximately 0.51% - so on your chart you're going to need 250,000 to keep up with the same %.

Purely in economic terms, an ageing population with a lower number of people coming in to fill the void is a lesson in serious contraction of economies. A serious contraction results in less spending, less growth, less tax generated (unless you DO in fact increase individual's tax bills) causing implications for those countries that cannot replenish their populations enough.

G Hollands
January 22, 2023

Not true Alan. Workforce participants over 65 are doing so because EITHER they have to or WANT to. Not only the former. I am of the latter category and have many colleagues in the same boat.

Alan Mac
January 23, 2023

So you really think more over-65 yeard olds are working because they WANT to be there rather than HAVE to be? Nah, I don't think so tbh.

SMSF Trustee
January 23, 2023

Alan Mac, the person you are reacting to didn't say "more". He simply made the valid point that there are both those who have to keep working after 65 (or 67 as it is for today's 65 year olds) and some who choose to. In saying that he has "many colleagues" who choose to he's not saying that is a majority.
I'm in that group too, by the way. At age 65 I still work because I enjoy being in the super industry.

Blonndie
January 19, 2023

Spot on and I recommend everyone read his complete report too. Increased migration has not significantly increased per capital GDP, nor does it appear to have increased overall standards of living, just increased the gap between the top and bottom deciles of the population.

Increasing migration also simply increased the number of older people over time. Indeed the current increases in over 65s are almost certainly attributable to the increase in migration after WW 2.

The current economic mantra of growth, growth, growth, jobs, jobs, jobs, can only be maintained to a certain point before everything collapses.

The fall in the population of China and their no immigration policy, and the comments in the press about how awful this will be for the world economy means that Australia and the rest of the world should do its bit and stop taking migrants from China. Likewise, we should also stop taking skilled migrants from other countries who have trained them and who need them more than we do eg Africa, India, etc. There are plenty of under skilled Australians and if this were to create a shortage of people who are currently employed doing all the jobs that people used to do for themselves, then so what, maybe people will have to mow their own lawns, do their own housework and ironing etc.

Adrian Watkins
January 19, 2023

An increasing population means increasing damage to our natural environment & our biodiversity on which we all depend for our existence. The cost of repairing the damage is/will be enormous as will the cost of the infrastructure which will be increasingly demanded. Taxes will need to rise to accommodate these effects.
Throughout my life there has been demand for increasing population to sustain our standard of living. I’m far from convinced that our overall standard of living is higher now than it was fifty or more years ago. This makes me wonder if we’ve been wasting our breaths about the need for an ever higher population.
Lastly, I note that in all the calls I’ve seen or read about the need for a larger population I’ve not once encountered a discussion about Australia’s carrying capacity.

John
January 19, 2023

Those arguing for a big Australia are effectively arguing for low income Australians to be living in cars, caravans, tents and stacking multiple families into one house. We aren't building houses fast enough to keep up with population growth, with rents soaring by 10%+ the obvious outcome of this poor government policy.

Denise
January 20, 2023

I have to agree. I am part of the aged part of the population and two things stand out far too clearly. The worst housing crisis I have seen in my lifetime, and continual loss of habitat as we try to build out further and further. Solutions won't be found in a large population, but one suited to the country we inhabit. We need to stop thinking that the best life is achieved by access to lots of material possessions. We can't have it all and a great environment at the same time.

John robertson
January 25, 2023

Australians are the most paid in the world so there is room for a decline in wages.

Former Treasury policy maker
January 25, 2023

Tried that policy once before. Made the Great Depression a lot worse than it needed to be. Not a good idea to try it again!

More positively, we are among the highest income earning nations on average, that's true. But maybe, just maybe, that fact is correlated with the fact that we also have one of the lowest unemployment rates. A strong economy pays its people. We're not being relatively well paid because employers are feeling generous, but because our output on average warrants it.

Let's not put that at risk by pursuing dumb policies like wage cuts!

 

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