Population and ageing nonsense… again
The facts are clear. Big Australia economics is mostly nonsense.
Fear-mongering about Australia’s ageing population has ramped up again recently. The headline in the image below is a classic example.
Three years ago I wrote a report about the myths surrounding the population and ageing debate. Find that report here. Go on. Read it.
That report 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 increased from about 12% to 16% since 2000. Yet 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 we experienced since 2000 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 to 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.
Ageing is 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.
If this is a surprise to you, perhaps consider why. 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.
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.
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Very interesting article, particular those last couple of graphs.
A couple of questions:
1. So are you saying that by drawing an arbitrary line at age 65 we are discounting how many people continue working after 65 and therefore the “growing proportion of people over 65” rhetoric is a red herring because it doesn’t reflect a modern working life? Isn’t this what people are worried about though? That we will be forced to work into older and older age? Especially if their job is just a job and not a fulfilling career.
2. Regarding the Big Australia argument - assuming we can throw the aging population concerns out. What do you say to the argument that immigration is needed to replace shortfalls in the fertility rate in order to drive demand broadly across the Australian economy which is largely a service sector economy.
So because we don’t really create much *real* wealth here and have incredibly low economic complexity compared to say, Vietnam - we need to throw people at the economy in this Ponzi scheme-like arrangement to ensure a consistent base of demand so that that the majority of Australians’ jobs have a reason for existing.
I would love if we had a slowly shrinking population, for the reasons you mentioned. Also, only a small amount of workers is needed to take care of the elderly, if done efficiently. It means cheaper future housing, which is a wonderful future outcome.
If the population would need to grow for "economic reasons", then the same problems would exist in another 30 years, and thus continuous population growth would be necessary ad infinitum, which of course is very destructive and impossible on a finite planet.
Lucky, lucky Japanese people.