Who is making us rich?

Australia’s GDP is soaring. But per capita GDP is not.  

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Source: ABS National Accounts

If the total income of the country is rising faster than the income of the individuals in it, that is because of population growth.

Where does Australia’s population growth come from? The ABS makes answering this question easy. Migration beats babies and has since around 2005.

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Source: Australian Demographic Statistics

 

Specifically, China, New Zealand and India.

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Source: ABS Australian Demographic Statistics

The boom in population is not working to increase per capita GDP. But there is a political consensus around strong migration. Wonder why?

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Source: ABS Household Income and Income Distribution

 

One answer is that in the absence of strong productivity growth, we need population growth to prevent unemployment. The other, equally true answer is that immigration appears to benefit the rich.

It’s hardly surprising new arrivals don’t capture for themselves their contribution to national income. That necessarily flows to business owners and those already established here. It’s not surprising. Next time someone complains about immigration, feel free to pass them this link.

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

9 thoughts on “Who is making us rich?”

  1. Here is a question – how do you explain the jump in income for the highest quintile around 2007-08?
    Personally I welcome immigration, but it should be reduced from the traditional sources of the UK and New Zealand. Whatever gains were made from migrants from those two countries has probably been exhausted and we should look to other sources for new ideas and skills.

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    1. Not sure. Although that does coincide with a bump in immigration, I would not be so bold as to infer causality. Perhaps just capital income as the share market grew frothy before the dip.

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  2. The jump is mirrored by a fall in everyone else’s incomes particularly by the fall in the lowest quintile. I guess this is just a question that falls outside the mainstream economics communities’ chosen field of view. Wealth distribution is a taboo topic unless it’s about making up comforting stories to deflect attention away from the obvious continuing widening gap. Am I way off?

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      1. Perhaps I should have chosen my words more carefully. I don’t regard Leigh as mainstream. I don’t regard people like Stern and McKibbon mainstream either. By mainstream I mean the ideas that economists put forward that influence actual policy. Were have the above economists made a legislative influence?

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      2. Another way of posing the question is – will current policies increase or reduce the gap? Making statements of concern isn’t the same as proposing policies to tackle it,

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  3. If an economic professor at ANU who becomes shadow assitant treasurer is not “mainstream” who is?!? There;s a lot of truly heterodox economists who dream about a fraction of the influence Leigh has.
    As to policies supported by economists that will contribute to equality –
    I think the NDIS is a really good example of a policy that should diminish the gap between rich and poor. It’s abotu getting people who can’t participate in work and society and giving them the support they need to live normal lives.
    Also, economists are proposing extending the GST to health and education spending, categories of consumption in which the rich spend far more than the rest of us.
    Let’s not forget that the tax brackets are not indexed, meaning our tax system gets more progressive every year that it is left alone.
    Of course raising the rate of the GST is likely to increase inequality, as are changes to work laws that Peter Reith is salivating over. I recognise that the share of income going to capital has increased at the expense of the share to labour. But to say this trend is a steamroller going in one direction at the behest of the economics profession is to over-simplify.

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  4. Sure – I oversimplified and exaggerated. Perhaps the mainstream economics I’m thinking about is that which has become excepted truth, rather than what economists actually say or advocate. Even Milton Friedman was not as hardline as many of his fans in the business world. I still maintain it is a subject domain that is riven with unacknowledged ideologies. I wish I had the time to study it myself.

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