Population decline and the economy
Why are there so few babies being born in Australia?
If you answered “coronavirus”, you’re not wrong, but also a long way from being entirely right, for Australians have been increasingly disinclined to procreate for a long time. The last time Australia’s fertility rate was above 2.1, the generally accepted “replacement rate” necessary to stop the population from declining, was in 1975.
And on the most recent figures, for 2018-19, says Peter McDonald, emeritus professor of demography at the Australian National University, it was down to 1.66.
“That is the lowest in Australian history,” he says. “And that’s pre-Covid.”
McDonald forecasts a new record-low fertility rate of 1.59 for 2021, as people defer childbearing because of the virus, then a very slight recovery in the rate, before it stabilises about 2030.
But even that more stable figure – 1.62 – will still be lower than at any time before Covid-19. Lower than during the Great Depression or any subsequent economic downturn or war – and far below the replacement rate. Australians’ reluctance to reproduce is a demographic challenge that long preceded this year’s pandemic and will be even more pressing in its wake.
Yet, for the most part, the government has paid little attention to the country’s plunging fertility rate, because we could always import young people from elsewhere. And over recent decades, we have done this with an enthusiasm unmatched in the developed world; Australia’s population was, until very recently, growing at more than twice the OECD average.
It was only late last year that the federal government set up a dedicated Centre for Population within Treasury to consider the consequences of this. And just two months ago it produced its first research paper, written by McDonald, on fertility.
Announcing the report, Population Minister Alan Tudge blandly noted that because of Covid-19, “Australian families will have fewer children in the coming two years”.
Of the long-term decline, he made no mention. And only in the last paragraph of the media release did he hint at the real reason for the sudden concern, which is the impact of the virus not on fertility, but on migration.
The federal government expects net migration to go backwards this financial year by some 72,000 people. Coupled with the decline in the fertility rate, Australia’s population will barely grow – only 0.2 per cent, the slowest rate in at least 100 years.
The government’s hope is that Australia can get back to its high levels of immigration within a few years. In the meantime, the pandemic is expected to cost Australia about 400,000 people and set population growth back by the equivalent of about three years, which is to say the new forecast for 2030 is about the same as the old, pre-virus forecast for 2027.
The government is urgently rejigging policy to try to expedite a return to high immigration, so that it might paper over the real problems facing the country – not just a lack of babies, but a lack of productivity.
There are basically two ways to grow an economy: either by having more people producing goods and services – population growth – or by enabling each person to produce more – productivity growth.
On its own, the first of these amounts essentially to a Ponzi scheme. It grows the total size of the economic pie, but not the average share per person. And before Covid-19 hit, this increasingly characterised the Australian economy.
“When you look at the stats over the last decade, growth in Australia’s GDP has been coming more from population growth than productivity growth,” says Jeff Borland, professor of economics at the University of Melbourne and a labour market specialist. “This isn’t the best way to keep increasing the amount of economic activity.”
He points to a report released by the Productivity Commission in February showing that labour productivity, which grew on average by 2.7 per cent a year over the two decades to 2004-05, slowed to 1.6 per cent yearly over the following 15 years. In the year before Covid-19 hit, it went backwards by 0.2 per cent.
The main reason the Australian economy appeared to be robustly growing was that the population was increasing by nearly 400,000 people every year, mostly due to immigration.
And now that has stopped, the government’s cover has, quite suddenly, been blown.
“Population growth,” says Richard Denniss, chief economist of The Australia Institute, “has concealed all manner of sins.”
For a start, says Denniss, it has meant that “every year, every state treasurer, every federal treasurer gets to announce that they’re spending record amounts of money on health and education and so on. But they’re not necessarily spending record amounts per person.
“We always adjust budgets for inflation,” he says. “But we don’t adjust for population. Every government budget should also have per capita numbers at the front.”
Were that the case, Australia’s miracle economy, which went almost 30 years without a recession until this year, would not look nearly so miraculous – particularly during the term of the current government.
“They’ve pulled the wool over our eyes, in a way, because we did go through a very significant period – between about 2013 and 2017, or thereabouts – where per capita incomes didn’t increase really at all,” says Associate Professor Janine Dixon, an economist with the Centre of Policy Studies at Victoria University.
“Part of the reason for that was the declining exchange rate for the dollar. But another larger part was because of large immigration numbers.”
And the immigration numbers were very large. In the period from 2013 to 2019 – roughly tracing the term the Coalition has been in power – net overseas migration has run at an average of a little more than 200,000 people a year. This accounted for about 60 per cent of Australian population growth.
In the March 2019 budget, the federal government wound it back a bit, imposing a cap of 160,000 for permanent migration. It wasn’t reached; the numbers came in at 140,000. It was still a lot of people, however, particularly as they were coming into an economy that was already struggling.
None of these economists or demographers are suggesting immigration is bad, per se. But nor is it an unalloyed good thing.
Denniss says that of course there are benefits to immigration, “including cultural benefits. But for 20 years, we’ve pretended that high population growth didn’t drive up house prices.
“For 20 years, we’ve pretended that high population growth didn’t cause enormous congestion problems – and not just road congestion problems, but hospital congestion problems, school congestion problems, everything congestion problems.
“That doesn’t mean population growth is bad. It means that lying about it is bad.”
Denniss notes that politicians on both sides have adopted the reverse of the “build it and they will come” strategy. Instead, Australia has been playing a perpetual game of catch-up.
“If I’m going to invite 100 people around for a party, I put the chairs and the food out first. But the way that we’ve decided to do it in Australia is to bring in a million people every three or four years, and then build the infrastructure after they arrive,” says Denniss.
He suggests the pandemic-necessitated pause in population growth may bring about some longer-term good “if governments stick to their infrastructure-building timetable. For the first time in decades, we might actually start to see some reduction in congestion,” he says.
Henry Sherrell, a research fellow at the Grattan Institute and expert on population policy, makes the same point. In his view, after nearly 30 recession-free years, this may even be the recession we had to have – not that he uses Paul Keating’s famous phrase.
Recessions, Sherrell says, are damaging in many ways, “but one good thing with more regular recessions is that governments get out their chequebooks. They do all this [infrastructure] stuff.”
This week’s Victorian budget serves as a standout example of big spending to catch up on infrastructure – most notably, given the pressure put on housing stock by decades of high population growth, the $5.3 billion that was committed to building 12,000 new public housing units.
There’s no question this spending was badly needed. But Dixon says we should perhaps reconsider some other spending priorities, in light of the big changes Covid-19 has wrought.
“We’re on the cusp of a working-from-home revolution,” she says. “Perhaps we should be considering more money for communications infrastructure, and … for building up a sort of suburban amenity, for want of a better word.
“If we can remain committed to that sort of urban infrastructure, regional cities’ infrastructure and clean energy, those sorts of things, I think … there’s no reason we can’t have more people.”
That is if we can get them.
Just last month, Alan Tudge announced the government had set a migration “ceiling” for 2020-21 of 160,000 places – which seems heroically optimistic for a few reasons. First, Australia only managed to fill 140,000 of 160,000 places the previous year, and his own government’s budget expects net migration to be negative. Then there are the difficulties of getting people here in the middle of a pandemic.
According to Tudge, the Morrison government will “have a strong focus on attracting the best and brightest migrants from around the world”.
But McDonald says the reality is that “competition for the really best people is hotting up”.
And he told the government as much this week, at a conference organised by the Department of Home Affairs to consider policy during and after Covid-19.
“I focused on a few things,” says McDonald. “One was that the pipeline for skilled migration has dropped to quite low levels.
“And the applications – they call them lodgements – have also been falling fairly substantially over the last four or five years for employer-sponsored skilled migration and for the general skilled migration entry.”
In part, McDonald blames the long delays in processing applications, such that people “could be waiting in line for two or three years to get permanent residence”.
“People who are really quite skilled don’t want to do that. They’ll head off to Canada, or the US or UK or Germany or somewhere instead.”
Another problem is visas for the partners of Australian citizens.
“They have to pay over $7000 to apply, and then they have to wait for years as well,” says McDonald.
The partner visa backlog now stands at about 100,000 people.
McDonald says the department is moving to try to clear the pipeline, almost doubling the number processed from 37,000 to 72,000 this year.
But the big problem of competition for migrants remains. As McDonald pointed out in his research paper for the government, countries across the developed world are in the same boat as Australia – fertility rates are crashing.
First it was east Asia and southern Europe, where they fell to levels somewhere between 1.0 and 1.4 births per woman, “miles below replacement level”, McDonald says.
Meanwhile, he says, rates had held up better elsewhere, including the Nordic countries, English-speaking countries, French- and Dutch-speaking countries.
“Now, what’s happened in recent years is the English-speaking countries, Nordic countries, France and so on have had quite substantial falls in their fertility rates, too,” he says.
Neither McDonald nor other researchers have a clear answer for why this is happening.
“I don’t really have an explanation,” he says.
It may, he says, have something to do with the negative messages young people get about the state of the world.
“We say they are never going to afford a house, never going to have a decent job, that climate [change] is going to kill us all. I think it’s not a great thing to be doing that.
“I actually don’t buy all those arguments that things have turned bad for young people.
“We do things called national transfer accounts … and both the real consumption levels – expenditure – and the real incomes of a 30-year-old today are 50 per cent higher than [for] the same person in 1980,” he says.
The problem is, for the most part, the negative messages happen to be substantially true. Even if young people are, as McDonald says, 50 per cent richer than they were 40 years ago, that monetary gain has not satisfied their aspirations.
They are still being priced out of the housing market in this country – home ownership rates attest to that. They have trouble finding secure, decent-paying jobs. What a colleague calls the “climate-change-induced anti-natalism among millennials” is a rational response to an existential threat.
In the face of all this, what can be done to get them to have kids?
A couple of years ago, a group of researchers, led by Associate Professor Elizabeth Hill of the department of political economy at Sydney University, engaged with some 2700 young Australians in an effort to find out, and published their findings in a journal article titled “Young women and men: Imagined futures of work and family formation in Australia”.
What they found was neither very encouraging nor very surprising.
“Among respondents with no children, 27.5 per cent report they are very unlikely or unlikely to have a child in future, and a further 13.5 per cent don’t know, reflecting a very high rate of ambivalence,” Hill and her colleagues wrote.
The researchers found high levels of economic stress, particularly about housing. They found that only 15 per cent of respondents “strongly agreed” they had access to the level of flexibility they required in their current job. Having had one child and realising how difficult it was to balance work and care, many women in the study were deterred from having another.
Speaking to The Saturday Paper this week, though, Hill said a thing that may surprise some.
Around the world, she says, “The general picture is that the higher the participation rate of women in the labour market, the higher the nation’s fertility rate. Countries that have more working women have more babies.
“The issue here is how women are treated in the labour force, and the kinds of policy settings that … allow them to balance work and care. And where that doesn’t happen, you see a bit of a baby strike.”
Notwithstanding McDonald’s assertion that fertility is falling even in countries that provide high levels of support and flexibility, such as the Scandinavian countries, Hill says those places are still doing much better.
Another interesting observation of Hill’s: once young men become fathers, “they actually start to think a lot like women”.
“Young male workers with a child are almost as likely to nominate good work-care supports as essential to their successful future work as are women,” she says.
The takeaway messages, says Hill, are pretty obvious: young people want somewhere to nest before they breed; they need accessible and affordable childcare; and they need greater flexibility in their jobs, which means adequate parental leave for both parents.
Perhaps Covid-19, by accelerating the trend to flexible work arrangements, will even help. Maybe due to the eased demand for housing, and with greater government spending on it, things will get a bit easier too. Maybe our government will bring back accessible childcare, a short-lived policy in the midst of the pandemic that proved so popular.
All of this is far from certain. What is clear, though, is that a government must instil a greater sense of security and optimism about the future in its young people if it wants them to be confident enough about their prospects to have children.
This article was first published in the print edition of The Saturday Paper on Nov 28, 2020 as "Child restraint".
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