Migration has mixed effects on labour productivity.
On the one hand, productivity receives a boost, as high levels of education are associated both with high personal productivity and a contribution to general productivity through research and development. On the other hand, there is a loss in productivity from applying a larger labour force to a fixed stock of natural resources, including mineral resources and land.
However, the gain in employment easily outweighs the loss in productivity, so by 2050, migration leads to a 5.9 per cent gain in GDP per capita. This gain
in GDP per capita flows through to an even larger gain in living standards.
This gain in living standards drives a further benefit to the budget bottom–line as government revenues increase with the gains to employment, while any rise in government expenditures is limited to the effect of the population increase.
Migration in fact provides savings across the population in expenditures on education, transfer payments and government network infrastructure. Migrants who initially enter Australia on a student visa pay the full costs of their education, providing a saving to the government budget compared to the subsidised places offered to Australian–born residents. Further, the elderly are under–represented in the migrant intake, so migrants generate only a limited increase in government payments. Finally, because of fixed costs, per capita expenditures on government network infrastructure fall as migrants boost the population. Overall, the gain in GDP per capita combines with the net fiscal benefit of migration to lead to a rise in household consumption. Comparing this with the population gain, migrants offer a premium boost to the economy compared to Australian born residents. Importantly, this premium is shared with Australian residents. As the budget bottom line improves, personal income tax rates can be lower and this in turn supports higher household consumption. This research demonstrates that by 2050, real after–tax wages would be significantly higher.