Less immigration = higher interest rates

In one of his excellent blogs Chris Joye once again reminded us of the implications of lowering immigration.

Joye put it this way: I’ve written about this many times before. We’re an immigrant nation, goddamit! Julia Gillard was born in Wales. So this is what RBS has to say, if you don’t believe me:

“After surging in recent years, population growth has slowed sharply from a forty- year high of 2.2% to an annualised rate of 1.4% (at the peak, the population was increasing at an annual rate of almost ½mn, more than the annual increase in the UK population and half the increase in the Euro area population).

This slowdown has mainly reflected a sharp reduction in migrants from a record level (there are fewer people moving here from the UK, China and India, although more Kiwis are arriving on our shores, adding to the ½mn already here), with more Australians now looking for work overseas.

Slower population growth means a strong rise in employment going forward will be less than what the market has become used to, as a 20-25K monthly jobs gain will reduce the unemployment rate by 0.1pp assuming unchanged participation.

Slower population growth should also place pressure on wages as migration has acted as a key safety valve for the labour market during the resources boom (eg, foreign-born workers have accounted for about two-thirds of the employment growth over the past year).”

Source: Chris Joye’s Blogspot


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