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The Forum > Article Comments > Economic growth or quality of life > Comments

Economic growth or quality of life : Comments

By Everald Compton, published 6/11/2013

GDP doesn't have to mean Growth Domestic Product; it could mean General Domestic Prosperity.

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Well you see, Divergence, that's exactly where our logic... diverges.

>>If Pericles were correct, we would expect the developed countries with the most rapidly growing populations to experience the greatest growth in GDP per capita<<

Of course, that is absolute rubbish. Why would you expect that? There are so many other factors in the equation - politics, social structures, mineral wealth, climate, education, health etc. etc. - that picking on population growth (or decline, for that matter) as a key contributor to a country's economic situation is to exhibit the most exquisite blindness to reality.

>>While people are obviously necessary for technological progress, innovation is not proportional to population.<<

Absolutely. So why should you assume a correlation between them? Interesting too that you should use Japan, a country whose economy has been stagnant for decades and whose population is currently in decline, as evidence - surely this demonstrates exactly the opposite effect (of population growth) to that which you wish us to subscribe.

Back to the assertion.

>>Conditions are better for a lot of us, largely due to technological progress, not more people<<

Your argument would be stronger if you could show how fewer people would have delivered the same level of technological progress. Care to give it a try?
Posted by Pericles, Monday, 11 November 2013 10:34:30 AM
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Divergence

The trouble with picking one or two examples is that they might not be representative. Using the same IMF database and time periods as you (1994 to 2012) for ALL advanced economies with per capita GDP of over US$30,000 (less than half of Australia’s – seems a reasonable if admittedly arbitrary cut off), there is a clear positive correlation between population growth and real per capita GDP growth. Running a regression of these growth rates yields a statistically significant positive coefficient of 0.48 – on average, and additional 1% on the population growth rate adds 0.5% to the per capita GDP growth rate.

Put another way, of 23 countries in this category:
- six had above-average growth in both GDP per capita and population (Australia, Iceland, Ireland, Israel, Luxembourg and Singapore);
- nine had below-average growth in both population and per capita GDP growth (Belgium, Denmark, France, Germany, Italy, Japan, Netherlands, Switzerland and the UK)
- eight had above-average growth in one variable and below-average growth in the other (Austria, Canada, Finland, Hong Kong, New Zealand, Norway, Sweden and the USA).

You say “Countries with very rapid population growth by natural increase also tend to be profoundly unequal.” This may be true, but in all rich, advanced economies, countries with relatively rapid population growth have this due to migration, not natural increase, so the comparison is not valid for Australia or the other countries we are discussing.

Of the 21 countries in my database of rich advanced econonies that are also OECD members, a regression shows a very small and statistically insignificant positive correlation between population growth and inequality. This disappears if Israel is excluded, which seems reasonable to me as the drivers of both its population growth and its inequality are probably due to factors unique to that country.

(I think there may be an error in your calculations – to get an average growth rate between two dates you can’t just average the annual growth rate for each year, as this misses the compounding effect. This should not affect rankings much, though)
Posted by Rhian, Monday, 11 November 2013 2:19:25 PM
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Rhian,

Try doing the linear regression on growth in GDP per capita vs. population growth rate without the city states. Melbourne and Sydney have much higher population growth rates than Australia as a whole. Hong Kong is not an independent country and would be a city state if it were. Countries can still perform well economically in any case with essentially stable populations, as I showed with Finland and Germany. Even if you could still show a modest benefit, the GDP per capita figure does not include a lot of other factors that may matter more to people than a few more dollars in their pockets (assuming the gains are widely distributed), such as traffic congestion, the cost of housing, more extinctions as urban development covers habitat, etc. There is also the question of whether strong economic performance is attracting more people, rather than high population growth leading to good economic performance.

I did a linear regression on the Gini coefficient versus population growth rate in 2012 (from the World Bank figures) for the OECD countries. Once I omitted Luxembourg as an outlier (very small and 82% urban, so resembling a city state), I got a positive correlation between higher population growth rate and higher Gini coefficient which was significant at the 5% level given the sample size (r = 0.36). See graph in

http://vassarstats.net/textbook/ch4pt1.html

If I had picked 2009, I would have probably gotten a better correlation. (New Zealand for example, was growing at 1.1% in 2009 and 1.2% in 2010).

It is clear that population growth is not the only cause of social inequality, but the high population growth Anglosphere countries are all in the bottom half of the OECD's inequality rankings that I linked to earlier, and the US is just above Turkey, Chile, and Mexico. Why is high inequality acceptable if it is due to immigration rather than natural increase? Prof. Borjas' article that I linked to earlier explains how the wages of native born workers who compete with migrants are significantly depressed.
Posted by Divergence, Monday, 11 November 2013 7:59:11 PM
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Divergence
Removing Luxembourg and Hong Kong makes little difference to the regression.

In the 10 years to 2012 Australia’s population rose at 1.5% a year, Sydney’s by 1.3% and Melbourne’s by 1.8%. The fastest growing capitals were Perth (2.4%pa) and Brisbane (2.3%pa).

http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3218.02012?OpenDocument

WA and Qld also had the fastest per capita GSP growth of the states – again reinforcing the positive correlation between population growth and rising real economic output for Australia.

Gini coefficients are only a partial gauge of economic welfare. As Churchill is reported to have said: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” It is not coincidence that in the data you linked to, the highest inequality in the richer OECD countries is in the USA, the lowest is in a former communist country (Slovenia). Despite its comparatively low inequality Slovenia has a much lower overall living standard; personally I’d rather live in the USA.

My own analysis of the relationship between population growth and inequality showed a very weak and statistically insignificant positive relationship; but let’s assume for the sake of argument you’re right. Certainly, the incomes of migrants tend to be lower than the incomes of native-born populations, and this could in theory explain why inequality is higher in countries with higher migrant intakes. But does this necessarily represent a welfare loss? If migrants are willing to do work that native-born Australians are unwilling to do, or at wages they are unwilling to accept, that does not necessarily make the established population worse off (probably better off, if It means we have more affordable aged care, qualified nurses and others in jobs where migrants tend to concentrate). And if migrants have a higher living standard in Australia than their countries of birth, then their welfare is improved by migration (which makes sense, or else they wouldn’t be here). If migration raises living standards for both migrants and the established population, does it matter if it also raises inequality by a very small amount?
Posted by Rhian, Monday, 11 November 2013 8:51:36 PM
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Rhian,

Within Australia, where there are no barriers to migration, population growth may be correlated with economic growth because high economic growth attracts people. The same may be true between countries if the government allows high immigration.

Yes, some of the more equal countries were part of the Soviet bloc, but Denmark is number 2 and was never Communist. This graph shows that being in the bottom 10% of the income distribution is better in a number of European countries than it is in the US - in absolute, not just relative terms. How can this be if inequality makes people better off?

http://stateofworkingamerica.org/chart/swa-poverty-figure-7v-earnings-10th-percentile/

You left out a third of OECD countries when you analyzed your data on population growth rate vs. inequality. I put all of them in except Luxembourg. If a country is developed enough to be in the OECD (and Chile thought that it was a really big deal when it was admitted), then that country should count. You were able to show lack of significance not only by omitting data that didn't support your argument, but also raising the r value required for significance due to the smaller sample size. "If you torture the data hard enough, it will confess."

Poverty doesn't stay concentrated among the immigrants as you say. See Prof. Borjas' article that I linked to above.

Cont'd
Posted by Divergence, Tuesday, 12 November 2013 7:04:32 PM
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Cont'd

According to Tim Colebatch, the Economics Editor of the Melbourne Age

“People born overseas have taken almost three-quarters of the net growth in full-time jobs in Australia in the past two years, even though they make up just 31 per cent of the adult population. Analysis of the Bureau of Statistics jobs data reveals that, comparing the six months to April with the same months two years earlier, Australia gained just 131,000 more full-time jobs - one new full-time job for every five new people.

"But in net terms, people born overseas gained 97,000 more full-time jobs, while Australian-born people gained only 34,000. The economy created only one new full-time job for every 10 more Australian-born people aged 15 and over.

"The figures raise doubts about employers' claims that they must hire workers from overseas because Australians are not available to do the jobs.”

Read more: http://www.smh.com.au/national/skilled-newcomers-flood-fulltime-jobs-market-20130614-2o9vm.html#ixzz2i3tNxUVR

If you are an employer, you can hire 457 visa holders and get prime age workers who are already fully trained and experienced. You won't have to train apprentices, and your migrant workers will put up with more because they want you to sponsor them for permanent residence or are ineligible for welfare. The people you pass over end up shuttling between unemployment and low-paid precarious employment. Apart from the suffering of the individuals affected, there are enormous welfare and indirect costs, which are socialised by the employers who profit from the migrants. According to Roy Morgan Research, the real unemployment rate in Australia is now 10.4%, on top of an underemployment rate of 8.6%.
Posted by Divergence, Tuesday, 12 November 2013 7:20:17 PM
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