External border closures in Australia reduced the unemployment rate by around 2.7 points

The debate continues as to whether the population growth slowdown instigated by the Covid border restrictions imposed by the Federal government has been responsible for the rapid decline in the unemployment rate in Australia. The mainstream view is that migration is good for the economy and adds more in net terms to overall spending (and labour demand) than the extra workers add to labour supply, meaning that it does not put upward pressure on the unemployment rate. I have always contested that view – as a general statement. The reality is that depending on the stage of the cycle and the strength of labour demand, the rate at which new entrants enter the labour force, and the size of the unemployment pool at any point in time, immigration can undermine the employment prospects of local workers. Based on some reasonable estimates, if the external border had not been closed, the unemployment rate would be around 6.9 per cent now, rather than the official rate of 4.2 per cent. The rapidity of the recovery in the unemployment rate is due to the border closures and that should condition appropriate visa policies.

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