The Australian visa point-system is the envy of the world as it has ensured that Australia gets a large influx of well-educated, healthy, English-speaking migrants. How large is the free gift that comes walking into our doors this way? Conservatively, I would say 50 billion dollars per year, probably more. Let us go over the calculation.
One method of calculating the free gift of migration is to look at how much the roughly 180,000 migrants earn during their life in Australia. With a lifetime income in the range of 2-4 million dollars(not counting those migrants above 44 years of age or below 15), this would make the gift of migration in the order of 100-200 billion dollars a year, i.e. 10-20% of GDP every year. Yet, of course, this method is not valid because migrants also consume: they take up space, commute, drive up housing prices, etc. What they produce in their life is not the added benefit to Australia of their arrival because they will also consume part of what they produce. If there were perfect markets and no initial investments, then migrants would just get paid what they are worth and thus consume what they produce.
Yet, there are initial investments coming in with migrants, namely the cost of acquiring their human capital. It is that cost that Australia does not have to bear that is the net benefit to the community they came to augment. The value of a migrant is hence not really their lifetime income but rather the costs we do not have to cover because they walk in already trained instead of having to be raised and educated by means of local investments. In the simplest terms, the taxes on their income pays for the education and development of locals, but not for those already reared and educated when they arrived.
One way to consider the gift we get is to calculate how much effort would be required to create the same outcome ourselves. What are the costs of educating and raising the same number of people to the same level as these migrants? Let us consider some estimates from the US and Australia.
The US department of Agriculture estimates that in America, it costs around 227,000 dollars to raise a child from birth till the age of 18. This includes food, shelter, the opportunity cost of the time investments of the parents, and school tuition fees. The cost of then getting that child through university is another 250,000 dollars, meaning that your average American university under-graduate represents and investment of about 477,000 dollars.
Now, in poorer countries these costs are lower whilst in some richer countries, these costs are higher. Yet, given that US GDP per capita is about as high as Australian GDP per capita, one could argue that 375,000 dollars will be close to what it costs in Australia to raise someone up to be a university undergraduate.
There are of course also estimates for Australia. A 2009 federal government report puts the costs at around 500,000 dollars per graduate , and Social Researcher Mark McCrindle estimates the costs to be as high as 1 million per 24-year old, but this includes costs of pregnancy and the supposed costs of children on accommodation (which is a bit much since pregnancy is partially consumption). Yet other estimates put this as lower, but still around 500,000 per undergraduate.
There are of course those who argue that people with kids are actually richer than most others and hence kids can’t be that expensive, but I prefer the studies that tabulate what actually goes into kids and to price those investments, which in turn reaches the half a million per graduate mark.
How many migrants do we get that fit this bill? Well, in 2010-2011 we got 113,725 migrants in the Skill Stream, and the planning level for the ensuing years is about 130,000. Yet, these are the number of people coming in under a particular Visa stream, which doesn’t just mean the skilled person but also his/her family and partner. Whilst the family and partner also already represent a significant investment of another country, the free gift is not equally as high as the skilled migrant themselves.
The productivity commission managed to dreg up the age-distribution of people in different visa categories. Presuming that their 2004-2005 distributions still holds, would mean that 66% of the skilled are in the 25-44 age category, and another 20% in the 10-24 years category, with basically no-one above 65. Indeed, at least 65% of the persons coming in under skilled migration have at least a bachelor’s degree. 16% have a postgraduate degree and the other 35% are mainly still at school.
As a rule of thumb, in the skilled visa category, we are getting around 100,000 migrants with a bachelor degree paid for by overseas countries. This represents a free gift per year of 50 billion Australian dollars, or 5% of GDP. If we would further count the well-educated in the family visa streams and count some of the education already in the kids who come with migrants, this is higher, but we could get lower numbers if we start counting the costs of the relatively less healthy and older in all visa categories. A more in-depth study would be needed to get a tighter number, but my ball-park guess is around 50 billion dollars per year, which makes immigration our most lucrative industry