Skilled Immigration and the Supply of Complex Problem Solvers in the Economy

Jeromey Temple, Australian National University

In all advanced countries, the number of older workers is increasing while the number of younger workers is falling (or growing slowly). If labor shortages provide a stimulus to technological development and to higher productivity resulting from increases in capital per worker, this may not be a problem. However, this argument is contingent upon the assumption that older workers are substitutes for young workers. In jobs that require the most sophisticated technological skills, older workers are not substitutes for young workers. We identify a segment of the labor force that we describe as complex problem solvers (CPS). Both the psychological literature and the economic literature show that complex problem solving skills deteriorate rapidly after age 40 and, consistent with this, in Australia, 80% of CPS are aged less than 40. Using Australia data, we show that skilled migration is a highly effective way of increasing the supply of CPS workers.