He also recommends tax credits to lever the low-skilled into jobs without slashing wages.
Under the present system, people on welfare face effective tax rates of 80 cents to 90 cents in the dollar if they take on part-time or casual work because they lose their government benefits. With tax credits, they could work and pay little or no tax.
Senior Howard Government figures, notably the Employment and Industrial Relations Minister, Tony Abbott, advocate tax credits as a means of making low-paid employment more attractive without pushing up labour costs for employers.
The thrust of the Garnaut report is that Australia is pursuing the right immigration strategy with its emphasis on attracting the young and highly skilled.
This contrasted with the approach in the US, which is dominated by an influx of largely unskilled Latin Americans to fill shortages at the bottom end of the labour market.
The report - Migration to Australia and Comparisons with the US: Who Benefits? - says there are rewards through economies of scale from a larger population.
Incomes are pushed up as immigration brings in younger people with valuable work skills, but the benefits are not shared equally, it says. Locals unable to buy urban properties, or who had little superannuation, suffered as the new immigration boom pushed up land prices.
The same boom benefited companies dealing in goods and services shielded from international competition.
And yet low-income Australian workers generally get a bigger income "kick" from the immigration system than their better-educated counterparts, the report says.
This was because governments redistributed the financial benefits of a bigger population to the less well-off.
High-skills immigration also created more future job opportunities, but well-qualified locals found their labour was no longer as scarce.
Despite this, highly skilled locals were better placed to benefit from property prices.
"Owners of urban land are especially big winners and not only in the cities that receive large proportions of migrants," says Professor Garnaut (pictured).
The report, commissioned by the Immigration Department as part of its evaluation of the program bringing in 100,000-plus migrants a year, says a case can be made that the US system, with more flexible wage rates, is better at placing low-skilled migrants in jobs.
While wages were low, US migrants were less vulnerable than their Australian counterparts to unemployment.
This is pertinent not only for the 12,000 humanitarian entrants to Australia each year, the report says, but also for those unskilled locals who compete with them for jobs in areas like western Sydney.
"While immigrants to the US are now, on average, less well-endowed with economically valuable skills than immigrants to Australia, an Australian cannot help noticing how the US economy makes much more effective use of the human resources that are available to it," Professor Garnaut says.
For Australia, the solution was to examine policies that helped the entry into jobs without reducing the disposable income of the less well off.