Immigration — it’s value, not volume
Time to focus on more than just the number of migrants
Covid provides an opportunity to rethink and reset immigration policy — hopefully to one which does more for the country than push house prices up and wages down.
A trenchant recent contribution to the debate we need to have has been provided by NZIER economists Peter Wilson and Julie Fry, in work commissioned by the Productivity Commission.
But before turning to their analysis, some big picture numbers: the 2018 census found that 27 per cent of the people who live in New Zealand were born in another country.
In 2013, the statisticians expected net immigration would add about 10,000 a year to the population going forward. In the event, over the past seven years it has averaged 56,000 a year, or more than 1 per cent of the population and 61 per cent of the population growth.
Net immigration includes the comings and goings of New Zealanders, but almost always there is more going than homecoming.
The failure to build enough housing to accommodate this population shock is one of the factors — among many — contributing to the housing crisis.
On the other side of the ledger what has migration achieved? Wilson and Fry are blunt: lots of nice people; relatively few trailblazers.
“Rather than bring in top-tier skilled migrants and entrepreneurs, New Zealand has welcomed large numbers of perfectly nice immigrants who, while having very modest impacts on GDP per capita, have contributed to the country’s wellbeing in many ways. Our society is richer and more diverse.”
But there have also been wellbeing costs, they note, “including impacts on housing costs, urban infrastructure costs, congestion and displacement of low-skilled New Zealanders from jobs”.
In a Cabinet paper from December 2018, officials estimated that at any given time there were around 170,000 people living and working in New Zealand on temporary work visas, equivalent to about 6 per cent of the official labour force at the time, but heavily concentrated in the hospitality and primary sectors where their share of employment was around 20 per cent.
Wilson and Fry zoom in particularly on three groups with limited work rights but whose numbers have grown rapidly: feepaying students, working holidaymakers and short-term workers in the horticulture and viticulture industries.
Rapid growth in these categories, they suggest, reflects the Government’s use of immigration to address other objectives, like supporting the export education industry, fostering goodwill and reciprocal rights for backpackers with trading partners, addressing labour shortages and aiding the economies of Pacific neighbours.
Worthy objectives, no doubt, but the effect over time, Wilson and Fry conclude, has been that “rather than bringing in modest numbers of people with the potential to transform the New Zealand economy, temporary visas were increasingly granted to large numbers of people with skills at or below the New Zealand average”.
Migration policies which give New Zealand firms access to low-cost foreign labour are likely to inhibit many of them from moving closer to the “domestic productivity frontier”, that is, national (never mind international) best practice in productivity.
“These policies reinforce a lowskills, low-wage, low-capital status quo,” Wilson and Fry say.
“Worse, they shield important parts of the wider public sector — education and training, but also the social policy, health and community sectors — from the consequences of not addressing longstanding issues of disadvantage and delivery.”
Other ways of dealing with skill or labour shortages, ways that enhance productivity, are available, such as improving education and training, paying higher wages and improving working conditions, and investing in automation.
All are more likely to occur when there is no readily accessible alternative source of workers, Wilson and Fry point out.
Lifting pay and conditions is the quickest of those options. Education and training typically take longer.
And capital deepening — increasing the amount of capital invested per worker — has to overcome high fixed investment costs, seasonality in some industries, and technical difficulties involved in mechanising some processes.
Nevertheless, the primary sector has been quick enough to adopt new technology when the economics favoured it, like the transition from Clydesdales to tractors.
Nor is New Zealand entirely bereft of the engineering expertise needed — think Scott Technology’s robots in meatworks or Robotics Plus’ kiwifruit harvesting machines.
But as Wilson and Fry remind us, if cheap labour is available, rational profit-maximising firms will use it.
“The policy challenge for the Government is to constrain migration in areas where, with innovation, investment and changed business practices, firms can be profitable without cheap foreign labour and move closer to the frontier.” Easier said than done, one suspects, but surely the right focus.
As for international students and their work rights, the Government’s thinking seems to be that this, like tourism, is a sector in need of a strategic shift from volume to value.
A Cabinet paper last June from Education Minister Chris Hipkins acknowledged that the sector’s rapid growth had resulted in “issues including poor student experiences in New Zealand”.
“There were also concerns about recruitment of students primarily motivated by work rights and pathways to residency and providers focusing on volumes and revenues rather than for education outcomes.” That is bureaucratic language for a scandalous level of mendacity and greed at the dodgy end of the sector.
“International education in most countries can include an element of work experience, either during or after study, and many students value that as part of the total experience to build their future employability at home,” the Cabinet paper says.
“However, domestic work rights may need to be revisited in New Zealand, to ensure that international students are not competing with New Zealanders for scarce employment. At the same time, settings will need to be examined to ensure students have adequate funds to support themselves, and to strengthen pastoral care obligations and migrant exploitation assurances. Any tightening of work rights may make New Zealand less attractive to some student groups.” Quite how policymakers balance those considerations remains to be seen.
The NZIER paper concludes that when the border is reopened, the Government should retain current provisions for top-end skilled and entrepreneurial migrants but substantially reduce inflows of people with skills that are the same or lower than the average for the local population.
They recommend reducing the availability of cheap imported labour by eliminating generous employment rights for fee-paying students, and working to reduce the current number of working holidaymaker visas.
And they call for a review of the Recognised Seasonal Employer scheme with a view to better balancing productivity and humanitarian objectives.
Rather than bringing in modest numbers of people with the potential to transform the New Zealand economy, temporary visas were increasingly granted to large numbers of people with skills at or below the New Zealand average.
Economists Peter Wilson and Julie Fry