Hire thinking

Meet the economist pushing for review of NZ’s reliance on migrant labour

‘People who say it is an economic miracle; that’s overblown,” says NZIER principal economist Peter Wilson, of the immigration boom New Zealand has seen in the past decade.

It might be a leap to call Wilson “the brains” behind the Government’s big reset of immigration policy.

But he and his NZ Institute of Economic Research (NZIER) colleague Julie Fry have had a big influence on government thinking around restricting the immigration of low-skilled workers.

Wilson and Fry have produced two major reports for the Productivity Commission which have led to a major policy review.

Last year they produced a broad overview which looked at New Zealand’s failure to develop more high-tech internationally connected firms.

This year they produced a more focused report that looked at the effects of temporary and seasonal migrants on the New Zealand economy.

Both pieces of research concluded that our increasing reliance on lowskilled migrant workers was suppressing investment in capital, wage growth — and ultimately — productivity.

The Government appears to have listened. It has declared that when the borders reopen it will look to limit low-skilled migrant numbers with a view to driving up local productivity and wages.

It has also commissioned a full immigration policy review from the Productivity Commission.

That’s provoked a worried response from the business sector, which feels the timing will exacerbate labour shortages already being caused by the pandemic.

But Wilson says he’s been pleased with the response and standard of debate the research has sparked.

“We were actually surprised, pleasantly, that we weren’t burned in effigy”.

There is a view in the business community that the Government is using border closures and immigration policy to squeeze labour supply, with a view to forcing wages up and hoping that higher productivity follows.

They feel that’s placing an unfair burden on business to cover the cost of economic transformation — a strategy that could backfire by reducing profitability and restricting job creation.

“Absolutely, I get that,” says Wilson. “That’s why the conversation about transition is so interesting. What can the Government do, what can industry do, to help firms that would struggle?

“If nothing else changed, obviously higher wage costs would reduce profitability . . . But that’s true of any input . . . so to some extent it’s a self-evident truth.”

That’s not to say Wilson is convinced by all the concerns coming from business. “The economist in me says you’ve also got to check if the employers are reaping super-normal profits. I think in horticulture I’d like that tested a bit more,” he says.

“It might be that the benefits of the low wages are going towards higher profits and they are able to pay those lower wages because of the immigration.”

Okay, but what of the primary businesses complaint: that they just can’t get local workers to do the work?

“What we say is that sentence has left out a bit,” says Wilson “Which is: ‘at the wages we’ve offered’.

“Which are pretty low compared to what those people could get in other jobs”.

He’s wary though of drawing hard lines around policy, arguing that more local research is required.

“In all economic policy, it’s easy to say where we are now and where we want to be . . . but it’s the route. That’s the thing to think about. What’s the transition path to get there,” he says.

“I don’t think I’ve heard any New Zealander say we want to be poor. Every government says they want a high wage, high growth, sustainable economy — that’s the end point.”

Covid gave us the opportunity to reset migration policy, he says.

“We’re really glad the Government has accepted that they are not just going to turn the tap back on again. They are going to think about conditions.”

The trouble, he says, is that immigration and its benefits are highly conditional on time and place.

There isn’t really a hard and fast piece of research that proves the case one way or other, he says.

Much of the focus has been around the increased reliance of the horticulture sector on the Recognised Seasonal Employer (RSE) scheme, which draws on workers from the Pacific Islands. And when it comes to that temporary migration — which has been a big part of New Zealand’s recent migration story — he and Fry found there was very little research anywhere in the world.

“The international evidence says: small positive impacts . . . and a lot of those accrue to the migrants themselves in terms of their wages. And that’s fine. If you add the wellbeing framework, that can change your criteria.”

In other words, New Zealand could keep taking high numbers of Pacific Island workers because we feel it is important to help those people. That’s a political choice, he says. As far as driving our GDP goes, the literature says that if migrants complement the local economy then you can get a good boost.

“It doesn’t just have to complement workers it can complement capital as well.

“If you are bringing in high-tech people to run your high-tech machines that’s cool. If you’re bringing a doctor to work with an existing nurse that’s cool . . . but where they are competing, that’s where migration can be a zero-sum game”.

So Wilson believes there is enough evidence there to warrant a review of immigration policy and his research has no doubt provided momentum for change.

“We’ve tried very hard to look at the literature. And there were lots of times we had to say we just don’t know,” he says.

“We’ve never said abolish the RSE scheme. We’ve said we have some concerns about the RSE scheme . . . we have very little data.

“We’ve said the increase [from] 5000 to 15,000 [temporary migrant visas] is a concern, it’s been done on the back of very little information. Let’s get better information”.

Things we don’t know include: how much RSE workers are paid per hour on average, what sort of living costs are deducted. “There’s no data on accommodation,” he says.

Wilson says he’s happy to be proved wrong, if it can be proved that RSE workers are providing complementary labour.

“But I have my suspicions and I’d like them tested.”

When he and Fry looked overseas the best example they could find was from the Californian horticulture industry in the 1960s, he says.

In the 1960s California stopped taking migrant workers from Mexico (legally at least).

“It was just the spur they needed to mechanise,” he says.

“Within 10 years 100 per cent of tomatoes were picked by machine. It went from zero to 100 per cent very quickly, so that’s the sort of example we’d like to look at”.

Wilson is the first to admit that New Zealand in 2021 is not the same as California in the 60s.

But he believes that if we are serious about shifting the dial on productivity we can’t just carry on with the status quo.

“It’s about transition,” he says. “Not just in migration, it’s in climate change, it’s in everything.”

He notes that New Zealand governments haven’t historically been very gentle with major policy change.

“Australia has tended to have had industry policy with transition paths and training, funding . . . that’s the sort of conversation we want to have”.

But for now the border is closed to almost everyone. We have something of a blank slate. So it’s about finding that middle ground, he says.

In an industry like horticulture for example, scale is an important consideration.

Larger growers are more likely to be able to afford mechanisation, he says.

Some, like Turners & Growers, are already making good progress with growing carefully shaped trees that allow mechanised picking.

“So maybe the small growers have got to go even more niche,” he says.

“They’re the conversations we’ve got to have in those industries that are using short-term immigrant labour. The economics says you earn profit from being unique . . . or you’ve got to have a cost advantage”.

Wilson says what he most wants to see is an informed debate about migration “without the racism and the paternalism and all of that”.

“We’ve said this is an economic issue that can be discussed reasonably dispassionately.

“But we are talking about people

. . . we’re quite glad that the Government is having a conversation around migration that isn’t just based on [saying] we don’t like migrants.

“I’m a migrant. I’ve been here 30 years,” says Australian-born Wilson. “Migration is really, really good for migrants.

“Absolutely New Zealand could choose to provide a certain amount of work and benefit to Pacific Islands.

“That’s the wellbeing bit. Don’t just look at the wages, look a costs. Look at in terms of improving the wellbeing of everyone”.

Liam Dann

It’s about transition. Not just in migration, it’s in climate change, it’s in everything.

Peter Wilson