Governments plans to reset immigration policy missing the boat

As employers cry out for workers, migrants queue in frustration and others prepare to leave, Government plans to “reset” immigration policy appear to be missing the boat. By Jane Clifton.

In 2018, then-immigration minister Iain Lees-Galloway caused ructions for the Labour-led Government when he bluntly told business that firms that couldn’t afford to pay their workers fairly deserved to go under.

Now, the Productivity Commission, whose work will likely underpin major changes to immigration policy, has gone quite a bit further. Chairman Ganesh Nana says it’s possible New Zealand would be better off letting whole areas of business atrophy if they can’t make enough money to pay higher wages than at present.

The commission has indicated a particularly sharp focus on the degree to which immigrant labour improves economic growth and productivity. Its preliminary view: not much. But it admits the data is hard to interpret given local conditions.

On world graphs, this country’s demographics look a bit odd. Its population is getting older faster than most other developed countries’, an unusually high proportion of its working-aged folk are just passing through and a globally remarkable proportion of citizens don’t live here at all.

While New Zealand is at least not alone in facing an acute, Covid-wrought labour shortage, the Government’s planned immigration reset comes at possibly the most challenging time in modern history to make long-term population-management decisions. The country is, somewhat unexpectedly, approaching as near to full employment as it’s possible to get. At the same time, it shares with other developed countries a worsening labour shortage and fierce global competition for skilled workers. This appears to make the Government’s proposal to crack down on inflows seriously untimely.

But the commission’s most critical mission is to discern which sort of imported labour is a net positive and which is more of a burden. That’s no easy analytical task because, compared with other developed countries, New Zealand’s immigration settings have become unusually heavily skewed toward temporary labour, a lot of which later becomes permanent.

The temporary problem

As commission researchers have said in preliminary papers to its full report due next year, there’s plenty of reliable data and analysis about the effects of permanent immigration, but very little on temporary inflows.

At its peak, in 2017, the temporary inflow here was close to 250,000: people with student visas, gap-year visitors with the right to work during their holidays and seasonal horticulture and viticulture workers. That’s three out of five immigrants on temporary visas.

It’s generally accepted that permanent migrants make an economic contribution. The OECD’s 2019 survey, for instance, found small positive effects from long-term immigration on per capita incomes.

However, the commission’s preliminary work suggests that temporary migration tends to have small negative effects, particularly on low-skilled local workers. It’s feared they depress wage rates, and have at times displaced local workers.

The commission opened submissions in June, and already it’s clear that its task, fashioning a 10- to 30-year road map for population policy, will be very much a “yes, but …” exercise.

For every positive statistic derived from immigration, there is a less clear-cut effect.

Pluses and minuses

An overwhelming positive is that the long-held supposition that immigrants are more likely to be ambitious and self-improving seems to be true. The commission says 90% of overseas-born (non-refugee) migrant schoolchildren gain at least a Level 2 qualification after at least five years’ schooling here. This is higher than the average for other school leavers (81 per cent).

More contentious is the pressure incomers put on housing and infrastructure. With some of the most expensive housing (relative to income) in the OECD, New Zealand has found housing particularly sensitive to population growth. This has caused still-unresolved angst about the influx of capital, particularly from Asia, into the housing market and the increasing mobility of cash from newly wealthy Chinese. Yet the commission says some research suggests changes in the net migration of New Zealanders – for instance, last year’s Covid-propelled homecoming of nationals – had a larger impact than foreign migrants on house prices.

When Covid struck,between 600,000 and one million citizens were estimated to be living overseas, all with the right to return. On the other hand, employment agencies predict a fresh stampede of talent out of New Zealand for better conditions overseas as borders reopen. However, the commission says the relative impact of New Zealanders’ versus migrants’ movements on housing is neither agreed upon by economists nor necessarily a stable phenomenon either way.

Wage effect

Also to be teased out is whether New Zealand’s policies sufficiently distinguish between skills shortages and labour shortages in its essential skills category intake. The commission is looking at the weighting between skilled people we need because we haven’t trained enough locals in that skill set and people we need because locals won’t do the work. The latter category is the more immediately controversial because it’s typically low-paid, if not necessarily unskilled work. The commission says it will be questioning whether the work is simply too poorly paid, and even whether businesses reliant on low-paid labour ought to continue to exist at all.

Four out of 10 essential-skills visas in 2019 were for low-skilled roles: more than 10,000 people went into dairying, retail, aged and disability care, labouring and cleaning.
More than half of the essential-skills-visa people went on to get residency after their visas expired. Thus, New Zealand is importing a fair proportion of unskilled, low-paid workers to its permanent population in a way that wasn’t planned for.

A further complicating factor is New Zealand’s again globally disproportionate ageing population. In the next 10 years, those here aged 65 and older will be a faster-growing category than those of working age.

Unless the workforce can be kept growing at a proportionate rate, economists worry GDP might suffer. New Zealand won’t be alone in entering an age-work imbalance. A number of countries, including Korea, Germany and Japan, have recently begun experiencing shrinking labour capacity. But maintaining workforce size appears to be critical to prosperity. Workforce growth made up a third of all economic growth in the OECD between 1960 and 2015.

The commission’s interim report is expected in October.

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