Population surge put pressure on NZ's ability to absorb all the extra people, says Productivity Commission. Photo / Michael Craig
OPINION:
You can have too much of a good thing, the saying goes. Is immigration one of those good things?
In recent years, probably. At least that seems to be the conclusion of the Productivity Commission, which this week released the preliminary findings and recommendations of its inquiry into immigration settings.
Between 2015 and 2020, when Covid saw the border closed, the net inflow of non-New Zealanders comprised the majority of growth in the resident population.
It was a population shock driven by rapid growth in migrants on temporary visas. "In addition to putting pressure on the country's 'absorptive capacity' this growth also saw a notable shift towards temporary migrants filling vacancies in lower-skilled occupations," the commission says.
Its report does not really define absorptive capacity beyond "our ability to successfully accommodate and settle new arrivals", but it evidently has in mind the constraints arising from chronic underinvestment in housing and infrastructure (physical and social).
When the Productivity Commission discusses the impact of immigration on productivity, it points to a contrast between micro-economic studies, which conclude that it is positive, and a macro-economic view which is sceptical of a net benefit.
"In most OECD countries, including New Zealand, migrants are on average younger and more skilled than the host population. As a result migration increases GDP per capita because a greater proportion of the population is working and average skills among those working are higher."
The sceptical macro view, on the other hand, argues that demand-side effects can trump the supply-side gains, by requiring resources like capital and labour to be diverted from tradeable to non-tradeable sectors and by requiring higher interest rates to bring the economy back into internal balance.
"Aspects of New Zealand's economic performance over the past 30 years are consistent with these arguments," the commission says, "including a persistent high real exchange rate (despite poor relative productivity growth which would tend to push the exchange rate down), a flat to falling share of exports to GDP, slow rates of productivity growth and high real interest rates compared with other developed countries".
It thinks immigration is unlikely to be the sole cause of these trends, "but the symptoms are consistent with it at least being a contribution". Disappointingly, it leaves it at that.
Central to the pro-immigration micro view is the need to plug skill shortages.
The process for compiling skills shortage lists could be more robust, the commission thinks.
"Further, although immigration is one way of introducing skills into the economy, there are no links or feedback loops between occupations on the skills shortage lists and the production of skills through New Zealand's education and training system."
It has received mixed messages on this. Peak bodies from the information technology sector have told it that immigration has become the first port of call for many tech companies, which see it as easier and cheaper than investing in upskilling domestic talent. They say they are working on that.
By contrast, other industry bodies point to spillover benefits from migrant workers passing on skills to the local employees they work alongside.
A common concern is that immigration might push down wages, conditions and hiring opportunities for local workers.
But the commission concludes that, overall, studies have found very minor and mostly positive impacts on the average earnings and employment of local workers. As always, averages can mask considerable variations, in this case between regions and industries.
"Small impacts likely reflect the fact that over the last 20 years New Zealand has had relatively low levels of unemployment, high rates of [labour force] participation and very low rates of long-term unemployment compared with other OECD countries," it says.
"Compared to other OECD countries, New Zealand's minimum wage is relatively close to its median wage, which may moderate the downward pressure from low-skilled immigration on wages for New Zealanders," says the commission.
That is all very well, but last week's startlingly strong labour market numbers for the September quarter still record that 71,000 — or one in every nine — people aged 15 to 24 are neither employed nor receiving education or training. Is that the best we can do?
The commission also reflects on whether immigrants themselves get a fair go. In a couple of respects it thinks not.
One is the requirement tying recipients of essential skills visas to the employers who sought that visa for them.
The commission recommends removing that condition, both to lessen the risk of exploitation and to enable a better match of workers to jobs. "Where there are concerns about the displacement of New Zealanders, work rights could be limited to specific regions, occupations, industries or accredited employers."
The other problem is the disconnect between the uncapped nature of issuance of some visas with work rights and a potential pathway to residency, for example to students, and the number of residence visas available at the other end of that pathway.
This has resulted in "mismatched expectations by migrants" — a coy term for systemic disappointment, if not outright deceit. The commission recommends that the allowable volume of temporary migrant visas with potential residence pathways should be managed, to be compatible with the number of residence visas on offer.
It is also seeking feedback on whether the annual number of residence visas on offer should be reduced. "If so, to what level and why? And if not, why not?"
It seems inclined to recommend fewer residence visas on absorptive capacity grounds. It says that if changes are not made to ease restrictions on housing construction and to boost investment, a "least regrets" approach implies setting the planning range (for residence visas) at lower levels than has been the case in recent years.
It does not recommend sudden reductions in immigration volumes, however. "The loss of access to migrant labour following the closure of the border has revealed concerns about the reliance of many industries on migrant workers and the serious economic consequences of sudden shocks to labour supply," it says. "Ideally any reductions or moderation in numbers should be staged, well signalled and based as far as possible on evidence."
But economist Michael Reddell argues that the reason net migration flows, in and out, and by New Zealanders and others, are volatile is not mostly about New Zealand policy.
Rather, the volatility mostly arises because when the Australian labour market is strong, the net outflow of New Zealanders to Australia increases and when it is less strong it drops, often quite sharply.
"It is disconcerting the commission still seems to be hankering to attempt to smooth the net flow," Reddell says.
"I suspect that if there is one thing the champions of high immigration and the sceptics (like me) agree on it is that attempting to use policy to fine-tune flows is a daft and probably unworkable idea."
And if the Government did want to encourage large average migrant inflows, changing the rules frequently on the basis of economic forecasts of dubious accuracy is not a sensible way of attracting the few really able people likely to be seriously interested in settling here, he said.
Submissions on the commission's draft report close on Christmas Eve.
Fletcher Building says it will gain $56 million from the Puhoi motorway settlement.