Brian Fallow: Measuring the Kiwi brain drain

A survey of high-achieving school leavers found 44 per cent were living overseas. Photo / Supplied

New Zealand, we are often told, has the highest brain-drain rate among OECD countries.

That is the proportion of tertiary-educated people born in this country who are living overseas. It is just less than 16 per cent.

It is commonly held up as some kind of index of national failure.

But if you think it is a bad thing, you have to say bad for whom, and if you think something must be done about it, you first need to know what drives the brightest of us to leave and what induces a significant proportion of them to return.

Some painstaking research by Professor John Gibson from the University of Waikato and David McKenzie from the World Bank illuminates the issue.

As part of a wider study of the brain drain from five Pacific countries, they tracked down 476 of the academically highest-achieving Kiwi school leavers between 1976 and 2002 - a laborious process - and received survey responses from 371 of them. Just more than two-thirds of them had lived abroad at some stage and 44 per cent of them still do.

Gibson and McKenzie found no clear evidence that the younger age groups among them were more likely to migrate. Among those working abroad and not still students, the average pre-tax income was US$116,000 ($168,000), which is about US$50,000 more than they estimate they could earn at home and US$40,000 more than the average income of those in the sample population who have returned or never left.

Gibson and McKenzie then adjusted those numbers to allow for differences between New Zealand and wherever the expatriates were, in both the cost of living (not necessarily well reflected in market exchange rates) and income tax rates.

That narrowed the income gap somewhat but still left them an average US$21,000 a year better off.

Well, good for them, you might say, but what about the impact on the country? There are both costs and benefits.

It is sometimes argued that a highly educated diaspora benefits the home country by stimulating trade, foreign direct investment and knowledge transfers - as with India and China gaining high-tech firms as a result of having a lot of expatriates working in Silicon Valley.

But Gibson and McKenzie found little evidence of similar benefits in our case: only 6 per cent of expatriates in their survey were engaged in trade; less than 5 per cent were involved in start-up ventures at home and only 4 per cent provided any kind of advice to the government or New Zealand companies.

It might be thought this reflects an ivory tower bias arising from concentrating on the academic top achievers among school-leavers.

But the researchers point out that only just over a third of the expatriates in their sample are academics or researchers and the rest include businesspeople, software developers and other IT professionals, doctors, lawyers, bankers and consultants.

On the cost side, the usual complaint is that expatriates take their taxpayer-funded education with them but then do not contribute to the New Zealand tax revenue.

On the other hand, they are not consuming taxpayer-funded services either. On balance, Gibson and McKenzie reckon the net fiscal loss per highly skilled migrant is of the order of $10,000 a year.

"What is noticeable is how small these fiscal costs are relative to the income gains estimated to the migrants themselves," Gibson and McKenzie say.

As well as the imminent dropping of the top personal tax rate, one might also reduce, at least a bit, the net income gap between these highly skilled expatriates and their stay-at-home or returned peers, and reduce the extent to which their departure represents the loss of a piece of the tax base.

If the financial rewards for making a career overseas are so great, why have about a third (so far) of the best and brightest returned?

The biggest factors cited in the survey are the fact that relatives are here, a preference to bring up children here, lifestyle, safety and security.

When respondents were asked to recommend one policy area to focus on to make New Zealand a more attractive place for them to work, tax and general income levels topped the list, followed by research funding and university salaries. Only 4 per cent said student loans and allowances.

However, all of this relates only to the most academically gifted and to New Zealand-born migrants.

A wider-angle view is provided by another piece of work by Department of Labour analysts Richard Manning and Ram SriRamaratnam, who looked at the skill composition of migrant flows in recent years.

Their data are derived from the occupations that migrants, inbound and outbound, put on airport arrival and departure forms.

They are broken down into four categories: the highly skilled (managers and professionals), skilled (technicians and tradesmen), semi-skilled (the likes of clerical and sales staff, farm workers and fishermen) and elementary (the rest). The highly skilled make up the largest proportion of both departures and arrivals.

The researchers found that over the past eight years, the flow of highly skilled permanent and long-term migrants had been positive - a net gain - while New Zealand had experienced a net loss to the rest of the world across the other three categories.

Judged by qualifications, immigrants in general were sightly more skilled than the New Zealand population, they found.

But at the higher end there is nothing in it, with 30 per cent of recent immigrants holding a bachelors degree or higher, compared with 29 per cent of the rest of the New Zealand population.

However, if the statistics give some reassurance of quality, they lately have been providing scant comfort on the quantity front.

The net inflow of permanent and long-term migrants has dwindled to almost nothing over the first half of the year. By June the net gain was just 70.

We will find out tomorrow, when the latest statistics are released, if last month was any better.