Post-Brexit, more than 10,000 Brits have expressed an interest in coming to New Zealand. But do we want them? This country is already in the grip of a record immigration boom - nominally outstripping any time in our history, dating back to 1860. This has already been highlighted as one cause for the dramatic surge in house prices. Now questions are being asked about the effect it is having on employment and wage growth. In a report published Friday, Sydney based Capital Economics concludes that our immigration boom is the primary cause for low wage growth in New Zealand over the past few years. Immigration is a complex and emotive issue. It pays to tread carefully. When Winston Peters blames immigration for our woes, I typically bristle. Blaming immigrants has always been the go-to approach for populist politicians. But when economists with no emotional interest see such a strong side-effect, it is another matter. The unpalatable part of anti-immigration arguments is the "blaming" of so-called outsiders for problems that are really our own. Immigrants themselves shouldn't be the target of the debate. Our policy towards future immigration is the issue.
The unpalatable part of anti-immigration arguments is the "blaming" of so-called outsiders for problems that are really our own.At some point the effects of immigration do have a real impact on a country. Many of these things are very positive but side-effects have to be considered. Capital Economics' Kate Hickie is quiet blunt in her assessment of the situation in relation to wage growth. Her report looks at the issue of under-utilisation in the labour market here and in Australia. This is the problem of having a growing number of people who are employed part-time, but prepared to take on more work. It can flatter our base line unemployment rate and keep downward pressure on wages. But while Hickie sees this as major factor in Australia's low wage growth economy, she argue it is far less so on this side of the Tasman. "It seems more likely that subdued wage growth in New Zealand is instead the product of the historically high surge in net migration over the last few years," she writes. There is a trade-off here. Clearly the migration boom has supported demand in the economy and has maintained our GDP growth through the dairy downturn.
It seems more likely that subdued wage growth in New Zealand is instead the product of the historically high surge in net migration over the last few years.But, says Hickie, citing the correlation between our net migration data and labour force growth, it has also clearly boosted the labour supply. We have already heard the Reserve Bank suggest that a government review of migration policy might be useful in relation to addressing soaring house prices. We certainly do need a supply of skilled workers in this country and there will be issues with labour supply for the upcoming and much needed surge in Auckland construction. But right now wage growth stands out overwhelmingly as the missing piece of the puzzle in what would otherwise be a very successful economic story. It needs to be addressed for reasons of fairness. It also needs to be addressed to generate the kind of spending growth that will boost domestic business confidence and lift inflation. Migration growth is starting to slow, but the net gain remains at record monthly highs. Economists suggest it is likely to remain elevated for at least a few more years. Its also true that much of the net gain is made up of returning New Zealanders and underpinned by fewer Kiwis leaving. But nevertheless, a government review of the immigration policy after such a historic surge - and given the side effects it may be causing in housing and employment - now seems highly prudent. No one is suggesting turning off the tap for specialist workers and workers in crucial industries like construction. But with Christchurch demand winding down there will be changes in the required mix. It is crucial we have that mix right for the next phase of this economic cycle. I'm sure some of those 10,000 Brits will be valuable additions to this country. But if we allow wage growth to stay stagnant then we risk the fuelling exactly the kind of rise in populist politics that they all seem so keen to escape.