Immigration effects and the OIA

The economic impact of immigration received considerable attention in the Reserve Bank’s December Monetary Policy Statement.  That made sense –  the net inflow (a small net outflow of New Zealanders and a large net inflow of foreigners) over the last year or so has been one of the larger net inflows seen for some time, and has led to an estimated population growth rate higher than we’ve experienced for decades.  Changes in immigrant numbers affect the labour market, the housing market, demand for government infrastructure etc.   A forecast-based monetary policy needs a good story about (a) what will happen to net migration, and (b) what the short-term economic effects of those immigration developments will be.  And making sense of what has already happened requires disentangling the various influences –  including those associated with changes in immigration.  It is particularly important in New Zealand, where the level of inward non-citizen migration is larger than in most advanced countries, and where the variability in the net flow of New Zealanders and foreigners is larger than most.  Watching the Republican debate the other day, I heard Marco Rubio argue that the US was the world’s most generous nation because it took around a million legal migrants a year.  That is about 0.3 per cent of the US population.  Our annual non-citizen residence approvals target is around 1 per cent of our population.

But reverting to the Reserve Bank view, the material in the Monetary Policy Statement and associated press conference wasn’t that convincing.  Here is what I wrote about it then:

I am also puzzled about the Bank’s stance on immigration, and the evidence base that lies behind it. The Governor is clearly at one with New Zealand elite opinion –  he told the news conference that he thought high levels of immigration were “a good thing for New Zealand” and that he did not think there should be any immigration policy changes.  Views differ on the long-term economic impact of immigration, and many certainly agree with him, but why was this a subject the Governor is commenting on at all?  Historically, the Reserve Bank has been studiedly neutral on the long-term issue, and focused (rightly) on the short-term cyclical implications.  Governors who use the platform they have been given to advocate their personal policy preferences in other areas risk further undermining support for the autonomy they enjoy in respect of monetary policy.

But even the Bank’s view on the cyclical impact of the recent high levels of immigration seems confused.  In chapter one (the press release) they assert that high levels of immigration have reduced capacity pressures and contributed to  a lowering of inflation (ie supply effects exceed demand effects).  In chapter 5, they produce a scenario about the impact of immigration staying unexpectedly high over the next year or two.  In that scenario they explicitly articulate what appears to be their latest new view, in which a change in immigration has no net short-term impact on capacity or inflation pressures (short-term demand effects are just matched by short-term supply effects).  There is no analysis in support of any of this.  And there is no engagement with their own past research, or with the consensus view of New Zealand macroeconomists going back decades that whatever the possible long-term gains from immigration, in the short-term the demand effects dominate the supply effects (which shouldn’t be surprising, since the per capita capital stock requirements of each new person are materially greater than one year’s labour supply).  It was only two years ago that they published a research paper which showed these results.

mcdonald rresults

Demand effects exceed supply effects in the short-run (of several years).

The Bank seems all over the place on these issues. Perhaps they have fresh new research on the issue, but they put out two new Analytical Notes this morning, and there was nothing on immigration. I have asked for copies of any analysis they have produced in support of their new view, including how it might relate to the 2013 research.

For decades, the Reserve Bank has been clear that the short-term demand effects of immigration outweigh the short-term supply effects in New Zealand.  That was typically the view of other macro forecasters, and it was also the consensus among New Zealand economists throughout the post-war period.  It isn’t surprising (modern economies need lots of physical capital – and building a house typically takes more than the value of a year’s labour) –  and it says nothing about whether or not large scale immigration is beneficial in the long-run.  But the Reserve Bank has now apparently changed its stance, while providing analysts, commentators, and the public no basis for their new stance.  Perhaps the new stance is correct, but we should be able to evaluate their arguments and evidence.

So on the morning of the MPS release, I lodged a request with the Bank for

Copies of any analysis undertaken by, or discussed by policy committees at, the Reserve Bank since 1 June 2015 about the determinants of net migration in New Zealand and the economic impact of immigration.  I am interested both in any material shedding light on the Bank’s evolving views around the balance between supply and demand effects of immigration (including any reflections on the ongoing relevance, or otherwise, of the results published in Chris McDonald’s 2013 Analytical Note) [from which the chart above is taken], and anything shedding light on the Governor’s comment this morning that the high level of net immigration is a “good thing” for New Zealand.

It wasn’t a “gotcha” request.  I assumed there must be some new modelling or research behind the Bank’s stance, and was keen to see it, and cover it here.  It was also surprising that a Reserve Bank Governor would comment explicitly on longer-term immigration policy so I wondered if they had new evidence, or were influenced by new evidence from others, to justify that stance.  I also drew the request quite narrowly, focusing on the previous two forecast rounds only, and not asking for emails.  I was quite genuinely interested only in either research papers (there just aren’t that many  in any five month period) or analytical pieces discussed at the Monetary Policy Committee (again, it seemed unlikely there would be many –  immigration not having featured in the Statement of Intent as a key aspect of the Bank’s research programme.   Moreover, since immigration had been a prominent aspect in the Monetary Policy Statement released just that morning, it was hard to imagine that any extensive investigation would be required to unearth papers, which had been prepared and discussed in the previous few weeks.  And as I noted the other day, the Reserve Bank has tried to convince us of how transparent it is around its  “policy objectives, policy proposals, economic reasoning, and of our understanding of the economy”, so it seemed reasonable that they would be keen to get any material out as soon as possible.

And since the Official Information Act requires agencies to release material “as soon as reasonably practicable” the naively optimistic strand that lurks within me wondered if I might get something by Christmas.  Silly me.

Instead, I had an email from the Bank just before 5pm last Friday –  the very last day of the 20 working days available to the Reserve Bank to respond.  I was advised that

The Reserve Bank is extending the time limit for a decision on your request to Monday 29 February 2016, as permitted under section 15A of the Act, because the request necessitates a search through a large quantity of information and meeting the original time limit would unreasonably interfere with the operations of the Bank.

That is certainly a statutory ground on which a deadline for dealing with a request can be extended.  But it is highly unlikely to be a legitimate argument in this instance.  As I noted, it is not plausible that there is huge amount of material.  And as for unreasonably interfering with the operations of the Bank, recall that these aren’t ancient historical papers, or about some obscure points of policy; they are recent papers directly relevant to the Bank’s primary function, where it prides itself on transparency.  And the OIA had already given the Bank extra time (since deadlines are automatically extended over the summer holiday period).

Frankly, I’m not sure what the Bank has to hide.

But it feels like deliberate stalling and, accordingly, I have appealed this decision to the Ombudsman.    I am beginning to worry that perhaps there is nothing there at all.

That would be a concern –  and especially from an agency which wants to convince us that its new charging policy is itself in the public interest [1], and indeed supports access to official information.


[1]  Somewhat curiously, despite the alleged need to “search through a large quantity of information” and the risk that doing so might “unreasonably interfere with the operations of the Bank”, there has not yet been any suggestion of a charge for meeting this request.