Sometimes I wonder whether senior government figures, apparently determined to defend their immigration policy, just make up defences on the fly.
I wasn’t so much thinking of Steven Joyce’s assertions that I critiqued earlier in the week. The Minister cited an apparently-reputable OECD report which shows that, on a particular (plausible) test measure, the skills level of the immigrant workforce in New Zealand are higher than those in the other OECD countries (included in the survey). Of course, he omitted to mention two things from the same survey:
- New Zealanders’ skill levels, on these OECD metrics, are already among the highest in the world, and
- In every single country in the survey, including New Zealand, the skills levels of the average immigrant worker were below those of the average “native” worker.
But at least Joyce cited statistics that were reasonable when taken in isolation. Of course, one might reasonably wonder where the evidence is that (a) shortage of skills is a major structural issue in New Zealand, and (b) that actual plausible immigration policies are able to ease those shortages, at a whole economy level.
John Key’s latest claims reach new levels of implausibility – indeed, if one were oneself unemployed, one might well think them simply offensive. Bernard Hickey reported the other day that in pushing back against calls for a review of immigration policy setting, the Prime Minister had said:
Key said he acknowledged high migration “put pressure on the system.”
“On the other side, we need these people in an environment where unemployment is 5.2% and where growth is still very, very strong. You’ve just got to be careful when you play around with these things that you don’t hamstring certain industries that need these workers,” Key said.
In the last year, per capita growth in real GDP has been less than 1 per cent. In quite which state of small ambitions and diminished expectations that qualifies as “very very strong” growth is a bit beyond me.
Even based on New Zealand’s own (internationally underwhelming) record, I’d have been looking for something more like 3 per cent per capita growth before I’d accept a description of New Zealand having “very very strong” growth.
But what really irked me was the suggestion that an unemployment rate of 5.2 per cent suggested that we needed lots of immigrants, as if the entire labour market were overheating. Of course, even if it was overheating, we know that immigration adds more to overall demand pressures in the short-term than it does to supply. But even accepting the Prime Minister’s story in its own term, by what possible criteria does he regard 5.2 per cent unemployment as low?
Wage inflation is low, and if anything surprising on the low side. And his own Treasury only a few days previously had published a nice short note on the implications of the recent revision to the HLFS. In that piece they succinctly noted
Treasury takes the view that the unemployment rate consistent with full employment (the non-accelerating inflation rate of unemployment or NAIRU) has also fallen over time, so that, as in Figure 4 above, it would be closer to 4.0% than our Budget Update estimate of 4.5%. Our view is that while the data definition and published data have changed, people’s behaviour has not.
So the Treasury – the government’s principal macroeconomic adviser – reckons that practical full employment is around 4 per cent. We don’t know what the other main macroeconomic forecasting agency – the Reserve Bank – thinks, as they didn’t give us anything on that in this week’s MPS. But it would be surprising if their estimate was much different – it had also been something like 4.5 per cent before the HLFS revisions. There are reasonable grounds for thinking the NAIRU has been trending downward (I outlined some reasons here) – and perhaps on this measure it might have been 4.5 per cent prior to the recession.
But there is no reason to think that at any time since the start of 2009 – any time, that is, in the Prime Minister’s 7.5 years in office – that the unemployment rate has been anywhere near the NAIRU. We’ve not had anything remotely close to practical “full employment” (and recall that the “full employment” term is Treasury’s not mine).
So, given New Zealand’s relatively liberalized labour market, we’ve had excess unemployment – more than the economy might need to sustain – for years now. Those are real people, out there actively looking for work.
And as I showed the other day, our unemployment rate has fallen more slowly since the recession than typical other advanced economies. But somehow the Prime Minister seems to think that our unemployment rate is already so low that we need record numbers of new migrants.
There might be good arguments for a large scale immigration programme – although it is hard to find them in the government’s flailing attempts to defend the system – but our “low” unemployment rate just isn’t one of them. And in case the Prime Minister is indifferent to an unemployment rate of 5.2 per cent, it is worth reminding him that over a 45 year working life, a 5.2 per cent unemployment rate is equivalent to every person spending 2.3 years unemployed – out of work, and actively looking for a new job. And yet the PM apparently thinks this is low unemployment. Talk about small ambitions.
Still on immigration, the FT’s Alphaville blog had a substantial piece yesterday on New Zealand’s immigration patterns, prompted by the Reserve Bank Deputy Governor’s recent suggestion that it might be time to look again at the parameters of the immigration programme (a stance, incidentally, not backed by the Governor in his press conference this week). For foreign readers there was quite an extensive set of charts, although most of it will familiar to New Zealanders. But what caught my eye was this line
Looking at all these facts, it’s hard to see how New Zealand’s migration policy could be modified to meaningfully reduce net inflows without draconian controls.
“These facts” means, of course, the significant variability in the net outflow of New Zealanders – swings in that flow being often at least as large as swings in non-citizen numbers. But this is simply dealing with a straw man. No one I know thinks that the net permanent and long-term migration flow could, or even should, be targeted, at least on an annual basis. New Zealanders will do what they want. But as readers will know, the centerpiece on New Zealand’s immigration policy is the residence approvals programme, where we aim to hand out 45000 to 50000 approvals a year. It requires no more than stroke of a ministerial pen to lower that target, and our points system helps ensure that if the target were lowered we would generally cut out the relatively less skilled applicants before the more highly-skilled applicants. We could, for example, cut the target to around 10000 to 15000 people per annum – which would be similar to the residence approvals (per capita) granted each year in the US. There might be good reasons not to make such a change all in one go, but even if we did it would hardly require ‘draconian controls’, just a recalibration of the dials, on a system set up to be managed against a numerical target
Of course, changing the residence approvals target wouldn’t immediately cut actual inflows – as most residence approvals are granted to people who first come on temporary visas – but it would make a material difference to actual inflows over time. And (importantly, since markets work on expectations) it would make an immediate substantial change to expected future inflows, and the associated pressures (whether on heavily regulated urban land markets, or on real interest rates and the real exchange rate). Exporters might, finally, have a chance to lift exports towards the government’s target.
The residence approvals programme – the most stable part of the immigration system – is my focus. But if we wanted to do something about the record number of work visas granted, that wouldn’t be hard either – impose a requirement that any job employing a non-resident must generally pay at least, say, $100000 per annum would keep the door open for those pockets of highly-skilled jobs where there is a strong case for short-term foreign labour – and it is those highly-skilled people who are asserted to offer the biggest gains to New Zealand – while easing the pressure on less-skilled New Zealanders’ wages. Nothing very draconian about that either – and probably the sort of system voters might think quite reasonable, unlike the most recent poll results (National voters as much as others) that suggest material unease about the current immigration arrangements.
Finally, Statistics New Zealand put out new population estimates yesterday trumpeting the increase in the population over the last year as the largest ever. An annual increase of 2.1 per cent is certainly large, and rather recklessly so in my view. But citing the absolute increase in the total number of people as the basis for a “largest ever increase” claim seems a bit too cute, and also rather meaningless. Most trending series have such “record increases” every few years. Back in the 19th century, for example, the base level of New Zealand’s population was much lower. In fact, here are the population growth rates pre 1914 from the (unofficial) annual estimates reported on SNZ’s own website.
Both the gold rushes and the Vogel immigration programme rather shade the most recent annual population growth rate.