Making up stories as they go along?

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.

per capita gdp

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.

u and nairu

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.

popn growth pre 1914

Both the gold rushes and the Vogel immigration programme rather shade the most recent annual population growth rate.


18 thoughts on “Making up stories as they go along?

  1. Thanks for the thoughtful post. I guess John Key has to say that unemployment is low at 5.2% and growth is very, very strong (even at a measly 1% per capita), because to state otherwise would be to admit some degree of failure (how many politicians ever admit that?). And I totally agree that 2.1% population growth is reckless (when driven by policy as in NZ’s case). Every other country which has a population growth rate at that level due to natural growth (all developing countries I should add) is trying hard to reduce such growth due to the serious problems such growth is causing.

    Liked by 1 person

    • Reading the Treasury note on labour force stats I see that there is a new measure: the of labour force underutlisation rate which is about 14% and has hardly fallen since the GFC. More compelling evidence for large scale immigration


  2. Actual growth is around 3%. Per capita growth might be 1% but the reality is NZ is a laid back sort of place. People are here to have a more relaxed lifestyle.The population is far too small to be motivated by career and working long hours. The working life here is sit in traffic for 2 hours in a day. 2 hours lunch and tea breaks. Leave office at 4.30pm and take out the boat in the weekends. Every decent senior manager must have a water ski jet and a boat. No one in their right mind would stay in NZ and expect big fat corporate salaries. These are few and getting a top CEO job in NZ with multimillion salaries is like winning the lotto The population is so small there is no large corporates or corporate ladders to climb.

    Forget about high productivity growth. Never going to happen. I am already planning for a sick day on Monday. Spoke to a couple of my work colleagues and they are off sick on Monday as well. The weather is fantastic. Off to the Bach and a bit of fishing.


    • The boss already left for his luxury holiday Bach on Friday and won’t be back at work until Tuesday. Bosses get an extra 2 to 3 days at their own discretion. Employees only get an extra day from sick Monday.
      Our parliamentarians get 4 weeks holiday from their last sitting. Does anyone actually work in NZ? That is why we need migrants. They work hard because they have to. Poverty is a great motivator but it is human nature to slow down and relax once you have abundance and for many many kiwis and older migrants, we do have abundance. More than we would ever need in NZ..


      • What about young kiwis? My daughter plans to head out to the UK on completion of her law degree. My niece was made redundant from her IT marketing job in Elders due to a shrinking head office and now she is in Bali learning about the skills of making metal jewellery. They sure are not hanging around NZ. Until we get a larger population we will keep losing our young ones to overseas destinations.


    • Also you need to add yourself to the statistics as a low productivity blogger. A highly skilled economist that just sits at home sure does not help NZ productivity. I notice Shamubeel Eaqub looks semi retired as well.


    • Maybe working life is pretty cruisy for senior managers in Auckland but for many other Kiwis it isn’t. Hours worked per capita in NZ are similar to the USA and greater than many other OECD countries ( Maybe those of us in the “regions” are making up for the hours not worked by those leisure loving Auckland senior managers etc. However we must remember that hours worked does not equal productivity. Germany has the lowest hours worked per capita in the OECD but it’s GDP per capita is much higher than NZ.

      Liked by 1 person

      • Certainly my staff works a lot harder with bonus incentives and are online from home. The beauty of technology. So they may put in a 10 or 15 hour days to achieve bonuses. Michael makes the point that NZ is productivity poor. I am trying to highlight that there are reasons for that. But as you point out our productivity is as good as the USA so we really have no need to fret over our productivity.


      • Michael tries to point to migrants as the answer to NZ productivity poverty but every person that needs to get ahead works very hard irrespective of their status whether you are NZ born or a migrant. The argument is that migrants are in low paid jobs and low skilled jobs but these are jobs that are available and someone needs to get that job done. Kiwis do not want to do those jobs so migrants fill that role.

        But there is a high churn rate because a lot of that migrant labour is temporary. So when we measure migrant skill levels we have to bear in mind that we are not measuring the same people after a few years. When the government offers residency to international students to make up the 50k policy target we do not keep 50k. New migrants usually do not stay in NZ for more than 3 to 5 years due to the lack of career development. Population is too small which means non existent corporate offices and non existent corporate ladders to climb and lousy pay. What keeps a migrant here is a more laid back lifestyle.


      • That points to more mechanized robots in factories in Germany versus our more manual approach which equates to a lack in investment in technology rather than migration.


      • Dave, you are also missing the point that when Aucklanders head out to the regions for the weekend fishing they have boosted the GDP per capita in the regions at the expense of Auckland. This is where Michael trying to link migration to Auckland’s productivity poverty is just a clear migrant bias in his analysis.There is no clear correlation. There are many factors that would account for Auckland productivity issues and NZ productivity rather than just bring fewer migrants in would fix.


  3. Shamubeel and Michael are both the primary caregivers for their young families. That is about as far off semi-retirement as it gets.


    • Every stay at home person just adds to NZ productivity poverty. To increase NZ Productivity you need to place children in a paid day care service then you are gainfully employed and earn a wage plus you are paying someone to look after your children. The result is an immediate productivity improvement.


      • I’m not sure what definition of productivity you are operating on, but the most common ones would be GDP per hour worked or (much harder to measure) total factor productivity. Neither is likely to be altered much by how many parents choose to go into the paid labour force vs stay at home at take care of their own children. Of course, GDP per capita would be boosted if, say, all housework were banned and every family was required to hire outside cleaners, lawnmowers and child-carers (just because more stuff would happen on-market rather than off-market) but it is hard to think how society would be better off as a result. Most people don’t live to work – let alone live to boost “national productivity”. For me – and it won’t be the right or feasible choice for everyone – being around when my kids get home from school, spending holidays with them is both pretty satisfying for me and, as I see it, good for them as well on a whole variety of dimensions.

        And, as a bonus, I get to think about and write about stuff here that gets more readers than most things I ever did in govt agencies – and to interact with a interesting range of people and views.


  4. Michael, you have consistently mentioned again and again productivity per capita.

    Definition of per capita

    The per capita amount of something is the total amount of it in a country or area divided by the number of people in that country or area.

    Therefore the more people that blog all day and do housework, or fish all day as a hobby does factor into lower productivity per capita.


    • I usually use GDP per hour worked, when it is available (which it isn’t for some countries, and some historical periods – eg the earliest estimates for NZ are about 1950.

      I think of economywide productivity as the opportunities the economy could provide (per hour) to the average person who wanted to work.


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