A leading academic weighs in on immigration

When the head of the economics department of New Zealand’s leading university takes to the op-ed pages of New Zealand’s most widely-circulated newspaper, readers might reasonably suppose that what the author has to say will be authoritative and well-worth reading for anyone interested in the issues upon which the author is opining.

Last Thursday, Professor Ananish Chaudhuri, head of the economics department at the University of Auckland, had a piece in the Herald headed Immigrants are a gain, not a drain .

Chaudhuri’s own background isn’t in the economics of immigration, nor is he an expert in issues around productivity, economic geography, or New Zealand’s economic history of sustained underperformance.   He is, as the article notes, professor of experimental economics.  I’ve only heard him speak once, and found his work fascinating.  You can check out his list of publications here.  He seems to be highly-regarded in his own specialist areas, and as an immigrant himself one might safely conclude he has been a net (economic) gain to New Zealand.

I’m not holding against him the fact that he isn’t an academic specialist in the economics of immigration and in New Zealand’s economic history and performance.  Few people (arguably none) are.  Ideas should stand on their merits, not on the CVs of those holding them.   But lay readers, attracted by the title “head of economics department, University of Auckland”, might have assumed a degree of specialist expertise that doesn’t seem to be there.

Chaudhuri’s op-ed has three main strands, before concluding with an astonishing assertion.

He begins with a bit of a rant against Donald Trump and somehow manages to wrap in, as part of a single phenomenon, the recent decision to deport some Indian students whose applications for student visas –  many no doubt hoping to use that as a stepping stone to residence –  were based on demonstrably, and admitted, false information.  They (signed statements which) lied.    One might, or might not, have some sympathy with them as individuals, but whatever one thinks about the appropriate levels of immigration to New Zealand (a) people are more likely to have confidence in it when the rules, whatever they are, are enforced, and (b) there are few defenders of the rort the student visa system had become over the last few years, often aided and encouraged by a government keen to maintain a story about the success of the export education industry.    We could sell more of almost anything if there were points towards a residence offered as well.  That is how export subsidies work.  They were a bad idea in the 1970s, and they are a bad idea now.

But what of the substance?

His first question is “are immigrants a drain on the economy”.     His answer to that question is no, and to do so he relies exclusively on the BERL estimate of the differential impact on (a portion of) government finances of natives and immigrants.    Nigel Latta made a TV documentary on immigration last year that relied wholly on the same study –  and if that was questionable (and I questioned it here) at least he wasn’t an economist.

As even the authors of the BERL study noted

2. The study concentrates on fiscal rather than economic impacts. Due to this the study is limited to estimating the direct monetary impacts on the government’s operating budget.

Fiscal impacts can be interesting, if done well, but they don’t tell us –  can’t tell us, aren’t designed to tell us –  whether natives are made better off, worse off, or left largely unchanged –  by the sort of level/composition of non-citizen immigration we’ve had.

As it is, the BERL study covered only some parts of the government’s finances, and the bits they omitted –  not through bias, but because they are hard –  would be likely to change materially even the fiscal assessment, as would a full intergenerational approach to the issue (again, BERL was not paid to do something state of the art).   For anyone who wants to look at some of the problems  with the fiscal estimates, I wrote about some of them in one of my posts responding to the New Zealand Initiative’s recent immigration paper.  As I noted, even if the average migrant is a net fiscal gain –  which is plausible –  it is very unlikely that all classes of migrants are.

In short, Chaudhuri offered readers nothing shedding light on whether New Zealanders’ living standards, or the productivity of the New Zealand economy, have been improved by our immigration programme.

Chaudhuri’s second question is “do immigrants displace native workers”.  Actually, on this point he went further than I would have, noting “yes to an extent”.     But after only a handful of words on immigration effects, he devotes the rest of that section of his article to discussing some interesting material on other forces that might (globally) be “driving blue-collar wages downwards”.  That may very well all be true, and even important, but what we were promised was an economic analysis of immigration (presumably focused on New Zealand), and it just isn’t there.

His third question is “do immigrants fail to assimilate”.  In his view “arguments about assimilation are usually a cover for aversion to ethnic diversity, so it is difficult to provide a cogent counter-argument”.  In other words, “back in your box racists”.  He seems unaware of, or uninterested in, literature on trust, national identity, social cohesion or any of the range of conflicting evidence on the implications of different types of diversity.  Perhaps he could walk down the road and have a chat with AUT academic Bart Frijns, whose work I wrote about here last year.   Issues around assimilation aren’t my focus, but there are reasonable debates to be had.

As he gets towards the end of his column, Chaudhuri offers quite a balanced perspective.

There is no doubt that while immigration increases the size of the national pie, it does create winners and losers. For workers suffering from stagnating wages, the sense of displacement and disillusionment is real.

So even on Chaudhuri’s assessment, it isn’t all a rosy story.  All else equal, some natives are being made worse off.    But apparently it doesn’t really matter, because the learned professor knows that….

…the bottom-line is clear: The net gain to society from immigration outweighs the losses and, therefore, there must be ways of providing a safety net for displaced workers in a way that makes all of us better off.

But no shred of evidence – global, let alone anything specific to New Zealand – was offered in the entire column to show that there are overall gains.  One might guess that he is relying on some general international academic pro-immigration consensus, but he shows no sign of having engaged with the specifics of the New Zealand experience, past and present, at all.    (And, for what it is worth, he also offers no specifics on these redistributive measures that might help ensure that even the “losers” actually end up made better off.  That isn’t surprising, as I’m not aware of any advanced economy where such measures have been put in place.)

Chaudhuri then wraps up with an astonishing claim

In the meantime and leaving cultural arguments aside, those who suggest immigrants are a net drain on society in economic terms are purveying “alternative facts” that should not be part of informed discussion.

Wow, so no debate should be entered into because the learned professor has decreed  –  not even argued, or demonstrated,  but just decreed –  that the economic case is closed.  Economies benefit, New Zealand’s economy benefits, and any suggest to the contrary is right up there with Trumpian claims about numbers in the Inauguration parade.   I disagree with the people at the New Zealand Initiative on immigration, but they weren’t that dogmatic –  and were pretty open about the lack of New Zealand specific empirical studies on the overall contribution of immigration policy to New Zealand’s economic and productivity performance. For them, the conclusion that New Zealanders’ benefit was a judgement –  probably held strongly, but an informed judgement nonetheless.  It wasn’t revealed truth, into which no subsequent debate could be tolerated

When the 27 prominent New Zealanders came out the other day with their open letter on free speech, I didn’t pay much attention. I was generally sympathetic, but in my observation the issue of attempts to close down debate (on all manner of topics) seem to be becoming a serious issue in the US (especially in academe) but not, at present, in New Zealand.  If one takes him at his word, Chaudhuri seems keen on having New Zealand catch up down that slippery slope.   I hope I shouldn’t take him at his word, and he is more open to debate –  specific debate, concentrated on New Zealand’s experience, and New Zealand’s programme –  than his op-ed suggested.  Perhaps the Herald could offer him another column, in which this time he could get specific about the nature of the evidence he believes –  as head of the economics department of our leading university –  makes it such an open and shut case that New Zealanders as a whole are reaping economic rewards with our huge decades-long grand immigration experiment?

17 thoughts on “A leading academic weighs in on immigration

  1. Michael
    It seems that one point which the for and against sides agree on is that in some instances immigration lowers the wages of the sector where the immigrants are employed. But is there any analysis as to the scale of the effect and where it is most prevalent?
    A lot of the argument for gender pay equality was based on analysis that showed that sectors with high rates of female participation tended to have low wage rates.
    I’m curious a to whether the immigration-effect has had any similar analysis.
    Tim

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  2. There is a huge range of papers on the issue, and there was interesting journal article quite recently looking at the reason the different studies find materially different results (mainly in the US context). It is very difficult to isolate the effects – hence the range of different approaches – including because it is often difficult (in the US or NZ or Aus) to isolate a genuinely exogenous immigration shock to study.

    As I’ve noted, in regard to lowly skiilled immigrants, there is a bit of tension. Defenders of large scale often want to suggest there is no adverse effects on wages of lowly-skilled natives, and yet such immigration can’t benefit NZers as a whole, except by making lowly-skilled labour cheaper (enabling different production structures to be economic, including inducing more business investment. Among really skilled workers there are credible arguments about potential productivity spillovers – smart ideas and different ways of working etc – although even there there is some evidence in some studies of at least temporary adverse effects on the earnings of similar natives.

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    • This got me thinking about what the data would look like if the high-immigration economists were right and immigration was beneficial to the receiving country. Where would it show up most obviously? Presumably in the labour productivity statistics first, and second in the savings rate / current account (because immigrants are disproportionately working age)?

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      • One thing that should probably be seen is an acceleration in the growth of the per capita capital stock. That channel works whether relying on the “drive down low skilled wages and make more investments profitable – perhaps raising overall wages in the longer run” channel, or some sort of more appealing productivity-spilllovers arguments (since smart new ideas should normally be reflected in increased business opportunities and thus increased investment).

        But precisely because successful immigration should prob boost the per capita capital stock, it won’t necessarily narrow the current account in the short run. In fact, it would more likely (and quite reasonably/rationally) raise it over the short to medium term.

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  3. “Robots that can lay six times as many bricks a day as human builders are set to turn the construction industry on its head.New York-based firm Construction Robotics has developed a robot called SAM (short for Semi-Automated Mason), which can lay 3,000 bricks a day.

    That’s significantly more than most human builders, who can lay an average of 500 bricks a day.

    The devices have already started replacing humans on a handful of sites in America, and Construction Robotics is hoping to introduce the robots in Britain within the next two years.”

    http://www.mirror.co.uk/tech/bricklaying-robots-set-replace-thousands-10107529

    I think this 40,000 foreign work visas issued in the last 12 months thats adding pressure on Net Migration numbers of 71,000 this year will start to slow down in the next couple of years when these robots start coming onto NZ construction sites.

    The problem is that these robots displace human workers which means fewer migrants but it does not mean that locals gain from higher wages nor from being displaced from the workforce.

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    • Wages are headed downwards because businesses are motivated by profit. The advantage of using low skilled migrant labour is that migrants lower the input costs which put off heavy investments in robots. The advantage of humans is the spin off is expenditure in the food,service, retail, entertainment and accomodation sector. More people spend locally in the economy, they need to eat, they need accomodation and they need entertainment and they like to buy small goods and products. There is a massive spill over effectinto the local economy. That is why the $20 billion each year spent by Tourists and international students has such a enormous boost to the locals. Yes we need more migrant labour to handle the increasing crowds of visitors which equates to more chefs, more waiters, more prostitutes, more cleaners and more baggage handlers.

      The problem with large scale investments in robots is that the profits all go to a small group of shareholders and owners which is a small group that will benefit and those robots are a hefty investment that has to be paid off to an overseas corporation. Robots don’t result a big spend up in the local economy, they don’t eat, they don’t need accomodation nor do they need any entertainment.

      Liked by 1 person

  4. “migrants lower the input costs which put off heavy investments in robots”. AKA lower productivity growth. You only have to look at the way the build (for example) roads in India to realize where that would take us.

    How many of these “intellectual yet Idiot” imports do we really need to tell us how to run our own country. Treasury, the NZ initiative outfit now this clown. Have Immigration got IYI as a special skills shortage?

    The Intellectual Yet Idiot
    What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.
    But the problem is the one-eyed following the blind: these self-described members of the “intelligentsia” can’t find a coconut in Coconut Island, meaning they aren’t intelligent enough to define intelligence hence fall into circularities — but their main skill is capacity to pass exams written by people like them.

    Indeed one can see that these academico-bureaucrats who feel entitled to run our lives aren’t even rigorous, whether in medical statistics or policymaking. They can’t tell science from scientism — in fact in their image-oriented minds scientism looks more scientific than real science.

    View story at Medium.com

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    • India’s economy is very much the same way the Chinese economy was run until it was not. The Chinese have been able to lift 680 million people out of poverty but properly distributing wealth. India’s wealth have been the preserve of the upper castes and the lower castes are treated as non humans so should not have any wealth but that is slowly but surely changing as well.

      But it does mean that the increasing introduction of robots need to have an equivalent human displacement tax to raise the input costs and enourage the use of humans. Productivity therefore needs to be balanced with the welfare and well being of humans.

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      • Using humans as pack animals is not the way to raise productivity regardless of how the wealth is distributed. That is the reason India has one of the lowest living standards levels in the world. Perhaps having too many people encourages wasteful use of them. Never mind robots; why use a bulldozer when a bunch of $2/day labourers are available. Many eras of high productivity came following a population collapse due to war or disease – WW2, Black death etc.
        Has this “human displacement tax” been implemented anywhere or did you just make it up.

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      • BILL GATES is an unlikely Luddite, however much Microsoft may have provoked people to take a hammer to their computers. To forestall a social crisis, he mused, governments should consider a tax on robots. He argues that today’s robots should be taxed—either their installation, or the profits firms enjoy by saving on the costs of the human labour displaced.

        http://www.economist.com/news/finance-and-economics/21717374-bill-gatess-proposal-revealing-about-challenge-automation-poses-why-taxing

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  5. There was an interesting article by Noah Smith at the weekend talking about new evidence that quite a lot of the increase in inequality can be traced back to increased industry concentration and monopolies. This rings true to me, both in the West (Peter Thiel’s book Zero to One is all about investing in monopolies) and also in China/India where the rules favour SOEs and megacorporations over small firms. In NZ and Aust we have concentrated industries and weak competition regulators. (That’s income inequality – wealth inequality is more about land use and property rights).

    If we had more wealth and income equality we wouldn’t be so worried about robots.

    Liked by 1 person

  6. Today’s I wish I’d written that is: “..whatever one thinks about the appropriate levels of immigration to New Zealand people are more likely to have confidence in it when the rules, whatever they are, are enforced,”

    My interpretation of Prof Chaudhuri’s article which had the appearance of a piece written in a hurry, is he really identifies with the two USA citizens of India origin who were murdered in a random racist attack so he wrote praising immigration with his emotions over-riding his intellect. If so he is a man with a heart as well as a head and good on him.
    If his argument is designed to stop the kind of thugs who commit random racist acts then he is unlikely to find them reading articles by economists in the NZ Herald.

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  7. Is it possible to mathematically/scientifically isolate and prove or disprove the net economic effects of immigration? Tend to agree the burden of proof rests with those who argue there are net gains but perhaps this position falls back on ‘conventional’ opinion that more people means more resources which in the ‘long run’ generates more output. Economic theory says little on the point at which the short run morphs into the long run so I guess the assumption is the wider benefits of our larger population are in the making. Of course, as you point out, there are people doing nicely along the way – not least those that jumped the gun on housing investment….

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    • The economic benefits are clear. Auckland has 1.5 million people. GDP is $75 billion. Auckland has a younger demographic due to migrants who are then able to care for an older generation. Those rest homes are full of young Filipinos in aged care taking care of older natives. Don’t expect aging natives to care for each other. Robots? Perhaps, but it’s no fun chatting or flirting with a robot. More fun with a young Filipino nurse.

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    • Interesting question, to which I’m not sure there is a fully satisfactory answer. But in that respect, immigration is little different from most other policies. What is “proof”, and what standard does one require to be satisfied something has been proved. It is easy enough to set up mathematical models, particularly of small aspects of the problem, but the results depend then on the validity of the assumptions in the model, the control variables added, the quality of the data etc etc. That is why, in most areas, different studies find different results. Think of historical events – people are still debating the causes of the Great Depression, or of World War ONe. And yet life – and policymaking – has to go on. People – expert and otherwise – end up making judgements, that are partly based on reads of formal evidence (whether narrative or mathematical), partly on their own philosophical priors, partly on the stances chosen by people they respect.

      All that said, I – but perhaps not telling – find it fairly disquieting that with all the resources at their disposal the advocates of large scale immigration to NZ have not produced a single serious study showing empirically how NZers have benefited from the experiment that we’ve been running.

      (oh, and of course that is the other way people reach judgements – the rhetoric that is used. Note the deliberate use of the word ‘experiment” to try to frame how I think people should see what NZ has been doing).

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