A modest step that ignores the big picture

Many readers were probably expecting a post on the immigration announcement this morning.   I did an op-ed for Stuff on those changes, which is now up.

The leaders of our government are still, apparently, believers in the twin fallacies of (a) “big New Zealand”, which has been failing through decades of large scale non-citizen immigration, and (b) that somehow an increased supply of people in New Zealand eases (rather than accentuates) overall labour market pressures.  People generate demand as well as supply, and the New Zealand empirical evidence has long suggested that  –  as one would expect, from the increased capital stock requirements – those short-term demand effects outweigh the supply effects.    Consistent with those beliefs, today’s changes are at the margins only.  In general, they look like baby steps in the right direction, but since even they –  with all the analytical resource at their command –  won’t or can’t tell us how large an impact they expect, it is difficult to believe the effects will be large.

When I read the Minister’s speech I was briefly encouraged to find these words

“Today, I want to look at the benefits migrants bring to New Zealand”.

But I turned the page and found…..well…..nothing.    Still no empirical evidence –  narrative or more formal –  for the claims of benefits to New Zealanders.  And really not much more than the same old implication that more people expand the economy in total (well yes they do but that is hardly the point), no mention of productivity, and the same old firm-level stuff (that ignores overall economy perspectives) about easing labour market constraints.

I concluded my Stuff piece this way

Rapid population growth –  without great new economic opportunities – simply skews the economy inwards.  Successfully making it in global markets is the only reliable path for a small country to get and stay rich, and yet the relative size of our export sector is shrinking.   It is time to give up the “big New Zealand” or “big Auckland” ambitions that seem to have appealed to our political leaders for generations.  Focus instead on maximising what we can achieve with our own limited natural resources and our own abundantly talented skilled hardworking people.

As ever, in election year, the question is whether the main opposition parties will be prepared to offer something materially different.

22 thoughts on “A modest step that ignores the big picture

  1. Michael it is interesting that our and Australia’s government made almost simultaneous immigration announcements -what do you make of that?

    Here is how MacroBusiness are analysing the situation

    They discuss how the dam has broken and the immigration reform begins…..
    https://www.macrobusiness.com.au/2017/04/fake-greens-howl-racism-457-visa-cut/

    And MacroBusiness says the Aussie Labour party should put a card down……
    https://www.macrobusiness.com.au/2017/04/show-us-immigration-policy-bill/

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    • I suspect it is mostly common pressures, rather than coordination (altho i think i saw English say yesterday that Cabinet had agreed this stuff a while ago). in Aus the overall lack of per capita income growth is worse than here (because of the weak TOT rather than weak productivity), the house price and congestion problems are as bad, and people struggle to see much sign that immigration is good for them (much as they might like the typical immigrant). In Aus of course, the politics is made more pointed by the Islamic radical issue. at a political level both One Nation and NZ First are poised to capitalise if the mainstream parties aren’t seen as doing something significant (“caring” about the natives)

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      • It’s not immigrants into Australia

        What is not appreciated in New Zealand is starting in 2001 at the time of the MV Tampa affair and in the following years Australians have had a constant diet of news about illegal refugees. It is constant, never ending. And still it goes on today. New Zealand never sees any of this. NZ gets more excited about NZ criminals being deported back to NZ

        In the years 2001 through 2007 50,000 illegals were arriving by boat and entering Australia. At its height there were 50,000 boat people in one year. The total cost of processing, dealing with and absorbing an annual intake was $billions and it was accumulative and growing

        The government stopped announcing the annual cost when it got beyond $3 billion

        Around 2010 governments of both persuasions were convinced by the Abbott rule of ignoring UN treaty rules and turned back the boats. The tide eventually receded. But the annual legacy cost of $10+ billion still exists. The population knows it anf there is now a lot of resistance in the community to refugees

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      • All true of course, but Australia also had a large increase in legal immigration beginning in the second half of the Howard years and continuing since (damped recently by the reduced inflow of NZers).

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      • Apologies if my written word was imprecise. Point I was conveying was in 15 years that I’m aware of, the news media only ever published legal migrant arrivals once perhaps twice. The average native Australian subconsciously conflates immigrants with illegal boat people. You have no idea how pervasive it was

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  2. I wish a journalist would ask Bill English this question;

    “(b) that somehow an increased supply of people in New Zealand eases (rather than accentuates) overall labour market pressures. People generate demand as well as supply, and the New Zealand empirical evidence has long suggested that.”

    Bill English being ex-Treasury must know this to be true. But Bill gets away un-criticised with his anecdotal evidence of individual firms needing more workers -even though he must know that even if an immigrant filled that position -then this new to NZ person would create so much new demand for housing, household contents and their everyday needs -supermarket shopping etc, that this will cause a shortage of workers elsewhere. Because with immigration the demand effect is greater than the supply effect.

    Liked by 2 people

    • The demand is being driven by industry. The real question is ” do we want more tourists?” Tourism drives the need for migrant labour. Cut tourism and you automatically cut the need for migrant labour. It comes hand in hand. Drive up tourism and you automatically drive up the need for migrant labour.

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  3. The new immigrants coming into NZ are generally outstanding workers. I have employed many in semi skilled postitions earning below this threshold. Rather than being forced to pick from the local P infested pool it might be better to pay a premium to keep some of this talent.

    Liked by 1 person

    • I don’t know that its all that helpful to be rating folk on their nationality or race and pretty hard on all our honest, hardworking young Kiwis don’t you think.
      On the other hand I think we need to be harder on some of the behaviour we see. Not putting in a proper effort, not turning up for work or turning up stoned and get fired then there’s no dole should be the rule. You have to wonder about some of the nonsense going on. According to the Waitangi Tribunal, if you find yourself back in the henaki it’s all corrections fault. You could’t make it up.

      Liked by 1 person

    • Asian migrants with residency visas are not cheap. I am interviewing at the moment. So far met two Asians and they are demanding $70k for a position advertised for $60k. A UK migrant with similar experience wants $55k and a young kiwi who seems happy with whatever is being offered.

      However, the 2 Asians are a 90% match to the position description. The UK migrant is a 60% match. The young kiwi is a 40% match. So who shall I hire?

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      • I’m sure that is so – and this certanly isn’t or shouldn’t be a race issue – but note that MBIE data. 58% of those applying residence, all notionally level 1,2 or 3, had incomes less than the new threshold.

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      • Personally I want to give this young kiwi a go. Also she is the lowest priced but obviously very intelligent. What is holding me back is that half the CV is not about her various job achievements but filled up with social activities outside of her work duties. The problem is whether I would be able to refocus her obvious restless and boundless energies into work.

        The other issue that now arises in my hiring is that if I pay her a lower wage because that is what she asked for, will I get charged with a gender bias?

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  4. Hello Michael
    A few years ago, when researching a paper on the relationship between immigration flows and house prices in New Zealand, I came across this gem from John Gould in his economic history: “The Rake’s Progress? The New Zealand Economy Since 1945.” If it has been quoted before, forgive me for not following your website closely enough recently.
    This is from the chapter on the economy 1951- 1957 p83

    “Pressure on resources for capital investment continued to be felt, particularly in the fields of housing and ‘social overhead’ capital. Some prefabricated houses were imported – this in a country with a huge surplus of building timber and a chroniuc balance of payments problem! School building could not keep place with demand, and many classes had to be conducted in spartan ‘prefabs’. There were long waiting lists for telephones, and delays of one and a-half hours were common on major long-distance trunk-routes.(yet another of the inconveniences of life in post-war New Zealand). And power shortages and ‘blackouts’ continued to be familiar features of life in the North Island.

    It is interesting to find in successive issues of the annual Economic Survey, released by the Minister of Finance in the prelude to the budget, a growing recognition that rapid population growth and high immigration might be partly responsible for these difficulties. It is somewhat astonishing that so obvious a conclusion should have resisted discovery for so long, for the basic economics of the relationship would scarcely test an able first-year universtiy student. Take housing. If the average house lasts fifty years. then a steady community with zero poulation growth will need to replace 2 percent of its housing stock every year. Now let the population grow at 2 percent per annum thanks to immigration. We now need housing investment each year equal to 4 percent of the housing stock, 2 percent for replacement as before, and another 2 percent to equip the new arrivals with the same level of housing as those already there. The immigrants thus increase the community’s need for capital formation in housing by 100 percent. But they add only 2 percent to its output, or even less if the stock of land, factory machinery, electricity generating capacity and so on can not also be increased by 2 percent per annum. ……..”

    After providing some qualifiactions, he goes on to argue that labour shortages in New Zealand (and Australia) have typically been associated with high levels of inward migration, whereas unemployment is associated with high levels of outward migration. Noting that immigration was cut in the mid1950s, despite the clamour of businesses for assisted migration to fill vacancies,

    ” The fact is that the pleas for more immigration in post-war New Zealand have been made by interested pressure groups playing on a deep-rooted prejudice in favour of population growth , a prejudice which has yielded only slowly to reason and to evidence.”

    My parents came out as assistant migrants, so perhaps I should be glad of the mid 1950s programme. But I have been astonished in recent years by the Government’s (and the civil srevice’s) resistance to the idea that rapid immigration may cause undue pressure on housing markets. Evidence-based policy making only seems to be acceeptable if the evidence is in accordance with the government’s priors and narratives.

    andrew

    Liked by 2 people

    • I recall in around 1984/1985, NZ was so desperate for migrants the Government of the day declared an amnesty for all illegal migrants to receive an automatic Permanent Residency including anyone on a holiday visa that decided they wanted to join the queue.

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      • Really? I cannot recall that. NZ was in a funk at the time. The Muldoon disease had taken hold. Lange/Douglas removed all farm subsidies. Rural farm prices fell by 50%. Can you provide references for that assertion. Would like to know and read up on it.

        Liked by 1 person

      • I was in the queue. I had secured a job at the time with Fletcher Challenge training users how to use a Apple Mac spreadsheet for project financial planning. Part of my job at the time was to move the guys off manual hand written financial planning on paper onto Apple Mac Spreadsheets. Got a job within a week of landing on a holiday visa and initially getting my work permit. The residency offer came in the mail in very quick succession. The first work permit visit to the immigration office was easy with no queues and then suddenly a stampede as the amnesty residency visa word spread around. The queue was suddenly stretched onto the road for at least 20 metres and I recall having to wait in the rain in the Auckland City immigration office for most of the day and having to return the next day as in those days the office closed at 3.30pm

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      • My personal experience of a overstayer amnesty is not a once off. This amnesty was done again more publicly in a subsequent year 2000.

        “Thousands of Pacific Island overstayers have a one-off chance to stay in New Zealand instead of living in fear of being deported under tough new immigration laws.

        About 7000 overstayers – 3500 Samoans and Tongans and a similar number from other countries – could qualify for permanent residence under a selective amnesty announced yesterday by Immigration Minister Lianne Dalziel.”

        http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=152109

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    • In your research did you separate out the demand impact from the 4 major migrant categories?

      Residency Migrants
      International Students
      Foreign Workers
      Returning New Zealanders

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