Immigration thoughts over 40 years

Readers might suppose that I have always been sceptical of large scale immigration to New Zealand.  It would be more accurate to say that for most of my life I never gave it much thought.

I first remember being aware of immigration as a political issue when I was at intermediate school in Auckland in the early-mid 1970s  That was a period of very high immigration, and about the time of the big policy change initiated by the Kirk Labour government which removed from British citizens the automatic right they had previously had to settle here.  Pacific island immigration was also an issue.  But despite being a bit of a political nerd even then, my only perspective on it was that of a South Islander reluctantly resident in Auckland: I recall advocating a cap on Auckland’s population and forcing incomers to move elsewhere in the country.

There wasn’t much non-citizen immigration to New Zealand over the following 15 years, although the developing exodus of New Zealanders was an issue.   And even as policy changed in the late 80s and early 1990s, the high rate of unemployment still meant that non-citizen immigrant numbers were low.    As late as 1992 there was a net inflow of only around 13000 non-citizens.    I don’t recall immigration data ever getting much discussion around the Reserve Bank Monetary Policy Committee table, although the modellers had interesting equations to explain, in particular, the trans-Tasman flow.    I was the manager of the Bank’s forecasting team for a while, and I also don’t recall us ever paying much attention to immigration data then either (anyone else who was there can correct me if my memory is faulty).

I went overseas for a couple of years and when I came back we were in the midst of the first big inward wave of non-citizen migrants since liberalisation.     Those flows put a lot of pressure on house prices, especially in Auckland, and also on the economy’s real resources.    We were a bit slow to understand what was going on, but eventually appreciated (as our predecessors had in earlier decades) that the demand pressures from increased immigration typically exceeded the boost to supply, at least in the short-term.  Being the Reserve Bank we didn’t have much interest in (or any responsibility for) the longer-term issues, and certainly didn’t have an institutional view on whether in the longer-term large non-citizen immigration was of economic benefit to New Zealanders.

It was the 21st century before the issue came back to the fore again, with the sharp increase in non-citizen immigration numbers around 2002/03 –  some of it the increase in foreign students in response to the exchange rate.    The Bank was a bit gun-shy by this time, at having made some material monetary policy mistakes in the late 1990s, and I remember arguing (I wince at the memory) that there was a case to “look through” the net excess demand effects of increased immigration, because they were likely to be ‘one-off” in nature.  I certainly didn’t have a view, or much of an interest in, the longer-term issues.    Being a central banker, I was probably only interested in the monthly PLT numbers, and wasn’t even aware there was a residence approvals programme and a numerical target/”planning range”.

To cut the story short, I had little interest in the issues until I was involved with the 2025 Taskforce, set up to advise the government on why the large income and productivity gaps to Australia had opened up, and to recommend a policy programme that might close the gaps over the following 15 years.   I was seconded to Treasury at the time, and there was also quite a bit of interest there in why New Zealand’s interest rates were so high (relative to those abroad).   The 2025 Taskforce did not –  as readers might expect –  come out in favour of high rates of immigration.  One of the Taskforce members was the Australian economist Judith Sloan, who had lead the Australian Productivity Commission’s 2006 report on immigration.   She persuaded the Taskforce to adopt a line, consistent with that earlier report, suggesting that immigration was unlikely to offer much, if anything, in boosting medium-term GDP per capita (or productivity).

I came away from involvement with the Taskforce pretty supportive of the list of measures, and way of thinking about things, that they proposed.     But the more I reflected on the issues, the more it started to seem like a list of measures that, while useful, was unlikely to make a large enough difference to close the gap.   And as our exchange rate rebounded after the 2008/09 recession, I began to focus again on trying to understand why our real interest rates were still so high (relative to the rest of the world), noting that as a result of those high interest rates, the real exchange rate had averaged far higher than relative productivity underperformance might lead one to expect.   I was involved with a Treasury working paper published during this time arguing that the explanation for the high interest rates seemed most plausibly to lie in things affecting aggregate savings and investment preferences (demand for and supply of savings) in New Zealand.

It was only out of all that experience –  mostly down to the good fortune of the secondment to Treasury –  that my current way of thinking started to develop.  That was as recent as 2010.   I was fortunate enough that the Savings Working Group – another government appointed working group –  got interested in an early version of the ideas, and reflected some of them in their report.   And I was able to push them a little further in discussant comments, and then in a paper, in two conferences on macroeconomic and exchange rate issues sponsored by the Reserve Bank and Treasury.    But it wasn’t an issue that was of much interest, or importance, to the Reserve Bank (reasonably enough), and in fact the Bank became increasingly uneasy about my involvement in the area.  Immigration policy inevitably had political dimensions, and it wasn’t an issue the Bank was ever likely to take a preferred policy position on.

Through this period, my focus was very high-level and macroeconomic in nature.  I kept being told –  by Treasury and MBIE – that our immigration programme was one of the best in the world (and there were papers to prove it).   I didn’t have any reason to disagree (I didn’t have the detailed knowledge and my background was macroeconomics), but as I always stressed, if my argument/analysis was valid, it was so broadly speaking regardless of the quality of the individual immigrants.   Persistent excess demand pressures, in an economy with a pretty moderate savings rate, would put pressure on real interest rates and the real exchange rate and skew the economy away from business investment more generally, and that in the tradables sector more specifically.  It was simply cleaner to take as given the received notion among public sector economists that the quality of the immigration programme was pretty high.

The last couple of years, outside the public sector, have certainly been an eye-opener for me, on just how mediocre our immigration programme has actually been.  It may well be that our average non-native born worker has among the highest skills of any of those in the OECD.  It may even be that our immigration programme is better than those of most  –  in many ways it should be, as we have full effective control of our own borders.  But it simply isn’t very good.  Even on those OECD numbers, the average non-native born worker (immigrants past and present) has skill levels below those of natives (the latter being among the most skilled in the OECD).   There have been many very able migrants, but averages are averages, encompassing the excellent and the poor.  The average isn’t impressive.

We’ve seen quite a bit of that over the last few years:

  • only around 60 per cent of our residence approvals are to skilled or business migrants (and their spouses/partners/children), and all too many of those granted approvals in recent years have been in occupations that don’t strike most people as particularly highly-skilled –  not what people think of when they hear that MBIE sees our immigration programme as a “critical economic enabler”,
  • there were fairly large numbers of approvals granted to middle-aged and elderly parents and siblings of other migrants (people whose skills/qualifications would not qualify them directly), unlikely to make much contribution to New Zealand economic performance.
  • then there has been the big upsurge in student arrivals, concentrated in the lower-level private training establishments, the timing not coincidentally related to increased work rights for students in New Zealand.   Again, relative to our universities, the PTEs aren’t typically training the people most people have in mind when they think of highly-skilled foreigners.

And the disillusionment –  stripping away of the old illusions and official stories –  has continued even in the last week or two.

At a broader policy level, MBIE released data last week showing that

The Ministry undertook a random sample of more than 600 Skilled Migrant Category applications being considered as at 1 March this year. We found that 42.5 per cent of applicants earned over the New Zealand median income of $48,859 a year while 14 per cent of applicants earned over $75,000. These results have a margin of error of plus or minus 5 per cent.

57.5 per cent of those applying for residence under the Skilled Migrant category –  the most skilled bit of the residence approvals programme –  were earning less than $48859 per annum.  No doubt some of them would have been turned down, but the rejection rate of applications that get to this stage isn’t high.    On policy to date, a huge proportion of the so-called skilled migrants can’t even command that much income in the New Zealand labour market (and recall that 80 per cent of all residence approvals are granted to people already onshore, and I suspect that share is higher for the SMC category).

Perhaps I’m naively optimistic, but a week or so after these data came out, I’m still shocked at how low a skill level they reveal.   Our ministers and officials have repeatedly grossly misrepresented the programme and the number and sort of “skilled” people New Zealand is granting residence to.   If it were similar data on any other policy or economic topic, I suspect it would be front-page news in our media.

One of my readers (thanks Bob) took the huge unwieldy spreadsheet MBIE releases monthly and produced a summary of residence approvals over the 12 months to March 2017.  This table is in much the same format as MBIE uses in their annual Migration Trends and Outlook publication.

Residence Approvals: Year ended 31 March 2017
Application Substream Application Criteria Number approved
Skilled Migrant Skilled Migrant 25,357
Work to Residence Talent – Accredited Employer 1,464
Investor Category Investor 2 Category 1,404
Entrepreneur Category Entrepreneur category 740
Work to Residence Long Term Skill Shortage List Occupation 527
Investor Category Investor 1 Category 154
Partnership Deferral Skilled Skills/Business deferral 142
Work to Residence Religious Worker 122
Work to Residence Talent – Sports 27
Employee of businesses Employees of businesses 3
Business / Skilled Sub-total 29,940
Refugee 1,902
Samoa Quota 1,008
Pacific Access 607
Other Ministerial direction 295
Other Victims of Domestic Violence 28
Section 61 Section 61 133
International / Humanitarian Sub-total 3,973
Family Tier 1 & 2 Family Parent Tier 1 2,555
Parent Family parent 457
Sibling Family sibling 397
Adult Child Family child adult 47
Sibling Family sibling 2
Parent Sibling Adult Child Stream Sub-total 3,458
Partnership Partnership 9,439
Dependant Child Family child dependent 1,861
Partnership Partnership – Partner of an Expatriate 1,247
Parent Retirement Parent Retirement 37
Partnership Deferral Family Partnership deferral 23
Dependant Child Family Child dependent – Dependants of an Expatriate 11
Partnership Partnership 3
Uncapped Family Sponsored Stream Sub-total 12,621
Residence approvals Total 49,992

We now know how low the apparent level of skills has been in the skilled migrant category.  And that is the most skills-focused on any of these residence categories.  We can reasonably assume that the average skill levels across the other categories will be, perhaps materially, lower.

Of course, in some of the line items that shouldn’t be a concern.  We take refugees for humanitarian reasons, not domestic economic reasons.  But by and large our immigration programme has been sold as having an economic focus –  intended to lift productivity across the economy and benefit New Zealanders as a whole.    Standard economic theory will tell you that if the skill level of the migrants is low –  typically lower, especially at the margin, than the new native worker –  it could only benefit New Zealanders (on average) by driving down wages for relatively unskilled labour in New Zealand.    The evidence on whether it has done so is contested, but if it hasn’t, New Zealanders simply can’t have benefited.  And if we stand back and look at our productivity performance, business investment patterns, and tradables sector performance, there is no sign of such systematic benefits at all.

It looks increasingly like a costly sham.  New Zealanders have been sold the policy on one basis but –  whatever the merits of the policy they’ve been told we were running –  the actual policy looks to have been far worse than we were told.  And, I suspect, far worse than the people who first designed the more liberal immigration policy thirty years ago would have had in mind.

People will differ on how all this came to pass.  I’m not a conspiracy theorist, and suspect it mostly developed with the best of intentions all round (rather than, say, a deliberate attempt to drive up Auckland land prices and drive down lowly-skilled wages).   But good intentions don’t excuse shocking outcomes.  We simply don’t really have a skilled migration programme at all.  There are, and no doubt always will be, a few very highly-skilled people among the migrants –  and the issue here isn’t the migrants themselves (pursuing the best for themselves and their families) but the policymakers in successive governments –  but all too many have little to offer to benefit New Zealand.  For a country that hasn’t been doing that well economically for 50 years –  although there are cyclical ups and downs –  that simply isn’t an approach we can afford, if we want to offer our people some of the best material living standards in the world.  Perhaps it is partly a reluctance to accept that New Zealand just isn’t that attractive to very many of the sort of extremely able people we might genuinely benefit from.

And perhaps even more shocking than the skilled migrant applicant income data, was the news yesterday that our government is allowing someone who gained residence approval only five years ago, and has since committed several sexual offences, been in prison for them, made little apparent effort to rehabilitate, and remains (according to the experts) at high risk of reoffending, to remain in the country.  I’m not usually strongly sympathetic to “victims advocates” etc, or to those wanting to lock up even more people for longer, but I simply can’t believe that the government had let this chap stay.   Since such offenders don’t usually start offending in their 50s, you have wonder about the initial screening, but even set that to one side, how is this decision at all consistent with promoting the best interests of New Zealanders?   Individual decision it might be, but it looks too like a mentality in MBIE –  and their ministers? –  that simply doesn’t put the interests of New Zealanders first (whether in the economic aspects of the programme design and implementation, or others).      The specific decision might have been made by an official, but that person was operating only under the delegated authority of the Minister of Immigration.  The Minister now claims he’d have made a different decision, but if so perhaps he could release to us the guidelines he had laid down, that his officials were supposed to be working to when they made this egregious decision.    I’m quite sure Afghanistan would be an unpleasant place to be sent back too.    But Mr Akbari made his choices, breaking our law (and not simply traffic offences) not once but several times.  It isn’t clear why we owe him any further consideration, or why our people should be exposed to the risk of his further re-offending.   I don’t suppose Michael Woodhouse personally will be compensating future victims –  and of course with the best will in the world, he won’t be able to  put back together a life shattered by a further instance of such abuse by Mr Akbari.   Deportation then will be scant comfort to the victim.

As I like to stress, I try to be an equal opportunity sceptic.  Immigration policy has, for 30 years, been pretty much common ground between National and Labour.     The Donghua Liu case shouldn’t be quickly forgotten.