Two sides of the same coin

When, a couple of months ago, the current National-led government announced plans to tighten immigration policy in several areas, I summed up the changes as “a modest step that ignores the big picture“.

Yesterday, the Labour Party announced the immigration policy it will campaign on.  I’d use exactly the same words to describe their proposals.  Some of the changes –  the largest ones –  seem broadly sensible, but they won’t come close to tackling the real problems with New Zealand’s immigration policy.

In some ways the biggest difference between the two parties’ approaches is that National provided us with no estimates about what impact their changes would have on numbers (and the Prime Minister apparently claimed yesterday they would,  in fact, have no impact on numbers), while Labour is touting large numerical impacts but not acknowledging that they will actually have little or no medium to long-term effect on the net inflows of non-New Zealand citizens.

In many ways, none of this should be a surprise.  The “big New Zealand” strategy, revitalised over the last 25 years, has been a bipartisan project.   On either party’s policy, it remains one.   There is really no material difference between them –  just details which, while not unimportant, don’t affect the underlying strategy.  A strategy which, to the extent it had an economic performance objective behind it (recall how MBIE used to call our immigration policy, “a critical economic enabler”), has simply failed.  There is no reason to expect anything much better if future if we keep on with the same policies.

What determines the medium-term contribution of immigration policy to population growth is the residence programme, which aims to give out around 45000 residence approvals each year.  The government cut that target a little last year.  Labour’s policy doesn’t even mention it.   At 45000 approvals, the programme is roughly three times the size, in per capita terms, of the equivalent programme is the United States (where about one million green cards are issued each year).

But what of the proposals Labour did put forward.  Their policy document is here.   It is misconceived from the first sentences where they state

Migrants bring to New Zealand the skills we need to grow our economy

Have they not seen the OECD data showing that New Zealanders are among the most highly-skilled people in the advanced world, and that –  on average –  immigrants are a bit less skilled than natives?    On the scale the New Zealand immigration programme attempts to operate at, the typical new additions to the labour force from non-citizen migration are not as highly skilled as the people who are already here, and our own young people who enter, and move up in, the workforce each year.   There are, of course, no doubt some exceptionally talented people.   But most are people from poorer countries looking for better opportunities here for themselves and their families –  typically, too, people who couldn’t get into the richer and more successful Anglo countries.  (None of this is a criticism of the migrants –  pursing the best for themselves and their families is probably what all of us seek to do too – but it is a criticism of the policy framework that enables such large inflows of not overly-skilled people.)

Mostly Labour’s policy seems to be about fixing some pretty dubious changes made to the student visa system over recent years.   In fact, three-quarters of the total numerical impact of their policy comes (on their own numbers) from student visa changes.

Labour will stop issuing student visas for courses below a bachelor’s degree which are not independently assessed by the TEC and NZQA to be of high quality.

Labour will also limit the ability to work while studying to international students studying at Bachelor-level or higher. For those below that level, their course will have to have the ability to work approved as part of the course.

Labour will limit the “Post Study Work Visa – Open” after graduating from a course of study in New Zealand to those who have studied at Bachelor-level or higher.

Mostly, those seem like a broadly sensible direction of change.   That said, I’m slightly uneasy about relying on bureaucratic agencies to decide whether courses are “high quality” –  in principle, surely the market can take care of reputational and branding issues?

And while it might look good on paper, I’m a little uneasy about the line drawn between bachelor’s degree and other lines of study.  It seems to prioritise more academic courses of study over more vocational ones, and while the former will often require a higher level of skill, the potential for the system to be gamed, and for smart tertiary operators to further degrade some of the quality of their (very numerous) bachelor’s degree offerings can’t be ignored.  In the student visa data we already see some slightly suspicious signs (bottom right chart) of switching from PTEs to universities  I’d probably have been happier if the right to work while studying had been withdrawn, or more tightly limited, for all courses.   And if open post-study work visas had been restricted to those completing post-graduate qualifications.

Selling education to foreign students is an export industry, and tighter rules will (on Labour’s own numbers) mean a reduction in the total sales of that industry.   Does that bother me?  No, not really.  When you subsidise an activity you tend to get more of it.  We saw that with subsidies to manufacturing exporters in the 1970s and 80s, and with subsidies to farmers at around the same time.  We see it with film subsidies today.  Export incentives simply distort the economy, and leave us with lower levels of productivity, and wealth/income, than we would otherwise have.   In export education, we haven’t been giving out government cash with the export sales, but the work rights (during study and post-study) and the preferential access to points in applying for residence are subsidies nonetheless.  If the industry can stand on its own feet, with good quality educational offerings pitched at a price the market can stand, then good luck to it.  If not, we shouldn’t be wanting it here any more than we want car assembly plants or TV manufacturing operations here.

Labour estimates that their changes to student visas and post-work study visas will reduce numbers by around 17000, roughly evenly split between the two classes of changes.  But what they don’t tell you is that these will be one-off reductions in the total number of people here on those visas.    Since the number of people who settle here permanently is determined by the residence approvals programme, and that hasn’t changed, the changes Labour is promising around student visas –  while broadly sensible –  while make a difference to the net migration flow in the first year they are implemented (the transition to the lower stock level) and none at all thereafter.   They might change, a little, who ends up with a residence visa, but not how many are issued.  If you favour high levels of non-citizen immigration but just want the “rorts” tidied up, it makes quite a lot of sense.

The changes Labour proposes to work visas are also something of a mixed bag.  They are promising (but with few/no specifics) to make it harder for people to get work visas

Since 2011/12, the number of low-skill (ANZSCO 4 and 5) work visas issued has surged from 14,000 to 22,000. For example, the number of “retail supervisor” work visas has increased from 700 to 1,700. Labour will work with firms to train New Zealanders to fill skills gaps so we don’t have to permanently rely on immigration. A developed nation should be able to train enough retail staff to meet its own needs. Immigration should be a stop-gap to meet skills shortages, not a permanent crutch.

Labour will make changes that preserve and enhance the ability of businesses to get skilled workers to fill real skills gaps but which prevent the abuses of the system that currently happen.

The broad direction seems sensible enough –  after all, the official rhetoric about the gains from immigration relate to really highly-skilled people, but what does it mean specifically?

And I get much more wary about proposals to move to a more regional approach (on top of the additional points for regional jobs the government introduced last year, thus further reducing the skill level of the average migrant).  This is what they say:

Currently, few skill shortages are regionalised. This makes it hard for a region with a skills shortage in a specific occupation to get on the list if the shortage is not nationwide. Importantly it means that work visas are issued for jobs in regions where there is not actually a shortage which puts unnecessary pressures on housing and transport infrastructure there.

Labour’s regionalised system will work with local councils, unions and business to determine where shortages exist and will require that skilled immigrants work in the region that their visa is issued for. This will prevent skills shortages in one region being used to justify work visas in another, while also making it easier for regions with specific needs to have those skills shortages met.

Where skills shortages are identified, Labour will develop training plans with Industry Training Organisations so that the need for skilled workers is met domestically in the long-term. We will invest in training through Dole for Apprenticeships and Three Years Fees Free policies.

Frankly, it seems like a bureaucrat’s paradise, and just the thing for influential business groups that get the ear of some local council or other.  It is hard enough to ensure that local authorities operate in the interests of their people, without setting up more incentives that will allow local authorities to be used to pursue the interests of one particular class of voters.

More generally, it is an approach that suggests no confidence at all in market mechanisms to deal with incipient labour market pressures.  There is no suggestion in the document, at all, that higher wages might be a natural adjustment mechanism, whether to deal with increased demand in a particular region or for a particular set of skills.  Even the Prime Minister was running that line recently  –  and he isn’t from the party supported by the union movement.

Again, changes to reduce the number of work visas granted to people for fairly low-skilled occupations aren’t a bad thing, but they won’t make any difference to the average net inflow of non New Zealanders beyond the initial (quite small) one-off level adjustment.     And there is no willingness to rely on market mechanisms –  eg set a (say) $15000 per annum fee, and allow limited work visas for jobs where the employer is willing to pay the taxpayer that additional price.

There were two other initiatives in the package.  The first was the proposed new Exceptional Skills visa.

Labour will introduce an Exceptional Skills Visa. This visa will enable people with exceptional skills and talents that will enrich New Zealand society — not just its economy — to gain residency here. 

It will be available to people who can show they are in an occupation on the long-terms skills list and have significant experience or qualifications beyond that required (for example, experienced paediatric oncologist) or are internationally renowned for their skills or talents. Successful applicants will avoid the usual points system requirements for a Skilled Migrant Category visa and would be able to bring their partner and children within the visa. This visa will help grow high-tech new industries, meet the increasingly complex needs of the 21st Century and enrich our society. Exceptional Skills Visas for up to 1,000 people, including partners and children, will be offered every year

When I first saw reference to this I was quite encouraged.  And if it makes a little easier for people who are genuinely highly-skilled to get first claim on those 45000 residence approvals each year, then I don’t have any problem with it.   But it isn’t exactly the American exceptional ability visa, and we need to be realistic about New Zealand’s relative attractiveness (or lack of it) to people with really exceptional talents.   The suggestion that the programme will “help growth high-tech new industries, meet the increasingly complex needs of the 21st century” is probably little more than late 20th century vapourware.

As for the proposed KiwiBuild visas, I suppose they were politically necessary. You leave yourself open if you campaign on both big reductions in migrant numbers, and massive increases in house-building, if you don’t prioritise construction workers.  In fact, of course, this programme makes a one-off reduction in the number of people here –  reductions concentrated in the population group that probably has the least housing needs..  None of the medium-term pressures will have been eased at all, even if some dodgy rules around students do end tightened.

In passing, I was also interested in this comment

We will investigate ways to ensure that the Pacific Access Quota and Samoan Quota which are currently underutilised are fully met.

I guess there are really large numbers of Pacific voters in Labour’s South Auckland heartland.    These Pacific quotas, again, lower the average skill level of those we given residence approval too (since people only come in on those quotas if they can’t qualify otherwise, all within the 45000 approvals per annum total).  I imagine, too, that the Australian High Commission will have taken note of that line.

Overall, some interesting steps, some of which are genuinely in the right direction.  But, like the government, Labour is still in the thrall of the “big New Zealand” mentality, and its immigration policy –  like the government’s – remain this generation’s version of Think Big.  And it is just as damaging.    The policy doesn’t face up to the symptoms of our longer-term economic underperformance –  the feeble productivity growth, the persistently high real interest and exchange rates, the failure to see market-led exports growing as a share of GDP, and the constraints of extreme distance.  None of those suggest it makes any sense to keep running one here of the large non-citizen immigration programmes anywhere in the world, pulling in lots of new people year after year, even as decade after decade we drift slowly further behind other advanced countries, and se the opportunities for our own very able people deteriorate.

But that is Labour’s policy.  And that is National’s policy.

For anyone interested, the Law and Economics Association is hosting a seminar on immigration policy and economic performance on Monday evening 26 June.   Eric Crampton of the New Zealand Initiative and I will be speaking.  Details are here.

UPDATE: Here is what I said to Radio New Zealand yesterday afternoon on immigration, in a reasonably extended interview, partly on Labour’s announcement, but mostly on the more general issues.

23 thoughts on “Two sides of the same coin

  1. It was not that long ago when net migration was minus 50,000 and economic activity was dead. I don’t think anyone would want to go back to negative population growth. There were plenty of cheap vacant housing available which no one wanted to buy and being a property investor was a laughed at investment.

    The current economic environment sure is much more preferable now with population growing and fixing it is just building more housing which adds to economic activity.

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      • Nice chart. Still does show that in subsequent years to bad recession years we do have net migration losses. No point staying in NZ if the economy has no jobs. But with strong economic years, people want to come to NZ. A sign that a strong economy attracts more people.

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  2. The Exceptional Skills category brings back memories of unemployable scientists and doctors driving cabs and cleaning toilets. I even had the pleasure of hiring a highly qualified nuclear power station engineer into a call centre. Amazing intellect. But unfortunately no jobs suitable here in NZ for that amazing talent.

    The jobs are in servicing our massive $15 to $20 billion Tourism and International student sector. Unfortunatetly the service sector jobs are low skilled with chefs topping the list, front desk receptionists and waiters. The key is the foreign language component which is rather difficult to train.

    Saw an advert in the news yesterday for a Construction Accounts Administrator and Payroll, preferably someone who speaks Filipino. Looks like even the construction sector administration and accounting jobs now require foreign speakers.

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  3. An award-winning Auckland University mathematics professor will leave the country after his residency application was rejected because of his stepson’s autism.

    Professor Dimitri Leemans moved to New Zealand from Belgium in August 2011 with his wife, Francoise Duperoux, their 5-year-old daughter, Margaux, and his stepson, 13-year-old Peter Gourle, after winning a job at Auckland University.

    He was the recipient of the 2014 New Zealand Mathematical Society Research Award and a Marsden grant of $580,000 for his work in mathematics. In a letter of support, Auckland University said it and the country would be disadvantaged without him.

    “Once I saw that Immigration New Zealand had decided it is above the UN convention of human rights, it is difficult for me to decide to raise my children here. For me the New Zealand story ends.”

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11589222

    I think it is wrong to say that NZ is an easy place to settle as a migrant. We sure do make it rather difficult for even the top talent to come to NZ. The problem with the search for exceptional talent is the lack of jobs available and not the lack of talent wanting to migrate here.

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    • Re your last para, there is likely to be an element of both. Few top academics will come here because (a) the pay isn’t great, and (b) they are so physically isolated from people working in the same field.

      Disability and health issues are expensive for the taxpayer. I’m not sure where we should draw the line, but we shouldn’t just ignore the costs that the dependents of prospective immigrants might impose.

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      • Met up with a kiwi mate who had migrated to Australia now for 10 years, now aged 62. Transferred all his income assets and bought property in Australia and pays Australian tax. He therefore has paid no NZ tax now for 10 years. As a kiwi on a Special Australian Visa he does not get access to free hospital treatments in Australia. He returns to NZ 2 to 3 times a year for his free medical checkup and medical procedures and treatments in NZ. His children have grown up in Australia with kiwi passports returns to NZ for the same reason together with his grand children for whatever serious medical reasons. No wonder our medical and hospitals are overstretched. Not by new migrants who do pay NZ taxes but by departed kiwis who pay no NZ taxes but are still coming back into NZ for whatever medical conditions.

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      • No wonder the NZ economy struggles with productivity and low wages. There are 1 million kiwis living outside of NZ still taking full advantage of free NZ public services and pays no taxes.

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      • This one is an aside to the 62 year old kiwi mentioned by getgreatstuff.
        My understanding is that any person entering Australia pays nil tax on overseas income for four years after entry (same as NZ). This gentleman has a lifetime exemption because he has no defined entry date. If he is astute he could place all of his movable assets in a low or nil rate jurisdiction and earn all that income free of taxation.

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  4. The argument is then that Winston still has skin in the game by targeting the 15,000 p.a.
    If the voter is prepared to accept NZ First the real question is:
    ” Which party will Winston go with?” and subsequent to that
    ” How much traction will he get on this one among his list of ‘bottom line’?”

    My personal question is whether voting for Winston is too dangerous by getting ‘same same’

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  5. Your argument is persuasive; that it covers 70 years makes it hard to refute.

    Labour policy: “If you favour high levels of non-citizen immigration but just want the “rorts” tidied up, it makes quite a lot of sense.”. Anything that kills the “rorts” and stops the exploitation will get my vote.

    Their proposals would be more convincing if Labour owned up to some past decisions where residency was issued in politician’s offices – non-transparent citizenship by political donation – and the Chinese economic criminals resident in Auckland..

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  6. The net educational export contribution of the educational sector is overstated. Some of this is funded from working in NZ jobs. Logically this is an import of labour services.

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  7. Sure – altho there is still considerable NZ value-added. My main point is simply that this will make big inroads into some businesses. So did pulling away SMPs, manufacturing export incentives, and import licences. Those were the right things to do.

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  8. Michael I am afraid I didn’t follow your point about the changes having a one off impact only. I understand how people in the system can get residence but surely a change to the rules would have an ongoing annual impact on the numbers of immigrants entering the country?

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  9. Think of 100000 students entering and leaving each year (this year’s arrive, last year’s leave). Labour policy looks as tho it might reduce next year’s arrivals to say 80000, but then the following year’s depatures will also fall.

    So the overall net inflow in the next year might be 20000 lower, but in subsequent years the net will still be zero, but the stock of students here will be lower

    (the fact that some students get residence visas and stay, and that number will reduce, won’t change the overall number of residence visas granted, just who gets them).

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    • The Education Ministry has forecast falling degree and postgraduate enrolments by domestic students until at least 2019, including a drop of nearly 3000 full-time students in 2016 and a further 5200 in 2017.

      It said the number of degree and postgraduate students could drop 7 percent by 2018. Radio New Zealand has calculated that would wipe more than $120 million a year in government funding and fees from institutions’ balance sheets.

      The ministry said the forecast was based on a falling number of school-leavers and a better job market attracting people to work rather than study.

      http://www.radionz.co.nz/news/national/295697/tertiary-institutions-face-big-enrolment-drop

      In the face of falling domestic enrolments, the education will be more dependent on foreign students rather than less. Labour cutting foreign student numbers could see our education sector under considerable pressure to pay teachers and upgrade equipment.

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      • I guess that is the desired outcome, but there is no guarantee of that – all depends how the points are calibrated, regional lists work etc etc. The change in the age points might help 45 year old oncologists get in, but might help other 45 year olds who wouldn’t previously have qualified.

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  10. For price stability (including asset bubbles like housing) and gdp per capita growth reasons take the immigration rate control away from the government and give it to the reserve bank (with a board of decision makers) to manage the 12 month rolling rate as a macroeconomic tool. (yes, sometimes the outflow will be unmanageable)

    The current political debate shows the politicians are capable of putting together good immigration policy and should be stripped of it.

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  11. Looks like a win for the business sector – especially consultants that will likely facilitate communication between firms, unions and local councils re determining “..where shortages exist and will require that skilled immigrants work in the region that their visa is issued for”. Will our new arrivals be issued a mobile phone with some kind of GPS system linked to a live radar screen at HQ?

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  12. Thanks Michael. I think you came across very well on RNZ yesterday and Jim and the panel seemed to largely agree with you (at least they lacked any evidence to the contrary). I was hopeful that the Labour announcement may have some substance and while it has some good points, the elephant in the room, i.e. annual PR approvals, was ignored.
    My question is; why is there the political reluctance to touch the PR approvals total? It just seems absurd. I could somewhat understand if 45000 was an administrative upper limit that could range to theoretically zero so yearly approvals can vary depending upon the quality of candidates. The current policy is actually 90000 over two years to somewhat allow for this isn’t it? – so why not say 80-100,000 over five years.

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    • The target of 45,000 takes into account the churn rate. We would likely just retain around 15,000 of the 45,000 target as younger migrant professionals find after 3 to 5 years that New Zealand has very few corporate ladders to develop a high paying career due to the small population and lack of head office jobs.

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