Immigration policy: bus driver edition

Most of my discussion of New Zealand’s immigration policy centres on the residence approvals programme.  There is a good reason for that: it is where the numbers (of people) are.    In per capita terms, we grant about three times as many residence approvals as the Clinton/Bush/Obama United States did.

In the past 20 years, 864915 people have been approved for residence here.   MBIE data suggest that 80 to 90 per cent of those people are still here five years after approval (that proportion has been gradually trending upwards).   Assume that on average over the 20 years, 85 per cent have stayed on, and the residence approvals programme has boosted our population, all else equal, by about 735000 people.   That means a lot more houses are required –  and roads, schools, hospitals, shops etc –  and a lot more income-earning opportunities abroad need to be found (by the market –  it isn’t a central planning thing) to meet the appetite for stuff the rest of the world produces that each of us in a modern market economy has.

By comparison, as at 30 June last year, it is estimated that there were about 76000 people here on student visas, and 152000 holders of temporary work visas (some students have work rights, but they are still counted here as being student visa holders).

So if one has concerns about New Zealand’s immigration policy they should mostly centre on the residence approvals programme.   Mostly, but not exclusively.

In fact, over the last few years, changes in the stock of people here on short-term visas make up quite a large proportion of the overall net inflow of non-citizens.  Over the five years to June 2017, 225000 people were granted residence approvals.  Assume that the retention rate is around 90 per cent now, and in effect around 200000 of those people will still be here.

Over the same period:

  • the stock of people here on temporary work visas has increased by 62000 and
  • the number of people here on student visas has increased by 20000 (and student work rights were liberalised in that period).

In other words more than a quarter of the contribution of non-citizen immigration –  to things good, bad, or indifferent –  has come from the much-increased stock of people on temporary visas.  The individuals may change –  most temporary people go home again –  but the stock has increased sharply.   Changes in stocks (rather than specific individuals) matter for resource pressures, labour supply etc.

Student visas, in and of themselves, don’t bother me.  Education is an export industry, which just happens to be delivered to people here.  My unease is about the work rights, and preferential access to residency points –  which mean that immigration policy is, in effect, corporate welfare (implicit export subsidies) for universities, PTEs, etc competing in that market.

What prompted this post was the story this week about a bus company – Ritchies –  wanting immigration approval to recruit foreign bus drivers.  Bus drivers don’t make the list MBIE released of occupations for which there were more than 100 (so-called) Essential Skills visas issued last year, but these occupations were some that did.

Essential skills visa approvals 2016/17
Truck Driver (General) 400
Winery Cellar Hand 396
Waiter 345
Sales Assistant (General) 320
Personal Care Assistant 289
Massage Therapist 259
Baker 231
Painting Trades Worker 220
Builder’s Labourer 185
Kitchenhand 181
Fast Food Cook 118
Farm, Forestry and Garden Workers nec 116
Bar Attendant 102

On the face of it, such roles don’t seem notably more (or less) taxing than being a bus driver.  It is a responsible role, but not one requiring huge amounts of skills or training (according to the story I linked to above 6 to 8 weeks training suffices).    It isn’t the sort of role one naturally thinks of when officials and ministers talk about skills-focused immigration programmes.

The case Ritchies make is that they can’t find locals –  New Zealanders, or people already here –  to fill new roles.

Auckland Transport awarded Ritchies Coachlines the contract to run buses on the North Shore from September.

But the company said so far it had not been able to find enough drivers locally and had asked Immigration New Zealand if it could bring in 110 of them from overseas to plug the gap.

And I’m sure that is correct.  If you pay low enough wages, it is hardly surprising that people with other New Zealand options, aren’t lining up to work for you.

At least on the union’s telling

“The problem with Ritchies is that they pay over a dollar an hour less than the industry so their retention rates are minimal. People get trained up then they’ll go to other bus companies where the rates are better. Again Ritchies brings it upon themselves.

On the face of it, it looks like another case of a service contract won largely on the basis of (assumed) low labour costs.

The company more or less acknowledges the point

Mr Todd said the company would continue trying to recruit locally but only had until late June before it would need to look overseas for drivers including in Fiji, Samoa and the Philippines.

He admitted the $20.20 an hour it paid drivers would be difficult to get by on in Auckland but said this was the budget it had to work with.

“Lets face it, any job in the world, if you pay enough, you’ll get people to do it but…those costs will have to be passed on.”

Which is why I don’t really see the specific company as the bogey-man here.  They are operating in an environment –  bidding for public contracts –  where the overall level of funding seems to implicitly rely on access to very cheap labour (in this case, according to the company, from Fiji, Samoa, and the Philippines –  the jobs presumably not being attractive to bus drivers from the advanced world, since New Zealand is now a low income advanced country).

The same goes, more or less, for some other public-funded industries. Rest-homes, for example, rely heavily on immigrant labour from poorer countries: the existing level of rest-home subsidies constrain their options pretty severely.

No individual firm has a great deal of market power.  But the overall market is nonetheless skewed by policy choices successive governments have made about access to immigrant labour to fill what are mostly quite modestly-skilled roles.  Thus, rapid population growth, in a country with a modest savings rate, has pushed up the real exchange rate, meaning that at the margin individual farmers or individual tourism-service operators often genuinely can’t afford to pay higher wages  (and our overall tradables sector has shrunk too).    It is why we need not small tweaks at the margins –  should or shouldn’t bus drivers (waiters, kitchenhands, or whatever) be on the approved list – but an overhaul of the entire immigration system.

But as part of that we should:

  • establish a strong presumption against use of unskilled immigrant labour (which mostly –  although not entirely –  competes with and tends to drive down returns to domestic unskilled labour), and
  • get ministers and officials out of the game of determining which specific roles people can and can’t hire short-term immigrant workers for.

To that end, I’ve argued previously for a system in which Essential Skills visas are granted on these terms:

a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa, with this provision to apply regardless of skill level).

b. Subject to a fee, of perhaps $20000 per annum.

If an employer really can’t find a local hire for a modestly-skilled (or unskilled) position, they’d be able to get someone from overseas, but only by paying (to the Crown) a minimum annual fee of $20000.  It is pretty powerful incentive then to train someone local, or increase the salary on offer to attract someone local who can already do the job. If you can’t get a local to do a job for $40000 per annum, there might well be plenty of people to do it for $50000 (and still cheaper than paying the ongoing annual fee for a work visa employee).

It isn’t, by any means, the full answer.   A much lower real exchange rate has to be an integral part of fixing the overall system, and that is only likely –  on a sustained basis –  if serious inroads are made on the residence programme.  But it would be a start.  It would increase the pressure to fix the residence programme, and it would also re-establish the presumption that one of the purposes of economic life and economic policy is to (sustainably) lift the wages of all New Zealand workers, and perhaps especially those at the bottom of the heap.    Economists might respond that there are gains from trade to be had by bringing in more unskilled people, and that (in principle) the domestic “losers” from such a policy can be compensated.  Of course, they never actually are compensated.  And it just isn’t the way most New Zealanders want their country to be.

By all means, lets welcome a small number of really able people migrants, and meet our international humanitarian obligations around refugees.  But lets drop the misguided belief, that has shaped policy now for too long, that bringing in lots of not-very-skilled people is somehow making us all better off.  It hasn’t, it isn’t, and it seems very unlikely to do so in the foreseeable future.