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.

 

 

37 thoughts on “Immigration policy: bus driver edition

  1. Michael
    I don’t offer this comment in any way to disagree with your post, which I find very clear and persuasive, but to note that the job market for NZers, especially those who don’t go to university, is Australia and New Zealand, and that the Australian ‘pressure valve’ may also be contributing significantly to labour shortage problems here. At a time in their lives when they want to explore, young people can go to Australia, and up to about $40k, pay less tax, and it seems, easily find jobs. A proportion come back but in one’s twenties, when one might be deciding to be a butcher or truck driver, if you are in Australia, the pay is much higher, and much else of life is easier – worry about equality before the pension and other social services (much) later. Waiters I know earn much more than here, and are a lot ‘net’ better off too. It may be that the pattern of lack of ‘mid-range’ labour with requisite skill and job readiness is partly down to the fact that a good share of those coming through in their early twenties leave for Australia and never come back.

    The bus driving industry here is competing for (freely circulating) labour with Australia, which might mean it has to raise wages a fair bit, as for all the other occupations on your list.

    You have dug very deep in the numbers – are the anecdotal observations of so many of my friends (“it seems a third of Hawkes Bay youth is in Melbourne”) able to be quantified? We really are a single job market for so many now, especially younger people.
    Clive

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    • A good point. Only last night our son the apprentice builder said ‘when he gets his papers he is seriously thinking of going to Brisbane’. He has been talking with a family friend, a young builder who went two years ago and is earning far more in Brisbane than he used to earn in Auckland.

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      • My brother left for Melbourne after obtaining his Australian Permanent residency 20 years ago and took up his Australian citizenship and passport some years later. He is a IT programmer and continues to work in companies that still use legacy systems in Australia for the back end data processing but want a modern front end. Surprisingly Australia has a lot of work for older IT staff as many of their large companies still use legacy systems. His pay did jump up 30% by just moving across. He was smart enough not to just hop across to Australia on the 3rd class Special Category Visa.

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    • Clive

      I guess the general point holds – the near 1m NZers (net) who have gone to Australia over recent decades. But I’d be wary of making much of the Aus/NZ wage differential right now, given that the net outflow of NZers to Australia has been very small over the last few years. To the extent that our high immigration has held down wages and/or productivity in NZ, it may have encouraged a larger net outflow of NZers than we would otherwise have seen.

      Liked by 1 person

      • Michael, I am really talking about the composition of the outflow and inflow, rather than the net. The two components can net out, but be different parts of this country’s skill set. We could be finding degree-type people coming back while the ‘missing skill set’ component stays away – the net numbers won’t tell us. The anecdotal stuff has been so persistent and widespread over decades, that I think it may be telling us what we can’t find in the numbers alone, but which logically could well be happening – that demographically we are year after year replicating a ‘hole’ in a range of middle range skill sets where Australia is more attractive for more than financial reasons, while it’s the ‘HR specialist’ who comes home and nets out the data. I think if it could be done, it would be worth examining.

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      • Intriguing proposition, although I’m not sure quite where to start in trying to assess whether there is much to it. From memory, past research has suggested that the net outflow to Aus tended to have similar characteristics to the NZ population as a whole.

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  2. I was hoping you’d post on the bus driver article. The supply/demand curve isn’t talked about enough – Ritchies is obviously not offering the market clearing wage to attract workers, so they aren’t getting the ‘supply’ of willing workers.
    Maybe offering a suitable salary doesn’t work for places like Taumarunui (which seemed a depressing place when I drove through recently, so not surprised a company there struggled to attract applicants), but it certainly would for a lot of places. But then again, how expensive would your fish and chips be if takeaway operators couldn’t import cheap labour?
    I can imagine the squawks from Business NZ if your idea got traction, and I think they’d be right, partly. The tricky question is how do we reform the immigration system without a (short-term) Brexit-style crisis

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    • In the UK during the fifties fish and chips were sold by native Anglo-Saxons and a working class family could afford them. So it should be viable in modern NZ. I suspect paying a living wage (over $20) would increase the price by about 50 cents per portion.
      A Chinese Kiwi acquaintance now retired told me that her family used to own a fish and chip shop; she said “I wouldn’t do it now – can’t compete with recent immigrants employing their families without pay”.

      Liked by 1 person

      • Listening to RNZ 101.4 on my drive home yesterday, there was a discussion on Wellington City Council sacking the private parking contractor to control the living wage payments directly. This lead to the redundancy of 17 parking attendants. However when Wellington City Council rehired under the new living wage none of the 17 redundant workers got hired because at the new payment rate better quality people applied for the job. Certain poorer quality people are only hired because the pay is too low for better quality people.

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    • We’ve already heard the squawks from Business NZ (and others) when the Nats made their modest changes to work visa arrangements last year. So, yes, one could envisage an uproar if major reform was to be foreshadowed. Technically, it is easy enough to phase everything in: eg reduce the 45000 target residence approvals by say 10% a year until we get to 10-15K, and perhaps start with a $2500 annual fee for Essential Skills visas, and raise it $2500 pa until we get to my $20000 figure. As always though, the political economy question is whether slow, signposted, and sequenced reform becomes a recipe for allowing resistance to gather and change not to happen at all. Roger Douglas certainly thought that way (about reform generally). On this specific issue, I’m a little more optimistic if political leaders ever conclude that we need a different way. Doing things gradually would also allow people to see benefits emerging gradually – eg the lower exchange rate and interest rates. (Or, if I’m completely wrong, to show that they just aren’t there.)

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  3. A very lucid post. Probably very persuasive to all but parties with a vested interest in our current system.

    As usual I pick out a quote: “”against use of unskilled immigrant labour which mostly – although not entirely – competes with and tends to drive down returns to domestic unskilled labour “”. My instinct is to rewrite it but most of my adjectives would have to be replaced by asterisks.

    Maybe you under-estimate the skill level of bus-drivers; maybe it only needs a 6 to 8 weeks training course but you have to possess perfect temperament and your mistakes can kill people. Compare that to my own trade of computer programming: frustrated rage is par for the job and our mistakes usually just put egg on our face assuming reasonable disinterested testing nobody gets killed. Certainly comparing the bus driver to the waiter, the barman, the kitchen-hand the bus driver needs competence and I suspect would have the longest training course.

    Is this an issue which will never be resolved gradually because of the politics involved? It might eventually be resolved when NZ’s GDP per capita drops further below other OECD countries and China, India, Indonesia and the Philippines catch up with us. Maybe just one more generation – the world is changing fast.

    If the government adopted your policy tomorrow what would be the immediate and short term effects? Would the bus companies, food outlets, petrol stations, supermarkets, care homes with recently arrived immigrants simply bankrupt those without? Or would it need to be brought in simultaneously with generous grants for training NZ staff?

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    • The change in government to a Labour government has already already flowed through the change of behaviour of workers. There has already been more than 6 strikes by rail workers, threats by nurses and care workers and port workers since Labour took office.

      I can even see the change in behaviour by my mothers groomers. Before Labour took power, groomers were usually on time and ready to get to work immediately. After Labour took power now it takes them 15 minutes to get from their car and walk a very short 6 meters to the front door while they chat with each other. Even the knocking have become softer so that they can squeeze a bit more down time if they are not heard. An hour paid for by ACC is now only around half an hour.

      People know that they have a government that tolerates bad behaviour and they know they would not be replaced as there is now a shortage as immigration has tightened up. Previously National would have just sacked and replaced the whole lot of them.

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    • Yes, there is a range of different skill levels in that table in the post. I guess we all face the risk of killing someone when we get in our car and drive – so it is the marginal additional skill in manoeuvring busses that is at issue.

      On your final question, i would phase in changes (altho not as slowly as in the previous comment). But the lower exchange rate would be a big net offset for tradables sector firms. For some govt-funded services (rest homes, public transport) there would be a fiscal bullet to bite. For some market non-tradables firms, there would probably be some increase in prices but recall that a much lower population growth rate frees up workers from industries oriented to population growth (eg everyone in construction and associated industries). I would not expect immediate significant wage rises – only localised ones in sectors that have become particularly heavy uses of migrant labour. Higher real wages across the board have to await the higher productivity that would flow from a more export-orientation in the economy.

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    • Some of those companies have split shifts. They can have trouble getting to a toilet. They get spat on. Your out there on you own.
      And then there’s the traffic.
      Bus driving used to be a reasonably well paid job 30 years ago. As à Tourism and Hospitality lecturer pointed out real wages have fallen 24.5% between 1979 and 2006.

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  4. geniuses at work – Ritchies tendered for the North Shore contract before they had the nuts’n’bolts in place – who did they think they were going to hire at $20.20 per hour or $808 per week gross before tax – they aren’t going to attract a family man living in rented accommodation on the North Shore – they aren’t going to attract a family man living in rental accommodation in Manukau or Mangere – now consider what they are really seeking is imports who are single who can find digs or a room paying no more than $200 per week rent – good luck with that

    Immigration should deny their application – let them sink or swim and be sued for specific performance by ACC

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    • I did notice that on the same website, the Sydney number was about $26. Small samples both probably, but in general Aus wages are about 40% higher than those here (incl superannuation etc).

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  5. https://www.stuff.co.nz/business/industries/102858637/2degrees-seeking-approval-to-hire-up-to-40-migrants-to-fill-call-centre-roles
    2degrees wants approval to hire up to 40 migrants to fill call centre roles. In Auckland. Surely this and the bus drivers must make the government think.

    So they will add Bus drivers and Call Centre workers to NZ’s list of ‘skills’: Truck Driver, Winery Cellar Hand, Waiter, Sales Assistant, Personal Care Assistant, Massage Therapist, Baker, Painter, Labourer, Kitchenhand, Fast Food Cook, Farm Worker, Forestry Worker, Gardener, Barman, etc.

    There can be skill in Call Centre work; my Melanesian step-daughter worked in an Auckland call centre while she was a student. She had to cold call Australians in remote Queensland and ask them to answer a very long set of survey questions. Pay bonuses were related to how many surveys were completed. She adopted a strong Australian accent with a cheerful tone and was successful persuading lonely housewives to waste 20 minutes on the phone.

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  6. I think you’re absolutely right about the role of immigration in distorting our economy. The fact is, population growth is running well ahead of our capacity to absorb the pressure and the result is infrastructure bottlenecks, income and wealth inequalities, elevated interest rates and exchange rate and poor productivity growth.

    Everyone has anecdotes highlighting these issues. And here’s one more. It took me 90 minutes to drive from Central Auckland to the top of the Bombay Hills last Thursday lunchtime for an average speed of about 30km/h with the car stopped on the moterway several times. Now you could say it was Easter traffic but we left well ahead of this and I’ve encountered the same outside holiday periods. The road system just isn’t coping…

    Liked by 1 person

  7. It strikes me that the “domestic losers” of an immigration policy that allows businesses to pay below market wages are not just the New Zealanders who would have happily done the job for a few dollars more, but also the taxpayers who effectively subsidise the business by paying unemployment benefits.

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    • I’m less sure about that angle. On my reading, immigration generally does not raise the unemployment rate, but may actually lower it (temporarily – for a immigration shock), since the demand effects of more people (consumption as well as required physical capital stock) typically exceed the supply effects in the short-run. Pro-immigration people generally argue that immigration is a net fiscal positive (especially in NZ), and altho there are some important counters to that claim – especially in the longer-term – my stance has tended to be that immigration in NZ is a bit of a wash fiscally. I wrote about these issues here

      https://croakingcassandra.com/2017/03/02/new-zealand-initiative-on-immigration-part-4/

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    • Smart Talk at The Auckland Museum – Immigration

      Paul Spoonley

      What’s happening is we are globalising “in ways that are very significant “.

      John Key to John Campbell
      Etc

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    • Read your link. Some good stuff (especially liked the concept new to me of ‘patient capital’ ) but the relevant quote was “”A bus driver in India needs to be much more skilled than a bus driver in Sweden. However the Swedish bus driver is paid many times more than the Indian driver.””

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      • Richard Heinberg says the world economy is a subset of the world’s ecosystem.
        Over population leads to poverty.
        Dinasours lived on Earth for 60 million years – why have everyone at once?

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      • Actually accordingly to conventional science, dinosaurs lived for around 181 million years between 247 million and 66 million years ago. If you believe some cave drawings found in Zimbabwe that shows dinosaurs then perhaps dinosaurs were still around in 1500BC.

        But if you a a Bible person then humans must have been around before dinosaurs.

        All of the basic “kinds” of living creatures were brought into existence in the same initial creation week. Moses wrote: “In six days Jehovah made heaven and earth, the sea, and all that in them is” (Exodus 20:11). This would include the dinosaurs (“terrible lizards”), and man as well.

        Jesus affirmed that mankind has existed “from the beginning of the creation” (Mark 10:6); this certainly excludes the notion that dinosaurs became extinct millions of years before man appeared upon the planet.

        Humanity was given dominion over all the lower creatures of the earth (Genesis 1:26). There is no reason to exclude dinosaurs from the scope of this passage.

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      • GGS: as a lifelong atheist I’m sure you are wrong about the Bible. You are giving just some minority weirdo interpretation. My sister, the Pope and the Archbishop of Canterbury have no trouble with the theory of evolution and they are all believers in the truth of the Bible and at least one of them is brighter than me.
        The problem lies with the idea of time: creation implies a before and after so how did God create time? Some concepts are impossible to grasp; I always had trouble with the square root of minus 1 but it was rather useful when studying maths. Probably my sister would say much the same about God: impossible to understand but useful for living.
        Is any of this relevant to working visas for bus drivers? Richies have two adverts in the North Shore Times for bus drivers; neither mention wages.

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      • Not sure why being an atheist would bar anyone from treating the bible as a historical account. The problem with the bible is that many Christians treat that as the word of God but it is actually a historical account by different people at different times. Some of the flood stories and the Tower of Babel have been accounted for in Sumerian clay tablets which means that some of the bible stories are a retelling of the history/stories of the ancient people of Sumeria.

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      • The preface about being an atheist was merely admitting I’m no expert on the Bible. It does give me perspective as an outsider. I am sure for believers the Bible is more than a fallible history book. It certainly is for this non-believer.

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  8. A Blind Spot Full of Billionaires
    By Steve Sailor

    The lack of panache in Piketty’s prose is especially noticeable when Capital in the Twenty-First Century is compared to the more amusing books of another heterodox economist, Cambridge’s Ha-Joon Chang, author of 23 Things They Don’t Tell You about Capitalism and Kicking Away the Ladder. The genial yet waspish Chang, the son of a South Korean finance ministry official, has modeled his persona on the suave Canadian economist John Kenneth Galbraith, who exchanged so many witticisms at Gstaad dinner parties with his frenemy William F. Buckley.

    Like Galbraith (or Pat Buchanan), Chang enjoys pointing out that most rich countries didn’t get rich by following the dogmas of laissez-faire economics. Chang is, not unreasonably, proud of his civil servant father’s contribution in helping to build South Korea’s economy on what I might call “national capitalist” principles. South Korea would appear to have achieved a reasonable balance of growth and equality, but that potential role model for the West is not mentioned in the index of Piketty’s book.

    Key policies of broadly successful economies typically include tariffs and immigration restriction. But Piketty won’t consider learning any lessons from East Asia. On page one of his book he declares that his policy recommendation—some kind of European or perhaps global superstate that hunts down and taxes all wealth (but don’t worry, Piketty’s will be a democratic empire)—is aimed at “avoiding protectionist and nationalist reactions.”

    Yet Chang has noted that if Swedish bus drivers get paid, say, 50 times more than Indian bus drivers, it’s not because the Swedes are 50 times more productive at driving buses. It’s because the government of Sweden would use physical force to stop enough Indians from moving to Sweden to equalize wages. Chang observes:

    “Our story of bus drivers reveals the existence of the proverbial elephant in the room. It shows that the living standards of the huge majority of people in rich countries critically depend on the existence of the most draconian control over their labor markets—immigration control. Despite this, immigration control is invisible to many …”

    Piketty is one of the oblivious. Immigration is barely mentioned in his massive tome. When Piketty finally gets around to discussing immigration on p. 538-539, his analysis is romantic at best:

    “Immigration is the mortar that holds the United States together, the stabilizing force that prevents accumulated capital from acquiring the importance it has in Europe …”

    Piketty doesn’t seem to be aware that American plutocrats, both in the robber baron era and today, have overwhelmingly put their money on the side of more immigration. Billionaires who have donated toward more immigration include Gates, Zuckerberg, Charles and David Koch, Michael Bloomberg, Sheldon Adelson, George Soros, and Rupert Murdoch.

    And that representative oversight helps explain why Piketty’s prose isn’t as fun to read as Chang’s: he simply isn’t as perceptive.

    http://takimag.com/article/a_blind_spot_full_of_billionaires_steve_sailer/print#ixzz4rh6C8y5F

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