Immigration policy and wellbeing: Part 2 (aggregate economic outcomes)

Last week I wrote some brief introductory remarks about the new book by economists Julie Fry and Peter Wilson, Better Lives: Migration, Wellbeing and New Zealand.  

Unfortunately, like so much of the current bureaucratic and political enthusiasm in New Zealand for focusing on “wellbeing”, the book seems to be built on a straw man.   To listen to Treasury’s champions of the “living standards framework”, or Cabinet minister championing the proposed “wellbeing” framework for the Budget, you would suppose that all key decisions in the past have only ever been made on the basis of the impact on GDP (per capita) or some similar national accounts indicator.   That that notion is just nonsense takes no time at all to demonstrate: no one seriously supposes that we have a huge welfare system because governments have believed that by doing so GDP per capita will be maximised.   Raising the NZS eligibility age would most likely increase GDP per capita (and maybe even GDP per hour worked) but as a society we’ve chosen to leave it at 65.  And so on.   Advocates of almost any policy will try to argue for some material economic benefits (or to minimise the costs), but public support for this, that or the other policy is only occasionally directly dependent on expected real GDP per capita gains.

It is the same straw man that suffuses the Fry/Wilson book (and the various associated articles or interviews I’ve seen).    Their claim is that immigration policy has been driven by a near-exclusive focus on boosting real GDP per capita (or, again, some variant –  eg real net national income (NNI) per capita) –  economic considerations, and that they are preparing the way for something richer and better.  Here is the last two sentences of the book.

We are confident that using a wellbeing approach is the right way to think about migration.  It enables us to consider important broader issues that a simple focus on per capita GDP allows us to ignore.  The result should be a more effective and more sustainable immigration policy for New Zealand.

But in the entire book, not once did they seek to demonstrate that anyone individually (or New Zealand governments as a whole) has been driven solely by a focus on something like real GDP per capita.  That isn’t surprising.   Here is a summary table of residence visa approvals in 2016/17.

Category Number
Skilled Migrant         24,140
Residence from Work           2,353
Investor           1,418
Entrepreneur              594
Business Immigration Policy – Other*              141
Subtotal  (Skilled/Business)         28,646
Partner         10,914
Parent           1,820
Dependant Child           1,937
Sibling and Adult Child              346
Subtotal  (Family)         15,017
Refugee Quota           1,218
Samoa Quota           1,121
Pacific Access Category              655
Convention Refugees and Protected Persons              236
Refugee Family Support              302
Other special residence policies              489
Subtotal (International/humanitarian)           4,021
Total        47,684

I’m sure that in the first category (the Skilled/Busines sub-total) policy is driven primarily by economic considerations, perhaps encapsulated in a goal of lifting productivity and real GDP per capita.   But nobody supposes that parent or sibling visa policies were motivated by national economic considerations, let alone the two Pacific quotas or the refugee and related policies.  We take refugees because it is the sort of people that we are, and doing so captures or reflects things we care about, without too much consideration for economics.

Even in respect of the people here with short-term work rights, national economic benefit has never been the only consideration.  We didn’t enter a plethora of new Working Holiday visa schemes to maximise the GDP per capita of New Zealand, but through some mix of benevolence (its good for young people to see the world) and (so it seems) a pursuit of other countries’ votes for a Security Council place for New Zealand.  Even the recognised seasonal employer (RSE) scheme bringing temporary workers from the Pacific, is as much about aid to those countries and their people, and boosting political relationships with those countries, as it is about possible economic gains to New Zealanders.

And yet the authors claim that they are offering a whole new way of seeing immigration policy issues, thinking of dimensions other than the economic implications.    They know it isn’t so –  I heard one of the authors interviewed on Newshub Nation explicitly note that “of course politicians look at many of these things now” –  in which case you have to wonder what the fuss is about.  They seem to be arguing that if it were developed their framework (which is really no more than a concept at present –  a bid for consultancy contracts from government departments to flesh it out?) might enable a greater degree of transparency around the considerations guiding immigration policy decisions.  But you can’t help wondering what they have to offer that the release of Cabinet papers and regulatory impact statements, and the availability of speeches/interviews of relevant ministers does not already provide.   There is, perhaps, a bureaucrat’s appetite (and both authors are former bureaucrats) for tidiness –  boxes to tick, and perhaps a common agreed evaluation framework –  but not much of life is like that.

The authors adopt a list of 12 other considerations that they think immigration policy should take into account –  11 from the OECD, plus a Treaty of Waitangi dimension.  One could debate the relevance or role of many of them, but equally I could throw in five quite different factors.  No doubt, at one extreme, the National Front, and at the other extreme open borders globalists could throw in their own five distinctive angles.  There is no aggregation framework, no way for officials or “expert” advisers to decide which factors should count and to what extent.  What there is is the political process, messy as it often (perhaps inevitably) is.  As it is, Fry’s and Wilson’s own political worldviews –  if rarely directly stated –  suffuse the book (although they might be hard for many bureaucratic and political readers to recognise, since so many of them share that sort of worldview).

Perhaps all the Fry/Wilson (conceptual)framework might be useful for is reminding fellow economists on the odd occasion when some might be tempted to think that immigration policy is, or should be, only about aggregate economics (GDP and all that).  If some economists ever fall into that trap –  and I doubt many do –  few others do.

In some ways, the most interesting part of the book is an attempt to suggest thinking about New Zealand immigration policy through a Treaty of Waitangi lens.  I’m sceptical –  and think they avoid most of the hard issues – but want to come back and devote a separate post to that material.

Today I wanted to focus on the bit of the book that bugged me, and puzzled me, most.

There are repeated claims –  in the book text itself, and in associated articles/interviews – that New Zealand’s immigration policy has produced good economic outcomes for New Zealanders (at least in aggregate).    One chapter starts this way

“Migration is good for economies.  But is it good for people?”.

The final chapter beings

“But despite its economic benefits, migration remains a controversial topic”

In their presentation at Treasury a couple of weeks ago, Fry asserted that

“Immigration is economically beneficial, but the public is not fully comfortable”

And in a Newsroom column the other day they note that

“justifying high levels of migration by the fact that it boosts GDP or even GDP per capita has done little to resolve debates about migration”

To be clear, the authors aren’t championing a claim that there are large economic benefits (and they are focused on per capita gains, or lifts to productivity, not headline GDP effects).  In fact, they explicitly claim that

“The available evidence suggests that in modern times, the economic effects of immigration to New Zealand are likely to be positive but modest at best.”

But, remarkably, they offer no evidence for the claim that the effects have been positive at all (lifting economywide productivity –  and as they note, our productivity record has been pretty woeful –  of lifting the per capita incomes of New Zealanders (as distinct from the gains, reflected in average GDP, to the migrants themselves.     They make no attempt to engage with the stylised facts of New Zealand’s economic performance –  or even the huge scale (relative to most other countries) of our migration programme (permanent and temporary).

For “evidence” they seem to refer readers on several occasions to Julie Fry’s previous book (with Hayden Glass) Going Places: Migration, Economics and the Future of New Zealand.  In that book (which does touch on some of my arguments about rather worse results –  described as “a plausible idea but difficult to prove or disprove”) the authors have no sustained discussion of the New Zealand experience – poor productivity growth, despite huge immigration inflows, weak tradable sectors, limitations of geography –  and also adduce no empirical evidence of the economic benefits of large scale immigration (as it has actually been run) for New Zealanders.    That latter omission isn’t surprising as –  as even advocates of high immigration acknowledge –  there are no such papers.  But, if anything, in Going Places Fry and Glass seemed more cautious  –  noting the importance of the quality of the migrants, and doubts about how well New Zealand has been doing on that score –  than Fry and Wilson are in Better Lives.

It is all doubly perplexing because on the one hand they repeat standard lines about how immigration, even of the unskilled, probably hasn’t made much differences to wages, while at the same time arguing that large inflows of unskilled migration (notably in the US) had, by lowering the cost of various household services (childcare, gardening etc) enabled many more women (in particular) to move into the labour force.  You really can’t have it both ways.

I’m not sure why in the latest book they seem so confident that New Zealand’s large scale planned immigration programme (three times the size per capita of the US programme –  under such nativists as Clinton and Obama –  and larger, per capita, than those of any other OECD country) over the last quarter century or more has been economically beneficial.

There seemed to me at least three possibilities:

  • the first was that they had made a rhetorical or positioning choice.  After all, if they had taken a stance that our immigration policy, as run, had actually been costly to New Zealanders, most of their other list of “wellbeing” considerations would fall away.   We might still want to take some refugees, but there would be any other very compelling case for large numbers of other migrants –  open borders ideology aside.  Moreover, since their target audience is typically pretty pro-immigration (officials, National/Labour/Greens politicians, and other “urban liberals”) casting doubt on whether there had been any economic gains might have led those people to simply refuse to consider their arguments, and the framework they were touting.
  • the second was that they had just taken the international economics literature –  which tends to produce results suggesting gains in productivity and per capita income (often implausibly – incredibly – large estimates) from immigration, and assumed that (a) these estimates were valid, and (b) they applied to New Zealand, without any specific consideration of New Zealand’s actual experience, or
  • third, that the authors had themselves thought hard about the New Zealand experience, including its overall economic performance in the context of a large scale immigration programme, and had come to an independent view that there had been gains to productivity etc here (and perhaps didn’t have space in this book to write up those views –  arguably, the economic effects are the focus of the book).

And so I asked the authors. Of the third bullet I noted

If the latter, I’m a bit puzzled as to how you deal with such stylised facts as the persistently high real interest and exchange rates, the decline in the foreign trade shares of GDP, and the long-running weakness of business investment.   Where do you turn for evidence –  formal statistical or the marshalling of other material –  of the gains you proclaim?   And how, for example, do you grapple with the fact that (true) fixed factors –  land and natural resources –  appear to play a much larger role in NZ than the (almost non-existent) role in typical models, or than in many norther European economies.
A few days later I got a response.

On your specific question, we didn’t write the book to resolve the issue of the effects of migration on GDP or any of its components or derivatives, like TFP.  Indeed, the core element of the book is that GDP and its derivatives are poor metrics of welfare, both generally and in relation to migration.   If you are using a wellbeing framework, what matters is the capabilities that people have to lead the lives they value, not their command over commodities. So the effect of migration on GDP, GDP per capita or TFP isn’t the focus.

Which might be fine in the abstract, but really rather avoids the specific issue.  If they didn’t think productivity or real GDP per capita outcomes were meaningful –  and most will beg to differ –  why would they keep on repeating a claim that there have been gains to New Zealanders on exactly these counts?  And if they do believe there have been gains –  as they state repeatedly in the book and associated media material –  where are the New Zealand specific arguments and evidence for those claims?  It isn’t as if there is a single mention made only in passing: the proposition that New Zealand immigration policy has been economically beneficial to New Zealand suffuses the book.