At least 60 per cent

Dating back to before they took office in 2017, Labour’s stance on New Zealand immigration policy hasn’t been particularly clear. There was the 2017 policy, announced under then-leader Andrew Little, that was sold as being likely to make a big difference, but once one looked into the details (see link earlier in the sentence) it was clear it was designed not to do so. But then the leader changed, and little was heard of the policy on the campaign trail (people close to Labour told me that Ardern had made clear that she wasn’t that keen on the policy). Labour and New Zealand First then became government, explicitly agreeing to operate on Labour’s immigration policy, but apparently – so a NZ First minister told me – with an agreement to revisit the policy mid-term. If so, not that much of substance ever seemed to flow from that, although in early 2019 there was (ill-advertised) agreement in principle to changes down the track in how the residence programme was designed and run.

Then, of course, Covid intervened. There hasn’t been much non-citizen immigration at all since then, but no one envisaged that as a permanent model. And, of course, Labour secured an absolute majority at the last election, and selected a new Minister of Immigration.

Last month, the government finally got round to asking the Productivity Commission to do an inquiry into immigration policy. (I say “finally” because whether or not one approves of something like the current approach to immigration policy, that policy has clearly been one of the largest government economic policy interventions over several decades now, and the evidence-base around the economic effects of this large intervention, in the specific circumstances of the New Zealand economy, is disconcertingly light.) But then we are given to understand that the government has made up its mind anyway (which is, of course, their right as the elected government, but seems an odd ordering, when you’ve been in government for getting on for four years).

Here was the Prime Minister in her speech last week (emphasis added)

In terms of immigration going forward, last week we announced that the Productivity Commission will hold an inquiry into New Zealand’s immigration settings.

The inquiry will focus on immigration policy as a means of improving productivity in a way that better supports the overall well-being of New Zealanders.

The inquiry will enable us to optimise our immigration settings by taking a system-wide view, including the impact of immigration on the labour market, housing and associated infrastructure, and the natural environment.

This will sit aside existing work being led by the Immigration Minister around reforms to temporary work visas and a review of the Skilled Migrant Category visa.

In fact this Monday Minister Faafoi will be outlining the case for change in New Zealand’s immigration policy in a speech in Wellington.

But let me be clear. The Government is looking to shift the balance away from low-skilled work, towards attracting high-skilled migrants and addressing genuine skills shortages in order to improve productivity.

So I looked forward to reading the Faafoi speech, with interest tinged with scepticism. Specially invited guests, some from out of town, must have looked forward to it too – even if for some their interest might have been tinged with apprehension. There are a lot of champions of large-scale non-citizen immigration out there – from the Green Party (who seem keen on importing supermarket workers) to much of the “big end” of town.

As it happens, Mr Faafoi was apparently sick yesterday, and so the Minister for Economic Development Stuart Nash got the job of reading Faafoi’s speech, and was reportedly then unable to answer most questions.

The speech itself seemed to have been downgraded – the PM had trailed it as making the “case for change”, but the minister’s heading was simply “Setting the Scene”. But it was barely even that. I guess we came away with the message that “we are determined not to return to the pre-Covid status quo”, but there was almost nothing of the how – no specifics at all – and very little, in any sustained sense, about the why. There was no evidence in the speech of any rigorous thinking, analysis or research from officials – the sort of work one might normally hope for (especially for a government four years in) in advance of policy decisions and announcements. Particularly unkind observers suggested that the speech was more in the nature of “an announcement about an announcement”, of the sort that has become all too familiar. In fact, we were told that “we’ll be engaging with you [who?] over the coming months to test our thinking”, suggesting there just isn’t much there yet.

And I say all this as someone who might, possibly, be somewhat sympathetic to some elements of the broad direction the government might be heading in around immigration (even while being highly sceptical of Stuart Nash’s statist centralised approach to business and the economy, and prone to scoff every time I read another reference to the vaunted Industry Transformation Plans, in which bureaucrats take the lead in (purporting to) shaping the future of one industry after another (a tourism one got a mention last night)).

There isn’t much point trying to unpick Faafoi/Nash’s speech bullet point by bullet point (for some unaccountable reason it appears on the Beehive website with every sentence a bullet point). But in this post I just wanted to address a claim made in the speech.

High levels of migration have contributed to 30 per cent of New Zealand’s total population growth since the early 1990s.

The “early 90s” is not only when the current broad approach to immigration was being introduced, but it is also when the current official population series begins.

Now I’m sure that one of the first things MBIE officials tell each Minister of Immigration is that to talk of “migration” isn’t very helpful in a policy context. There are inflows and outflows of New Zealanders and non-New Zealanders and the only bit policy controls is about the movement of non-citizens (arrivals, and departures for those on limited term visas). So in a speech on immigration policy, one might expect that the Minister of Immigration would focus his analysis on the movement of non-citizens. And that offers a quite different picture than the one Faafoi/Nash painted in the speech.

Here is a chart showing net non-citizen migration as a percentage of New Zealand’s population growth for each calendar year from 1991 to 2019 (I left off 2020 because the net migration numbers for that year are still estimates and the SNZ model for estimating these things for very recent periods isn’t great in normal times, yet alone Covid times)

non-citizen contrib

Not even in 1991 was the contribution of non-citizen net migration quite as low as 30 per cent, and 1993 was the last time the contribution (to a first approximation, the contribution of immigration policy) was below 60 per cent. Of the year to year variation, some represents variation in the number of non-New Zealand migrants, but much represents variability in the (net) out-migration choices of New Zealanders (mostly to Australia).

There are plenty of people who will think the numbers in the chart are a good thing. I don’t, given what we know about the continuing long-run bleak underperformance of the New Zealand economy. But whether or not you welcome these trends, they are the (relatively) hard data. For decades now – well, prior to Covid – New Zealand’s pace of population growth, which is among the highest of the OECD countries, has been largely an immigration-policy-driven phenomenon. No OECD country envisages a larger share of population growth coming from non-citizen immigration, and most envisage a far smaller share. And if anything, these data are likely to understate the true population consequences of immigration, since the median migrant tends to be relatively younger, and the children of those migrants – themselves New Zealand citizens – will have further contributed to the growth of the population.

Rapid (policy-led) population growth in such a remote location appears to have impeded the prospects for any reversal of the decades of productivity underperformance. It has skewed the economy inwards, persistently overvaluing the real exchange rate and thus crowding out potential export industries. Wage growth in New Zealand has been weak, but that isn’t directly some immigration phenomenon – such discussions, including the Minister’s, consistently ignore the demand effects of high immigration – and the data show that, for the economy as a whole, wage growth has tended to run quite a bit ahead of growth in the economy’s earnings capacity (nominal GDP per hour worked).

When the government finally gets round to specifics one can only hope their policy decisions are based on better analysis, including the some robust economic analysis of the specific New Zealand experience, than was evident in the speech last night.

And when the champions of mass-migration splutter at the general thrust of the government’s aspirations, perhaps they might offer some thoughts on what it is about New Zealand that means that – in their view – we need to be uniquely heavily dependent on large scale non-citizen immigration.

Could do better?

Minus the question mark, that is the title of a new and fairly short report undertaken for the Productivity Commission by economists Julie Fry and Peter Wilson on “Migration and New Zealand’s frontier firms”. The Commission itself has been charged by the Minister of Finance with reporting on what could be done about so-called “frontier firms”, and has been casting about for various possible angles (apparently their draft report is due later this week). There is a Stuff article on the Fry and Wilson paper here, which begins this way

Despite its best efforts to become the next Silicon Valley, New Zealand has instead attracted a lot of nice people but very few trailblazers.

There probably have been – and still are – a few with that “next Silicon Valley” type of aspiration, but the key point is more like “lots of individually nice people, but probably not much economic gain to New Zealanders as a whole”.

Fry and Wilson’s own summary runs this way

Fry and Wilson key points

Fry and Wilson themselves seem a bit more sceptical on the economic value (to New Zealanders) of New Zealand’s large-scale immigration programme than they were in their short 2018 book that I wrote about here.

I’m a bit ambivalent about the report, even though – considered broadly – it goes in somewhat the same policy direction as the approach I’ve been championing for much of the last decade. Perhaps that is mostly because the Productivity Commission didn’t offer to pay very much for a report, and so the authors didn’t have the time or resource to consider the issues around the economics of New Zealand immigration in any great depth. A serious look at New Zealand’s immigration policy and the connection to New Zealand’s underwhelming economic performance would require, for example, a full Productivity Commission inquiry devoted just to that issue, but the government determines inquiry topics and I gather they’ve refused to have an immigration policy one done, even though immigration policy is one of the larger discretionary government structural policy interventions in the economy. But I can’t blame Fry and Wilson for that.

But unfortunately the (presumed resource) constraint means that the report really isn’t much more than an initial view that large scale immigration over the last 30 years probably hasn’t done much good for New Zealanders, and that hence somewhat less in future would more likely be beneficial. I don’t disagree – and, of course, have gone further than the authors in my hypothesis about the damage large scale immigration may have done (a story they describe as “plausible but untested”) – but who is the report going to persuade? The report doesn’t seek to engage with a broader academic literature that tends to be quite positive about economic gains from immigration, at least in the advanced world as a whole, or with the advocacy for it – including in a New Zealand context – by outfits like the IMF or the OECD. They might – as I do – think many of these results don’t stand up to close scrutiny (eg on the IMF here, or the OECD here), or may not have much application to a single extraordinarily-remote location, but they neither engage with the papers, not articulate their critiques. There isn’t much New Zealand specific formal research, but somewhat to my surprise, there wasn’t even a reference to the big advocacy piece the New Zealand Initiative did in 2017 (reviewed and critiqued at length here).

But in the rest of this post I wanted to comment mostly on two areas where I wasn’t particularly convinced, even as someone generally somewhat sympathetic to the thrust of the report. The first is the claim – also in those Key Points above – that New Zealand’s policy for attracting skilled migrants is “close to international best practice already”. The authors seem to offer little or no support for this proposition, but even if it were true it would not be particularly reassuring given that (a) we take a lot of migrants, as a percentage of New Zealand’s population, and (b) the evidence suggests that on average migrants are no more skilled than comparable New Zealand cohorts. The large numbers of people who have managed skilled migrant entry as low-level retail or cafe managers, for example, suggests that if this is world best practice, world practice is pretty poor (which in many cases is true no doubt, but that is their problem not ours). But more specifically, we also know that the New Zealand system for granting residency to “skilled migrants” is now strongly skewed in favour of people who are already in New Zealand – explicitly favouring people from abroad with New Zealand qualifications and New Zealand work experience (with bonus points for living in remote corners of this remote country). That favours absorption and integration, but generally not outstanding excellence: our universities generally not being top-tier, and our economy not being some global centre of excellence. It simply isn’t that easy for, say, a young family – parents perhaps good graduates of top 20 overseas universities – to just get residency in New Zealand, not without first relocating temporarily to the ends of the earth on a short-term visa in the hope residency eventually works out. To the extent there is benefit for New Zealand putative “frontier firms” in migration, it some of those sorts of people – with some proven work experience globally – who are likely to be more valuable than some 21 year old student studying at Massey who couldn’t get into Stanford or Cambridge.

Of course – and here I think Fry and Wilson probably agree – not that many top tier foreign people are likely to want to live and work here (as distinct from the boltholers), but lets not get complacent that our current skilled migration system is really fit for purpose, whether as to target number or conditions of entry (and although it isn’t dealt with in this report, a lot of our residency grantees don’t even come in via the skilled migrant pathway).

(On that “not that many top tier foreign people are likely to want to live and work here”, see my doubts expressed a few years ago about the the-new Global Impact Visas. Rereading that old post yesterday, nothing in what we have seen and heard of the scheme’s operation so far would lead me to materially alter my view of the prospects.)

The Productivity Commission over the last couple of years has emphasised quite a bit a desire to see New Zealand-based firms investing more beavily in technology. I’ve been uneasy about this line of argument because at times the Commission has seemed to put the cart before the horse, not digging deeply enough to understand why the New Zealand economy is underperforming and more profitable business opportunities aren’t apparent. This emphasis seems to carry over to the Fry and Wilson report – no doubt delivering something consistent with what the client was looking for. There are several pages (in what is really only a 30 page report) on opportunities (“very significant upside productivity potential”) if only we made it materially harder for firms to hire foreigners.

The predominant mechanism they seem to have in mind – whether in relation to students, working holidaymakers, or RSE workers (there is a whole section on the fruit industry) – is that if labour is harder and more expensive to get, firms will invest in technology. On the one hand, they seem to be buying into a model in which immigration has driven down wage rates (for which the evidence, considered broadly – as opposed to a few concentrated subsectors – is quite thin; in New Zealand wages have risen faster than GDP per hour worked over the last few decades). But there are also disconcerting parallels with a couple of very shaky arguments. Back in the disinflationary 1980s there was sometimes an argument used (in the UK and here) that a high real exchange rate – pretty much an inevitable part of a transition towards low inflation – was really quite good because it would encourage strong firms to invest more heavily in advanced technology etc to retain competitiveness. There was never much sign of that in the aggregate. And more recently we here claims that materially increasing minimum wages, from already quite high (relative to median wages) levels, will itself boost productivity and stimulate investment in technology. There might be some of that – firms will look for ways to mitigate the forced increase in labour costs – but there is no evidence in support of it as some sort of economywide pro-productivity strategy. And so I’m also uneasy when this argument is applied so simply to immigration. Perhaps there is something to it at an individual firm level, but it is unlikely to hold much at an economywide level. (Relatedly, much of the discussion in the paper seems to be about average labour productivity, and very little about the – conceptually more important – total factor productivity. One can raise labour productivity in ways that still leave the overall economy worse off – Think Big in the 1980s was probably such an example.)

The authors seem to favour a much lower level of non-citizen immigration to New Zealand (on average over time), not just nipping and tucking in a few individual migration approval streams. But if so, then their paper seems to neglect a rather important adjustment channel. As they note, historically New Zealand economists tended to emphasise the significance of the short-run demand effects of migration (and the well-established point that the short-run demand effects tend to outweigh near-term supply effects plays an important part in my own story). But if immigration by non-citizens is cut back markedly and for a prolonged period we would expect to see a reduction (perhaps a quite significant one) in the real exchange rate. And – to take the fruit industry as an example – a lower exchange rate might well more than outweigh any sector-specific wage effects from reduced access to migrant workers, leaving no particular incentive for the industry to invest more aggressively in technology to replace labour (for the existing tradables sector this is my story of how adjustment works once reform is done not just to an indvidual firm – deprived of access to labour – but at an economywide level). It isn’t that I really disagree with the Fry and Wilson direction of policy, but their analysis seems a bit too simple, and also inclined to treat the existing structure of the economy as a given (whereas on my argument I think we would, over time, see quite a different mix of sectors).

Fry and Wilson end their paper with some specific post-Covid suggestions for the government

fry and wilson 2

I’m sceptical that the 4th bullet has any content to it, although the broad direction of their recommendations isn’t one I’m uncomfortable with. My own suggestions (from a speech a few years ago) are along somewhat similar lines.

reddell immigration specifics

Finally, in their paper Fry and Wilson note of my views

While plausible, Reddell’s hypothesis has not been tested empirically. However, it is
possible that the natural experiment provided by the Covid-19-induced border closure will
enable more solid conclusions to be drawn.

I don’t think that is so. Most importantly, for a natural experiment you really want New Zealand immigration policy changed with all else unchanged, but this year too much has changed all at once for any sort of read, let alone a clean one. Among those changes, the differential ways different countries have handled Covid, massive fiscal stimulus (which, all else equal, tends to put upward pressure on the real exchange rate), most other countries also closing their borders to a greater or lesser extent, and a big disruption to key elements of our tradables sector. Oh, and all parties expect – political parties seem to champion – a return to the immigration status quo ante just as soon as possible.

For anyone wanting to read more of my story, there is this older paper from 2013, a speech on related topics from 2017, and a chapter in a recent book on New Zealand policymaking in which I look at some of the issues around New Zealand’s long-term economic underperformance, with an emphasis on the notion that however sensible large scale immigration may be for some countries, it seems not to have been more recently so for a remote land heavily reliant on a fixed stock of natural resources, and with few or no asymmetric shocks having worked in our favour for 100 years or more.

Productivity, and politicians who no longer care

I was reminded again the other day both how (absolutely) poor even advanced countries were not that long ago, but also how (relatively) rich New Zealand was. I was reading a fascinating book on Ireland’s (rather shameful) history in World War Two and stumbled across a snippet suggesting that “there were nearly 170000 licensed radio sets in Ireland on outbreak of war”, in a country of almost three million people. On digging around a bit, I found that in New Zealand, then with 1.6 million people, we’d had 317509 licensed radio sets in 1939 (then, apparently, third highest in the world per capita). The licence fees in the two countries appear to have been very similar.

The standard compilation of historical estimates of per capita GDP – that of Angus Maddison – is consistent with my radio anecdote. In 1938/39 GDP per capita in New Zealand was more than twice that in Ireland, with New Zealand in the very top grouping (New Zealand, UK, USA, and Switzerland).

How times change. As even Irish official statisticians acknowledge the idiosyncracies of Ireland’s corporate tax system substantially distort Irish national accounts statistics, but doing whatever adjustments are possible (eg the Irish modified GNI measure) or looking at consumption statistics it is clear that these days Ireland is producing considerably better material living standards than New Zealand is. In terms of standard productivity measures – the OECD’s real GDP per hour worked data – they probably went past us in the mid-1980s.

The OECD productivity data go back as far as 1970. By then, we’d already had a couple of decades of relative decline – even though for most countries, including New Zealand, the 1950s and 1960s had seen really impressive absolute growth rates. Of the 23 countries for which the OECD has 1970 data – not all of them (including New Zealand) then part of the OECD – real GDP per hour worked here was just over 95 per cent of that in the median OECD country. We were a touch behind France and a touch of the UK. These days – pre-Covid – real GDP per hour worked is about two-thirds of the median for that same group of 23 countries.

By far our worst decade since these data start was the 1970s. In that decade we had, by some considerable margin, the slowest growth in labour productivity of any of the countries the OECD has data far. Unfortunately, since then there has never been any sustained period when we have regained ground relative to the OECD pack, and if anything the gaps have widened further.

Relative optimists might look at the New Zealand experience this century and observe that there hasn’t been any material slippage relative to the leading bunch of OECD countries.

But that shouldn’t really be any consolation when:

  • the absolute rate of productivity growth has been so poor (our average annual rate of productivity growth for the nine years to 2019 has been a bit worse than our dismal performance in the 1970s –  see above),
  • we’ve managed no catch-up relative to the leading bunch, even though their productivity rates  –  problems at the frontier –  have also been disappointing to say the least, and
  • our performance relative to other countries that aspired to catch-up has also been dreadful.

I first got systematically interested in New Zealand’s woeful record in a stint at Treasury from 2008 to 2010, in the course of which I was heavily involved with the then-government’s 2025 Taskforce – the one supposedly about catching up (in terms of material living standards) with Australia by 2025. I wrote most of the Taskforce’s first report in late 2009 and in doing so I noticed, and reported that, of the former Communist countries of eastern Europe, Slovenia had then just passed us in terms of real per capita GDP, that Slovakia had real GDP per hour worked approaching that of New Zealand.

There have been some data revisions since then, but if we look at current estimates of real GDP per hour worked, in PPP terms, for 2007, we find that Slovenia was indeed about 5 per cent ahead of New Zealand, although the gap to Slovakia was a bit larger (10 per cent) than those earlier estimates suggested. There are eight former Communist countries in the OECD. In 2007, real GDP per hour worked in New Zealand was already only 16 per cent ahead of the median of those countries, that margin have narrowed markedly in the previous decade. Perhaps that earlier catch-up wasn’t too surprising or alarming – if you stop hobbling your economy and get rid of the state-dominated Communist system, you are almost certain to bounceback to some extent.

But where are things now?

Real GDP per hour worked, 2019, $US PPP
Slovenia 45.2
Slovakia43.8
Lithuania42.5
New Zealand42.2
Czech Republic42.0
Poland41.0
Estonia40.8
Hungary37.7
Latvia37.0

Last year we were really just middle of the pack among these countries, and in another couple of years – on policies, practices, whatever in New Zealand and other countries – you’d have to assume we’ll be struggling to stay ahead of Hungary and Latvia for long. In terms of growth rates over the last decade, Hungary was the laggard of the former Communist countries – still grew faster than New Zealand, but not by that much – but it should be slim consolation if we just manage to stay ahead of Hungary.

Not once previously in the history of modern New Zealand has any of these countries previously had productivity or income per head performances to match those of New Zealand. They still lag quite a way behind the north-west European leaders – although the gap is closing. The standout isn’t them catching up, but us failing.

It isn’t just those former eastern bloc countries. At the turn of the century, New Zealand could console itself that if Korea was growing rapidly, real GDP per hour worked was still not much more than half that of New Zealand. On recent rates of growth, they will move ahead of us in another year or two. Or Turkey – with a history of unstable undemocracy, macroeconomic instability and so on. The old Ottoman Empire was the 19th century’s “sick man of Europe”. In 2017, for the first time in modern history, real GDP per hour worked in Turkey moved ahead of that in New Zealand.

But it isn’t all bad news I guess. If you really want to find advanced countries that have done less well than New Zealand – poorer/less productive and with a slower productivity growth rate – I can offer you Greece and Portugal. But falling on those sorts of comparisons is really head-in-the-sand stuff.

But….in the midst of an election campaign, occurring in probably toughest economic times for an election campaign since 1990, is there any sign that (a) any political parties, or leading figures in parties, care about this dire long-term economic performance, or (b) have either any serious ideas, or a commitment to getting and adopting serious ideas, about making a difference? If there are any such signs I must have missed them.

Presumably, if pushed and at some level, the people grappling for office must know that productivity really matters – here was my story why and how. It is about underpinning higher wages (without pricing people out of the market), about underpinning more leisure opportunities, improving access to better healthcare, underpinning improvements in life expectancy, and underpinning the consumption of the bits and pieces of consumer society that most of us seem to value. Perhaps if you are an extreme Green you might have an excuse not to care about productivity – or, at the other end of spectrum, a zealot for the New Conservatives – but for the rest it is hard to see, at least if they are serious about anything more than simply occupying office.

Perhaps one can find slight and partial excuses for our politicians. After all, it is not as if the government’s self-proclaimed premier economic advisers, The Treasury, have been firing on all cylinders, generating a steady stream of searching analysis and research with suggested solutions to our decades of economic failure. Then again, as things are set up why would they? Successive National and Labour (and even NZ First) Ministers of Finance have had no real interest: bureaucrats respond to incentives to, and the State Services Commissioners have played their part in appointing as Secretary to the Treasury people who weren’t likely to rock the boat.

But, at best, it is a partial explanation, not an excuse. Real political leaders set the agenda, with ideas of their own, drawing on the expertise of others, and demanding – or promising – much better from the public service. There is no sign of any of that at the top of either of our main parties (and, mostly, the others don’t really matter much, but they don’t seem any different either). I’m sure they are all nice people, but what are they doing – or promising – that might make a real difference, in reversing the decline in our relative material living standards, not just for the next year or two (borrowed money, redistributing a static or shrinking pie) but for the next generation or two (your kids and mine, our grand children etc). Short answer – on the evidence of years and years, and on the evidence of what parties are talking about and promising in this campaign – NOTHING. It is shameful. (And it is also not much excuse to suggest there is no huge groundswell of public anger, demanding something better: we don’t expect voters to engage on real GDP per hour worked, but don’t we hear again and again complaints about gaps in what productivity and growth makes more readily possible – health, housing standards and so on?)

Instead, any (expressed or public) concern seems to be limited to same predictably small group. There is me, here – and in a longer-form treatment here. There is Paul Conway, formerly of the Productivity Commission – where he led their work in this area, before frustration got the better of him – and now at BNZ, and there is Kerry McDonald, former economist, former head of Comalco, former leading company director. McDonald’s latest speech pulls no punches in its title, Our Economic Disaster and the Tragedy of NZ’s Political Leadership. And not much beyond that. The point isn’t that the three of us would agree of everything – we wouldn’t – but that our politicians and senior officials, our political parties, aren’t even engaged on the issue at all, let alone on serious options for making a difference.

One area where it looks as though there is some overlap in the policy prescriptions of Conway, McDonald, and Reddell is around immigration, and a sense – more strongly put at least in my case – that decades of high rates of non-citizen immigration, often not of people who are particularly highly-skilled, has not served us at all well in lifting productivity, even though the official case for high immigration to New Zealand asserted that it was a “critical economic enabler”.

I illustrated earlier in this post how the central and eastern European countries have been catching up and overtaking New Zealand. In this chart I’ve shown the populations of New Zealand and the median of these eight OECD countries this century, drawn from the World Bank/UN data.

e europe sept 20

Or this table of population growth rates this century

Population growth, per cent, 2000-19
Lithuania-20.4
Latvia-19.2
Estonia-5.0
Hungary-4.3
Poland-0.8
Slovak Republic1.2
Czech Republic4.0
Slovenia5.0
New Zealand27.5

All these countries have birth rates below replacement (generally lower than New Zealand’s) and all have had outward migration of their own citizens – us primarily to Australia, the Europeans mostly to western Europe. The big difference is that New Zealand – alone – has pursued rapid population growth as a matter of official policy, aggressively running one of the largest (per capita) official immigration programmes on the planet.

(As I’ve argued in numerous previous posts, rapid population growth isn’t necessarily inconsistent with rapid productivity growth, but rarely if ever has rapid population growth been a recipe for sustained rapid productivity growth – arguably the 19th centuries colonies of settlement, with abundant land may have been exceptions. Much depends on the opportunities, and locations matter. And yes, although Korea now has very modest population growth, Turkey’s population growth has been rapid.)

But, even amid the Covid disruptions – which could have been a great opportunity to stop and rethink – no political party seems interested in revisiting whether New Zealand’s large scale immigration policy has worked in the economic interests of New Zealanders as a whole, and all the media chatter is about getting going again with the supply of relatively lowly-skilled workers from abroad into the New Zealand labour market. There is no sign it has worked for New Zealanders for the past 25 years, and no obvious reason to suppose that will change for the better now.

But our political “leaders” show no sign of caring, at least about anything beyond the latest stories of firms in low-wage industries wanting a resumed supply of people willing to work at….low wages.

Perhaps there is an alternative credible model for thinking about how to reverse sustainably our decades of underperformance. But if so, you wouldn’t know it from listening to our politicians, or their officials.

People from poorer countries will come if we let them

The Herald business columnist Liam Dann had a curious column out yesterday.  When I first saw it online it had a more right-on headline [UPDATE: “Woke wonderland – how a new narrative has changed NZ”] (I didn’t read the article until my wife started quoting bits to me) but it now has the headline “NZ’s population prediction was out by 30 years – the price we are paying”.

Dann had been prompted to write the article by stumbling on a 2004 SNZ release from 2004 which apparently “forecast” (more likely, it was the medium “projection”) New Zealand’s population to get to five million in about 2050.  As it is, it appears that milestone will be reached within the next few months.

The bit that the current headline deals refers to was this

Now I can’t get past the notion that this miscalculation holds the key to many of our social infrastructure problems in 2019.

If that was the population assumption policy makers were using, then of course we have a housing shortage … of course our roads, our hospitals and our schools are crowded.

I’m a bit ambivalent on that point.  After all, it isn’t as if the projections haven’t been updated, regularly, since 2004.    And one could quite reasonably make the point that this specific issue isn’t primarily about surprisingly rapid population growth, as about successive waves of central and local governments (including the current ones) that have made too much of the system not responsive to population surprises.  Planners control where houses can (mostly can’t) be built and most of them have a deeply-held aversion to an increased physical footprint for cities, let alone competitive market processes to determine where and when development occurs.   We still don’t have congestion charging in our major cities.  And so on.  And so the pressures fall on house/land prices and in various forms of congestion or queuing.

All that said, if we were to take as more-or-less given the RMA and associated development constraints then Dann does have a point.  After all, it was the same political leaders who have repeatedly refused to act to free-up land supply etc (and in doing so were, just possibly, reflecting public preferences) who also oversaw the immigration system which has resulted in such a rapid rate of population growth.  The immigration system is much easier to tweak, to manage trend inflows of non-New Zealand citizens, than the entrenched land use issues are to fix.   In that sense blame a series of active (and, more often, passive) choices by our political leaders.

Using official SNZ data, here is how our population has changed since September 2004 (September years are the latest annual data).

population since 04

Over the full period, the population has risen by (an estimated) 842000.   Take natural increase (births less deaths) and the large net outflow of New Zealand citizens (another 315000) and you’d have been left with a pretty small rise in the population  (less than 4 per cent in total, over 15 years).

That is simply an illustrative scenario.  In the absence of large non-citizen immigration, the rate of natural increase would have been lower (immigrants, once here, have children too).  Whether the outflow of New Zealanders would have been any different is hard to know.  My own view is that there would have been a slightly smaller outflow of New Zealanders (consistent with my model, in which economic prospects here would have been improved), but there are alternative hypotheses in which some more New Zealanders might have left (wanting the brighter lights a NZ of five million could offer, but one of four million could not).

But to a first approximation, if you regard the land regulation situation as largely frozen, then almost all the subsequent pressures can be ascribed to the choice to keep on with large scale non-citizen migration regardless.  Even if you thought it really could be quite readily changed and it was just venal politicians who refused to do the right thing, then knowing that and still supporting large scale immigration (and recall that ours is among the very largest in the world per capita) is akin to knowingly inflicting the resulting house prices, congestion, queues etc on New Zealand.   It isn’t as if other countries have been so good at fixing those land (related issues).   And officials and outside observers knew these issues were a problem 15 years ago.

Of course, having raising the issue Liam Dann –  pillar of the establishment –  is keen to assure his readers that he does not, not for a minute, oppose immigration.  Thus his claim

in my lifetime this country has been vastly improved by more people and more cultural diversity.

I get the impression he must be almost 50 so presumably he is talking about immigration since about 1970.   In reality though, between about 1974 and the end iof the 1980s there wasn’t much immigration, so we are mostly talking about the last 30 years.    I can’t share his optimism, particularly about the raw numbers, in a country that has continued to drift further behind economically over that period, and whose firms have failed –  in aggregate –  to find new products/markets abroad (even though external trade is a key element in any prospective improvement in our relative prosperity).

Anyway, at this point Dann launches into a paean to the better New Zealand we now are that, to me anyway, seems more than a little detached from reality.  We are told that

Something structural has changed.

New Zealand just isn’t a place people want to leave any more.

Except of course (see above) a net 300000+ people have: just imagine if a net 7.5 per cent of the American population had left the US in 15 years.

Now a little later on, Dann does concede that any reduction in net outflows isn’t entirely good news

Australia becoming a lot less friendly to New Zealanders has influenced our net migration rates. It’s not nearly as easy to enjoy the easy life across the Tasman as “Bondi bludgers”.

In other words, poeople may still want to leave, but it is harder to do so.  And it isn’t just about the caricatured “Bondi bludger” but about the difficulty of your kids getting established and ever getting citizenship etc.  New Zealanders are worse off as a result of those tougher Australian policies.

It is also worth pointing out that New Zealanders go to Australia when the Australian labour market is strong.  It hasn’t been that strong in the last few years, after commodity prices peak and the mining investment boom began to pass.  That isn’t good for Australians, and it certainly isn’t good for New Zealanders who might want to take advantage of the higher productivity and higher material living standards abroad.

And, as it happens, the outflow has been picking up again.  Here is the net outflow of New Zealand citizens from the new SNZ migration data.

outlfow to AUs

It certainly isn’t a record outflow, but the increase is now becoming quite pronounced.  Not exactly a tale consistent with a wonderful New Zealand.

But when he talks about the migration choices of New Zealand citizens, Dann is just warming up.    The real story on his telling is

New Zealand finds itself being cast as the “woke” capital of the world.

and

We failed to see what a desirable place New Zealand has become in the eyes of the world.

Complete with all manner of gushy references to the idea that, for example

the UK and US media simply can’t get enough of the notion that this country is a liberal paradise.

Now I’m not going to deny that there are sections of the world media who seem particularly enamoured (for reasons that largely escape me) with our Prime Minister.

But….the surge in net migration this decade mostly happened on the watch of the previous lot, that outflow of New Zealanders has (and it is almost entirely coincidental) increased in the couple of years the current government has been in office, and in case Dann hasn’t noticed, the residence approvals targets haven’t changed much in 20 years now, and actual approvals have been undershooting target in the last couple of years (probably less because of lack of interest than because of processing delays by MBIE).   Because the headline target hasn’t changed much in 20 years, while the population has grown quite a bit, residence approvals for non-citizens are quite a bit less now, in per capita terms, than they were in, say, 2004 (Dann’s reference point).

And why might we doubt that Stephen Colbert (or, on the other side, Donald Trump) or the Guardian really have anything much to do with our population growth?  Well, try this chart from the new MBIE immigration dashboard, showing the top five countries for residence approvals.

R1 Residence Decisions by Nationality (1)

Four of these five countries are materially poorer than New Zealand is (and the UK, once the leading individual source country, while richer and more productive is now down to equal 4th).  Mostly people migrate when (a) the options are better for them abroad, and (b) the potential recipient country allows them to do so.  That seems pretty consistent with the New Zealand story not just now, but throughout history (think of the UK migration from say 1870 to 1970, a period when wages here were typically higher than those in UK, or of Pacific migration in the 60s and 70s).

And if there has been an increase in the (typically small) net number of US migrants since Trump, well there has been a fall in the net inflow of Brits since the Brexit vote.

trump migration.png

In combination, net arrivals from the UK and US are now about one-third of what we were experiencing from 2004 to 2007.   So much for the pulling power of the “woke paradise” rhetoric.

As just another area where our rules matter quite a lot, the MIBE data says that we now have about 200000 people here at any one time on temporary work visas.    In 2012 that number was about 100000.   That’s non-trivial share of the roughly 500000 growth in population (all needing accommodation etc) in that period.

Towards the end of his article, Dann’s sunlit uplands narrative continues

Now more than ever New Zealand has some control over that destiny.

We can choose to turn the immigration tap up or down with policy settings.

We have choices because we can rest assured that the demand is there.

Except that for most of the last 150 years it has been so.  When you are a relatively rich country –  and one that is not given to coups or civil wars and speaks the global language  – of course people will want to come.  In what we often think of as the dark years of the late 70s and early 80s plenty of people would happily have come, it was just that we chose not to let them (and reasonable people can debate that economic or social merits of that choice).    We could elect the antithesis of Jacinda Ardern and while Colbert, the Guardian and the Washington Post might not like it, it wouldn’t materially alter the broad level of interest in moving from a much poorer country (eg India, South Africa, Philippines) to quite a rich (if remote) one.

I remain convinced that we would be better off economically, and probably politically/socially as well, to be targeting a much lower rate of non-citizen immigration (perhaps 10000 to 15000 residence approvals per annum).  If we did, the population would probably level out near five million.   Without compelling evidence of incipient rapid productivity growth –  of the sort missing for at  least 70 years –  that would play better to the limited economic opportunities in this remote corner of the world.  And, as it happens, it would leave us not far below the size of the median country globally.

As it is, the existing planning ranges for residence approvals expire at the end of this year.  As I highlighted earlier in the year, the government is apparently looking at quite an overhaul of the system (although no hint they were looking at lower numbers).  The number of Cabinet meetings before the end of the year must now be dropping away quite fast.

Rygbi

My 12 year old daughter has been teaching herself Welsh –  a recent birthday present was a good Welsh-English dictionary – we’ve recently been watching a rather bleak Welsh detective series together, and this year she has also become (unlike her father) a bit of a rugby (“rygbi” in Welsh apparently) fanatic so I promised her that if Wales made the World Cup semi-finals I’d do a Welsh-themed post.  That’s economics rather than rugby though.

One of the themes of much modern economics literature is things about cities, location, agglomeration, distance and so on.  According to Eurostat data, London has the one of the very highest GDPs per capita of any region in the EU¹.  The two largest cities in Wales –  Cardiff and Swansea –  are each less than 200 miles from London.  And yet estimated GDP per capita in Wales is only about 40 per cent of that in London and 75 per cent of that in the EU as a whole (71 per cent of the UK as a whole).  Productivity in Wales (GDP per hour worked) might be about that of New Zealand.

And yet Wales has much the same policy regime as London.  Much the same regulatory environment, same income, consumption, and company tax rates, same currency (and interest rates and banks), same external trade regime, same national government (and as I understand it the Welsh regional administration doesn’t have control of very much), and the same immigration regime.  Most of the people are native English speakers (even many of those who also speak Welsh).

Huge populations are free to move to Wales.  There are 66 million people in the UK who face no regulatory obstacles to doing so.  They could set up firms in Wales.  So –  for the moment –  could people in most of the EU, and all legal migrants to the United Kingdom (with no particular ties to any other UK region) could move to Wales.  It isn’t open borders but in practical terms it is much closer to it than almost any sovereign state.

And yet……by and large they don’t.  The population of Wales today is only 50 per cent larger than it was in 1900 and only about 5 per cent of the population is born outside the British Isles.  Here is the share of Wales in the total population of the Great Britain.

wales 1

Wales used to have things going for it: plenty of room for sheep (wool and meat were two of our big exports to the urban population of the UK), the world’s largest slate industry,  and coal (lots of it) and the associated iron and steel (the latter booming from the start of the 20th century) industries.

But not, it appears, very much at all these days.   There is some tourism, some electricity exports (to the rest of Britain) and, of course, a variety of other industries.  It all generates tolerable living standards. albeit supported by significant inward fiscal transfers.  Unemployment is low, and (by New Zealand or London standards) house prices are fairly low –  Swansea (second biggest city) has median house prices around $350000.  But people in the rest of the UK, migrants to the UK, and –  importantly – actual/potential entrepreneurs don’t seem to find it terribly attractive.  Perhaps it would be different if it were an independent country –  the Irish company tax regime is apparently eyed up by some. But as it isn’t, one gets a cleaner read on the pure economic geography effects.

It is interesting to wonder what might have happened to Wales if it were an independent country and, all else equal, had had control of its own immigration policy.  What if they’d adopted a Canadian or New Zealand immigration policy –  or something even more liberal –  20 years ago?   Since there are plenty of places in the world much poorer than Wales (or New Zealand), and Wales itself is a small place, presumably they’d have had no trouble attracting people –  at least modestly qualified people from places poorer, or less safe, again: China, India, South Africa, the Philippines (to name just four significant source countries for New Zealand).   Even if many of the migrants initially saw Wales as backdoor entry to England, if New Zealand’s experience is anything to go by (become a citizen here and you can immediately move to much wealthier Australia) most wouldn’t.  Presumably the Welsh building sector would have been a lot bigger, but it isn’t obvious that many more outward-oriented businesses would have chosen Cardiff or Swansea over London or Paris or Amsterdam, even with the rest of Europe more or less on the doorstep.

Tasmania is another interesting example.  Like Wales, it shares essentially the same  policy regime (taxes, currency, external trade, most regulation) with the sovereign country it is a part of, in this case Australia.  There is unrestricted mobility for people within Australia, and external migrants –  including those from New Zealand –  can as readily settle in Tasmania as anywhere else in Australia. Hobart always looks like a really nice place.

Oh, and the population share of the total country is also small.  But the fall in the population share has been much sharper than for Wales.

wales 2

People –  and firms –  could choose to go to Tasmania but, by and large, they choose not to.  It is, after all, quite a way from Melbourne, and you can neither drive nor take a fairly-speedy train.   And unlike Wales, Tasmania is close to nothing else: Cardiff is much to closer to Dublin, Paris, Brussels, Amsterdam or even Frankfurt than Hobart is to Adelaide or Sydney.  Perhaps even more than Wales, the economic opportunities seem to be mostly in the natural resources (and no big new developments there in recent decades) and a few niche industries that might be there because the founder happens to like living there.   GDP per capita in Tasmania is just under 80 per cent of the whole of Australia average.

One could also do an interesting thought experiment as to what might have happened if Tasmania had been an independent country and had its own immigration policy.  Even had they just adopted the same policy as Australia did, almost certainly their population today would be materially larger than it now is (Tasmania now has three times the population it had in 1900, while Australia as a whole has more like seven times the 1900 population).  Being even smaller than Wales they’d have had no trouble attracting people.   But –  even more so than for Wales –  you are left wondering how many more outward-oriented businesses would have chosen to stay based in little Tasmania (few enough outward-oriented businesses are based in even the big Australian cities).

Are there lessons for New Zealand.  Our population has increased almost sixfold since 1900. In that time, we’ve fallen from (roughly) the highest GDP per capita anywhere to somewhere badly trailing the OECD field –  and maintaining even that standing only by work long hours per capita.

wales 3

It looks great to the strain of “big New Zealand” thought that has been around since Vogel at least.  But to what end, for New Zealanders?

Think of one last thought experiment.  What say we’d agreed a completely common immigration policy with Australia and held that in place for the last few decades?  More or less exactly the same number of people would probably have come to Australasia in total, but what do we supposed would have been the split between Australia and New Zealand.   It seems only reasonable to assume that a much larger proportion would have gone to Australia (than did).  After all, even those who went to Australia had a choice of Tasmania if they wanted cooler climes and a slightly slower pace –  but, to a very large extent they didn’t.  And we know what New Zealanders themselves –  who had ties to this physical places –  were choosing over the last 50 years, as hundreds of thousands left for the other side of Tasman.

And had that happened –  and perhaps New Zealand’s population was 3 million not almost 5 million –  is it likely that any fewer market-driven outward-oriented businesses would be based here than are today.   The land, the water, the minerals and the scenery would all still be there.  And how much else is there?

As a best guess, if by some exogenous policy intervention there had been another two million people –  of moderate skills etc – put in Wales, or another half million in Tasmania, it is difficult to have any confidence that average real incomes in either place would be any larger than they are now.  Most probably, they’d be worse off –  as say, the residents of Taihape probably would be if some exogenous intervention put another 5000 people there.  Having put an extra couple of million people in New Zealand – more remote than Tasmania, much more remote than Wales –  and not seen the outward-oriented industries, based on anything other than natural resources growing – we might reasonably assume we (New Zealanders) are poorer as a result.

Smart people are almost always a prerequisite to high incomes, but globally the top tier of incomes seems to focused on industries located in or near big cities, near big population concentrations, or on (finite) natural resources.   You can earn a very standard of living from finite natural resources –  it is the edge Norway has over the rest of Europe – but it looks pretty insane to confuse the two types of economies (when you have no realistic hope of transitioning from one to the other) and spread natural resource based wealth much more thinly by using policy to actively encourage rapid population growth.

From a narrow economic perspective –  and it isn’t of course, the only one the matters – the best thing for people from a lagging economic performance area is to leave.  It is what people did from Taihape or Invercargill, from Ireland for many decades, and (more recently and on a really large scale) what people did from New Zealand as a whole.   Governments can mess up that picture. In a way the Welsh are fortunate to have a rugby team but not an immigration policy, at least had they had the misfortune to have had policymakers like New Zealand’s.

 

  1.  Technically Luxembourg tops the table, but since a very large chunk of Luxembourg’s workforce doesn’t live there the numbers aren’t particularly meaningful (sensible comparisons need to take account of all the  – typical modest-earning –  support services populations need/use where they live).

America and Argentina

A couple of weeks ago I saw, somewhere or other, a link to a short column (“America’s Argentina Risk”) by the prominent economist Kaushik Basu.

Kaushik Basu, former Chief Economist of the World Bank and former Chief Economic Adviser to the Government of India, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

In his column he tells us that he migrated to the United States in 1994.  But you don’t have to read the column to get the impression that he isn’t overly taken with the direction of his new country –  with rare exceptions (I’ll mention one below), Argentina is usually only invoked these days (indeed for most of the last century) with a “don’t become like Argentina”, or “we are all heading to the dogs, like Argentina” sort of tone.   Of the making of books and articles about Argentina there is, it seems, no end (I have a large pile of them on my shelves).

My own first impressions of Argentina were the military regime tossing dissidents out of planes over the ocean and then the invasion of the Falklands.  Not all its modern history has been quite that bad, but it doesn’t seem to have much to its credit whether on broader governance or economic performance.   It isn’t, say, Somalia or Zimbabwe.  But that isn’t saying much.  On the IMF metrics, Argentina’s real GDP per capita (PPP terms) now slots in between those of Mexico and Belarus.  In another few years even the PRC might have caught up.

It wasn’t always thus.  And that is Basu’s starting point.

During the first few decades of the twentieth century, Argentina was one of the world’s fastest-growing economies. It also had talent flowing in, with more immigrants per capita than virtually any other country. As a result, Argentina was among the world’s ten richest countries, ahead of Germany and France.

To illustrate the Germany and France point

arg 1

France and Germany were big and powerful countries, but they weren’t exactly top of the top tier per capita league tables.  Here is a chart from one of last week’s posts.

1900 GDP pc

And here is how Argentina compares to the United States, from when the annual data begin through to (almost) the present.

arg 2

There is short-term volatility and probably still some measurement issues in the earlier decades (you can safely ignore that blip up in the early 1890s (around the time of a massive credit boom and nasty bust, one that almost brought down Barings Bank)).   Argentina was managing about 80 per cent of the incomes in the US from the mid-1880s until about World War One.  Thereafter, there were really only a succession of steps further downwards every few decades.  These days, Argentina is barely a third of the US. It is sufficiently bad that its real GDP per capita is now only about half New Zealand’s.

As Basu puts it –  with a similar tone to the one I noted earlier

What followed was not so much a recession as a slow-motion slowdown, the scars of which are visible even today. Argentina thus became a cautionary tale of how a wealthy country can lose its way.

Thus far, no real argument.

But according to Basu this is all the result of an anti-immigrant mentality in Argentina since the 1930s and the US risks heading towards Argentina-like outcomes because of Trump “stoking fears of immigrants and foreigners”.  Basu’s is a model in which very high rates of immigration caused Argentina’s decades of quite impressive economic success and, at least by implication, any turning away from such a model threatens all such good outcomes.   (He does mention tariffs in the 1930s once, but clearly doesn’t see that as a major party of the story, since there is no mention for example of Trump’s use of tariffs in his jeremiad about the US).

There is rather a lot that is questionable about this story.

But perhaps most obviously, Basu’s story about the decline in immigration to Argentina was more or less mirrored in the United States.  Here is a couple of charts from a 1990s journal article (summarised here) reporting a historical immigration policy index for a range of countries (not including New Zealand).  Positive scores mean an active bias towards immigration (aggressive promotion, subsidies etc), zero means neutral (in this case, open doors but no active policies one way or the other) and negative scores involve increasingly intense restrictions.   Here are the charts for Argentina and the United States.

On this metric, policy in the US was consistently less encouraging than that in Argentina, Argentina’s immigration policies had become progressively less positive even in the decades of greatest economic success, and the tightening in policy from World War One was greater in the US than in Argentina.

The slowdown in immigration to Argentina was real.  Here is the foreign-born share of the population

250px-Non-native_population_in_Argentina.png

And in the United States in the 1970 census the foreign-born share of the population was just under 5 per cent.

Here is a chart of migration to the US

US migration.png

Net migration to the US plummeted after World War One and remained low for decades (and if you are impressed by the subsequent rise, recall that US population now is more than three times what it was in 1914).

And yet…..was it not in the decades after World War One that the US continued to move to its leading position in the world economy.   Were not the 1930s –  for all their other problems –  the decade in which the US recorded the strongest TFP growth ever (on that measure, the 1920s was the second fastest)?

I am not, repeat not, arguing that markedly slowing immigration to the US was in any sense the cause of those US economic outcomes, but it is somewhat staggering to find a leading economist suggesting that (lack of) immigration was a major explanation for Argentina’s decline when, writing about the US, he pays no attention to the sharp decline in US immigration at much the same time, when the US went on to be the only New World economy still in the very top tier of economic performers today (and even today –  whether under Bush, Obama or Trump – immigration to the United States is pretty modest in per capita terms).  Here is another chart from last week’s post.

GDP phw 2018

Whatever you might think of Trump –  and I’m no fan on any count –  it is hard to see the US yet being pushed down the ladder.

(Argentina’s real GDP per hour worked is 27.)

As it happens, Basu also appears to be unaware that Argentina now has one of the most open immigration policies of any country in the world.   It is all laid out here.   It is pretty easy to migrate lawfully and as for those who arrive unlawfully there is no discrimination re the provision of things like health and education services, and it seems that you have to do something really rather bad to be deported, and the government is keen to offer opportunities to illegal migrants to regularise their status (and stay).  As the open borders advocates who wrote the description note

“Argentina does not have truly open borders, but it comes remarkably close”.

This regime has been in place for 15 years now.

And yet very few people migrate to Argentina.  An OECD study last year looked at the role of immigration in Argentina, but noted

The number and characteristics of immigrants in Argentina suggest that their current economic impact is positive, but not large. As immigrants represent less than 5% of the population, their role in the country’s economy is certainly less pronounced than it was during the first half of the 20th century.

Net migration to Argentina remains exceedingly low.  I’m not sure why –  there are worse places in the world –  but a reasonable hypothesis might be that migrants flock towards success (which is a pretty sensible approach for them and their families) rather than being determinative of that success.   Argentina hasn’t found the model of economic success.   (It is an interesting question why, say,  economic migrants from Africa don’t try Argentina, but then one might reasonably wonder whether the liberal approach (whether to residence or welfare entitlements) would last long if there really were such a substantial influx.)

One could take various tacks from here.  One could illustrate the way most –  but not all – of the more successful economies in the last century haven’t been ones that consistently encouraged large-scale immigration.  Or that flat or even falling populations and/or absence of much immigration, don’t seem to have held back the various countries (from South Korea, Malaysia, the Baltics, Romania, Chile, Uruguay that 15 years ago had similar average levels of productivity to Argentina –  of those countries, only Venezuela and Mexico have done worse than Argentina.  Even Russia –  also similar average productivity-  has done better.

And there are various other questionable bits in Basu article – eg he seems to be championing holding up global interest rates. But I think I’ll leave the article here.  There is much to dislike about Trump, much to worry about in the wider world, but the economics behind the claim that the US is at risk of heading Argentina’s way just don’t seem to stack up.

Reopening parent visas

Last week the government announced the reopening applications for parent residence visas.

For a couple of decades, parent visas made up a pretty large chunk –  around 10 per cent – of total residence visas issued.   From 1997/98 to 2015/16, 75000 parent visas were issued.  These were, almost certainly, all people who could not have obtained residence under the more-demanding skills-based segments of the immigration programme.  Most probably, given the overall target/guidance for the number of residence approvals to be issued, issuing parent visas lowered the average quality of those given residence.  Perhaps the effect wasn’t large – since the marginal approvals under the skilled streams often weren’t that skilled at all –  but the direction of effect was pretty clear.

Parent visas weren’t the only such questionable streams, although it was the largest. Over the same period, for example, almost 20000 people got residence under “sibling and adult child” provisions.

All this in an immigration programme that was avowedly primarily about the potential economic gains to New Zealanders.  Of course, the programme has never been all about economics –  there are refugees for example, a strand almost entirely about humanitarianism –  but the rhetoric of successive governments has been that the focus is economic benefit (and given how poor our productivity record, don’t we need better outcomes).  And it has never been obvious how the parent visa (and related family strands) help on that count.

Late in their term, the previous government suspended the parent visa programme and MBIE data suggests there have been very few approvals since then.  But no one had been sure what the future regime would be.  Now we are.

The positive aspect of the announcement last week is that there will only be 1000 places per annum.  By contrast, under the previous rules often in excess of 4000 parent residence visas were being granted each year (although there is an uncapped –  but  more demanding –  parent retirement residence visa on top of that).

Perhaps, then, one shouldn’t be unduly bothered about the new system.  But if we are going to have an economics-focused immigration system, operating on a very scale by global standards, we should be aiming to get the very best from it.     And it is hard to see how the parent visa policy fits that bill.

The fiscal dimensions of the equation are perhaps most obvious.  Sure, these new parent visa residents won’t be eligible for New Zealand Superannuation straightaway. But the median age of people getting parent visas used to be about 60, and you only need to live here for 10 years to get full NZS.  Average remaining life expectancy at age 60 in New Zealand is almost another 25 years.   If these new residents work and pay income tax at all, very few are likely to even come close to making a fiscal contribution approximating the NZS cost.  From some countries, any NZS entitlements have to be offset against pensions from home countries, but not all significant source countries have such systems.  Perhaps as importantly, new residents are entitled to full access to the public health system.  No doubt you have to pass a medical test to get your parent visa, but as for natives so for immigrants, health expenses tend to be materially higher in the last few years of life than in, say, your 20s or 30s.   Health spending is a large and rising share of government spending and, over time, GDP.    There are reasonable arguments –  also open to some debate –  that migration generally may be fiscally positive. For these elderly migrants it is almost inevitably not so.

The government doesn’t even try to pretend otherwise –  although it certainly does nothing to highlight, or limit, the fiscal cost (eg greatly extending the residency requirement for full NZS).  Instead, their argument for parent visas is a convoluted quasi-economic one.  According to the Minister

As part of its work to ensure businesses can get the skilled workers they need, the Coalition Government is re-opening and re-setting the Parent Category visa programme, Immigration Minister Iain Lees-Galloway says.

The move will:

  • support skilled migrants who help fill New Zealand’s skills gaps by providing a pathway for their parents to join them
  • ….
  • Help New Zealand businesses find the skilled labour they need
  • Further strengthen the economy by helping businesses thrive.

You can probably ignore the pure spin in the last line (the economy not being strong, businesses as a whole not thriving, productivity growth being atrocious etc).

As for the rest, recall that the average skill level of the “skilled migrants” just isn’t very high at all (all those retail and cafe managers, aged care workers and so on).  But also that the Minister and his department have never been able to produce remotely conclusive empirical evidence of the economic benefits of migration, and if we can only atract the people Lees-Galloway thinks “we need” by also taking on a big fiscal impost (see above) the gains must have been pretty thin and insubstantial to start with.  Especially when every non-working migrant (ie probably most of the parent visa arrivals) will add to the demand for labour (derived demand from their consumption) without adding to the supply of it.

There has been some criticism that the new income threshold sponsors (the adult children) will have to meet mean that parent visas will be an option only for  “the rich”.  And there are some anomalies there, including the fact that a couple in which both are working part-time are treated much more onerously than a single fulltime income earner, but in the end if you are going to offer only a few places, they need to be rationed somehow, and given the likely financial cost to the taxpayer, it makes some sense to focus on the migrants who are actually earning a fair amount (although a household income of $159000 across two earners –  while well above median –  is hardly “rich).  If there are any encouragement effects for really able younger migrants, they are going to be greatly attentuated if parent visas were handed out by lottery.

parent visa

All that said, the new rules look rather weak, and look as though they will reward those who are prepared to game the system, pushing the boundaries (perhaps beyond breaking point)) and/or who have the capacity to rearrange their declared income across time.   Work in a salaried position in a government department or big corporate and you probably have few options, but for others I’m sure smart accountants and lawyers will soon be advising on how to game the system.   As you’ll see above, the sponsors do need a reasonably high income, but they only need it until the parent gets their visa, and then only for two of the three years previously.  I guess that is supposed to allow for natural variability in eg business income, but it means you only have to find some way of inflating your declared income for a couple of years and your parent can get in, with no ongoing support or minimum income requirements.

I guess parent visas issue looks and feels a lot different to people (like me) whose parents and grandparents were all born in New Zealand than they do to people who’ve migrated, including to couples where a native New Zealander married someone abroad and settled here.    I can even see how someone who migrated here at 25 when their parents were 45 might not have given much thought then to how a widowed parent abroad might cope at age 80.  But the bit I really don’t get, at all, is why there should be any presumption that if you migrate to another country, leaving home and family, that should in short order (and you only need to have been resident here for three years to sponsor a parent) create some expectation that if aged parents have issues they should be able to come here, rather than that you return home.    Migration –  especially that to New Zealand (where the overall productivity gains are so questionable) –  has always mostly benefited the migrant.  We are doing them a favour much more than they, by coming, have done us a favour. But if you have family responsibilities at home, go back and meet them.  Don’t expect the New Zealand taxpayer to support those who’ve never been a part of us, coming only at the end of life.

It would be different if any parent visas were provided only to those with guarantees of income and health support, and thus a rock-solid assurances that these individuals would not be a financial burden on the New Zealand taxpayer.  I’d have no particular problem with an uncapped scheme of that sort –  and the existing uncapped scheme doesn’t have those protections, especially as regards health spending. But it would require, say, evidence that an annuity had been purchased from a rock solid provider, and that rock-solid provision had been made for the purchase of lifelong comprehensive health insurance.   The number of people who could meet that sort of standard would be really small (especially with real interest rates at record low levels).  But in a sense that just demonstrates the difficulty of justifying parent visas on any reasonable economic test.

Perhaps there is a grounds for a weaker compassionate standard, but make that subject to a 20 year residence/citizenship test for the sponsoring child.  But if you’ve been here for only three years, or haven’t bothered to become a citizen, if your parent needs you, go to them (we could even hold open the child’s residence visa for, say, five years while they did).  I saw a a somewhat gung-ho columnist in the Dominion-Post on Saturday championing parent visas on the grounds that

Their children have become economically valuable New Zealanders.  They deserve to have an avenue that responds to family need.

But in many cases (a) the children have not become New Zealanders, and (b) the evidence for the economic benefit to New Zealanders from migration is thin, at best.  When and if, as a relatively new migrant, family needs you, go to them.  They are your responsibility, not ours.  It is a bit like the argument that it somehow isn’t fair that kids grow up without their grandparents –  not only can grandparents visit relatively easily (in most cases), but surely you should have thought about that before leaving home and hearth, and grandparents, and settling in the most remote corner of the earth.

As I say, at 1000 visas a year this isn’t the biggest issue there is around temporary or permanent migration policy.  But that doesn’t mean it shouldn’t be scrutinised and challenged.   If we are to be serious about lifting overal productivity, we need a hard-headed approach to policy, and one that prioritises the interests of New Zealanders.

(On another matter, I see that Stuff’s Kate MacNamara has returned to the fray with another column on the problem that is Adrian Orr.  As I have to spend this afternoon in a meeting with the Deputy Governor and a Board member, I will save my comments on the article and the issues it raises until later.)

Some IMF modelling on NZ

Earlier in the week I wrote about the IMF’s less-than-impressive Article IV report on New Zealand’s economy and economic policy.   As part of the bundle of documents released last Saturday there was the Selected Issues paper – a collection of some supporting research/analysis undertaken by Fund staff to help underpin the Article IV report and Fund surveillance of New Zealand more generally.

On this occasion, there are three such papers.  The one that caught my eye was the first: a modelling exercise under the title

TRADE, NET MIGRATION AND AGRICULTURE: INTERACTIONS BETWEEN EXTERNAL RISKS AND THE NEW ZEALAND ECONOMY

In this paper staff took a Fund model carefully calibrated to capture key features of the New Zealand economy and used it in conjunction with their global model to look at several possible shocks New Zealand might face over the coming years.    There is a piece on possible agricultural shocks (pp19-21) which may interest some readers, but my focus was mostly on the other shocks they studied:

  • a significant growth slowdown in the People’s Republic of China,
  • a significant growth slowdown in Australia, and
  • and a significant (exogenous to New Zealand) change in net migration from (a) the PRC, and (b) separately, from Australia.

They illustrate the estimated transitional effects and report the model estimates for the long-term steady state effects.

The PRC growth shock involves (mainly) materially slower productivity in China, such that 10 years hence PRC GDP is 11.9 per cent lower than the (WEO forecast) baseline.  You’ll have heard New Zealand politicians and other lackeys parrot lines about how New Zealand depends heavily on the PRC for its prosperity etc.  The IMF modellers are having none of it.  Here are the New Zealand economy responses (quarters along the horizontal axis).

sel issues 1.png

On this model, a 12 per cent lower level of GDP in China –  largest trading partner, first or second largest economy in the world –  leaves New Zealand…….every so slightly better off in the long run (but treat that as basically zero).  Oh well, never mind…..I don’t suppose it will stop the lackeys doing their thing, but it is a helpful reminder that, to a first approximation, countries make their own prosperity.

The scenario of an adverse growth shock in Australia is of similar magnitude (Australia’s GDP is 9.3 per cent lower than otherwise in the long-term.  I won’t clutter up the post with the same set of charts for the Australia shock, but suffice to say that the bottom-line results aren’t that different.  This time, a 9.3 per cent sustained fall in GDP in the economy that is our second largest trading partner and largest (stock) source of foreign investment is estimated to reduce New Zealand long-run GDP, but by only 0.03 per cent.  I’d treat that as zero as well.  In both cases, a lower real exchange rate is part of the way the New Zealand economy adjusts, so consumption here is a touch lower (it is relatively more expensive) but overall real incomes generated in New Zealand (GDP) are all but unchanged.

That was interesting, but not really that surprising (in truth, even I might have expected a slightly larger adverse effect).   It was the migration shocks, and the Fund’s modelling of those, which should really garner more interest and scrutiny.  Note that these results have already had bureaucratic scrutiny: the paper notes that

The chapter benefited from valuable comments by the Treasury of New Zealand and participants at a joint Treasury and Reserve Bank of New Zealand seminar.

Both institutions have some smart and critical people.

Here is the shock re PRC immigration

Additional Net Migration Effect in New Zealand. There are permanently fewer migrants to New Zealand from China. There is a 0.1 percent reduction in labor force growth for 10 years in New Zealand, so that the New Zealand population is permanently 1.0 percent lower.

This shock is added to the PRC growth slowdown shock illustrated earlier.  As the Fund’s model is calibrated, these are the results.  The additional effect of the migration shock is the difference between the two lines in each panel.

sel issues 2

The Fund writes these results up as “a bad thing”

The fall in net migration would exacerbate the negative spillovers to New Zealand
from China. Real GDP would now be 0.7 percent lower than baseline in the long term.

Which is true, of course, on their model.  But, strangely, not once in the entire paper do they mention per capita GDP.  The population in the long-run is 1 per cent lower, but GDP is only 0.7 per cent lower, implying that GDP per capita is 0.3 per cent higher in this “Chinese migration shock” scenario than in the baseline scenario.  That sounds like a good thing, for New Zealanders, not a bad thing, at least in the longer-term.  (Since labour input and GDP both fall by the same amount, it doesn’t look as if this model can deal with endogeous changes in productivity).  For what it is worth, real wages in New Zealand are also higher in this scenario.)

What about the Australian net migration shock?

Additional Net Migration Effect in New Zealand. There are permanently more migrants to New Zealand from Australia. There is a 0.26 percent increase in labor force growth for 10 years in New Zealand, so that the New Zealand population is permanently 2.6 percent higher.

Again, this shock is on top of the sustained slowdown in Australian growth modelled earlier (and thus is probably best thought of as a reduction in the net outflow of New Zealanders to Australia, the income gap having changed a bit in our favour).   Here is the chart of those results.

sel issues 3.png

In sum, the population is 2.6 per cent higher in the long-run and GDP is 2 per cent higher.   The Fund again spins this as a positive story (it appears under the heading “How Net Migration Could Improve Outcomes for New Zealand”) but again completely overlook the per capita story.  In this scenario, real GDP per capita is 0.6 per cent lower than in the baseline.  New Zealanders are poorer (and in the long-run real wages in New Zealand are lower).  It isn’t even as if there is much of a short-term vs long-term story (the GDP effects just build pretty steadily over the 10 year horizon).

These effects become large if you apply them to the scale of the non-citizen migration we’ve had in New Zealand in recent decades.  Cumulatively, they would not be out of line with the observed slippage in New Zealand productivity relative to other advanced countries over that period.

So the headline out of this particular paper should really be “additional migration makes New Zealanders poorer in the long-run, at least according to IMF modelling”, not stuff about how helpful immigration is.  A focus on GDP might make sense if you are building an army (raw numbers matter) or to silly comparisons politicians make.  Other people know that per capita GDP is much the more important variable, relevant to material living standards etc.  On its better days I’m sure the IMF knows that too.

In a way, even in their report on New Zealand the IMF shows glimpses of recognising that high rates of immigration might not be so good for New Zealand (whatever the possible benefits in some other places).  Both in the main Article IV document and in the Selected Issues paper “a remote location” comes first in the list of factors the Fund identifies as constraining New Zealand productivity.  Combine that glimmer of recognition (and I could also recommend to them this piece) with their own published model results suggesting that, at the margin, immigration makes New Zealanders poorer –  recall that this model is calibrated by the Fund to capture what they see as key features of the New Zealand economy) –  and it might have pointed disinterested observers towards suggesting to New Zealand governments that they consider rethinking their enthusiasm for such high (globally unusual) rates of immigration to a relatively unpropitious location.   Instead of which, the Fund (like the OECD) tends to act as cheerleaders for New Zealand immigration policy.

The IMF, of course, is not a disinterested observer.   It knows little distinctive about New Zealand – and New Zealand’s productivity performance has long been an awkwardness, even a bit of an embarrassment, for the international economic agencies.  And it is a global champion of the idea that immigration is good and more immigration is better.  If you think that an unfair characterisation, check out this post (and this more NZ focused) where I unpicked parts of an official IMF paper which purported to show that

If this model was truly well-specified and catching something structural it seems to be saying that if 20 per cent of France’s population moved to Britain and 20 per cent of Britain’s population moved to France (which would give both countries migrant population shares similar to Australia’s), real GDP per capita in both countries would rise by around 40 per cent in the long term.  Denmark and Finland could close most of the GDP per capita gap to oil-rich Norway simply by making the same sort of swap.    It simply doesn’t ring true –  and these for hypothetical migrations involving populations that are more educated, and more attuned to market economies and their institutions, than the typical migrant to advanced countries.

What do I actually make of the latest IMF paper?  Not that much to be honest.  I’m sure the authors could probably play around with their model – it is calibrated rather than estimated –  to produce results more suitable to the causes of their masters in Washington.  And since productivity isn’t affected, one way or another, by immigration in this model, I’m certainly not attempting to suggest that these results are somehow reflective of the sorts of channels and models I’ve been championing as central to the New Zealand story.

But when even the champions of high immigration to New Zealand acknowledge that there is not much (any?) New Zealand specific research showing that high rates of immigration to New Zealand, in New Zealand’s specific circumstances (eg remoteness, resource endowments, institutions etc) has been beneficial to New Zealanders over recent decades, it should be a little uncomfortable for the officials and politicians who champion the status quo that one of the leading internation economic agencies, pretty sympathetic to their approach, nevertheless (and without really trying) manage to produce research once again casting doubt on whether on this central tool of economic policy –  probably the biggest structural intervention our governments have done over the last 25 years –  is really working for New Zealanders.

Perhaps someone might ask the Prime Minister or the Leader of the Opposition why they act as if they are so convinced that on this count the IMF is wrong.  (Oh, and they might stop parroting the “our prosperity depends on China” line too.  IMF modelling confirms (common sense) that it simply doesn’t.)

 

Making short-term foreign labour more readily available

There were, and still are, people who thought Labour and New Zealand First went into the last election campaigning on policies to materially and sustainably reduce the very high rates of non-citizen immigration to New Zealand.  (There were no such doubts about the Greens: after James Shaw in 2016 gave a fairly thoughtful and moderate speech on the issue there was a great backlash from his own supporters and he had to recant and do a very public form of penance.)

But what of Labour and New Zealand First?  It seems that under Andrew Little Labour had become quite concerned about immigration and thought there were votes in suggesting that “something should be done”.   But as I pointed out when their 2017 immigration policy specifics were released, whatever impression they wanted to create, any measures they were proposing would have reduced the net inflow for one year only.  Some of those proposals had some merit in their own right, but they were playing at the margin, while allowing Labour to associate itself with numbers of a 25000-30000 reduction in net migration.   Labour is quite correct to claim that they never set that as a target (it was a forecast, about what difference they thought their proposals would make), but they never owned up to the fact that any reduction would be one-off, not permanent.     Either way, even before the election –  after the change of leadership –  they were backing away from even their own published policy (checking old emails, I found one from a week out from the election in which a senior and well-connected journalist told me that Ardern and Lees-Galloway had taken a conscious decision to downplay the issue).

As for New Zealand First, there was occasional talk of reducing net migration to 10000 to 15000 per annum but (a) it wasn’t in their immigration policy, and (b) not much specific was.  Both parties seemed to want to create the impression that they would “do something” (note that National had actually “done something” –  albeit fairly modest – that year) without actually offering much in the way of specific commitments.  NZ First, of course, has 25+ years of form in that respect.    I guess not many voters read the specifics of manifestos (although media should) and so it is hard to have much sympathy for the parties when people now look at what the government is (and isn’t) doing and suggest that it doesn’t really square with the impression they were happy to create pre-election.

At times, it is hard to know quite what they are doing.   Actual residence visa approvals for the year to August were 34863, the lowest annual rate this century.   But that isn’t supported by any high-level policy changes and from all the accounts of massive backlogs of applications at MBIE –  having reduced its processing capacity –  it isn’t clear that it is deliberate (and if it is deliberate, it is a pretty callous way to do things, leaving applicants hanging uncertainly with indefinite delays).  And on the other hand, the number of Essential Skills visas approved in the year to August was a record high, and about twice as many as were being approved five or six years ago.  On MBIE’s figures there are almost 200000 people here with short-term work visas (consistent with that OECD comment that New Zealand has one of the highest –  perhaps the highest –  shares of short-term foreign workers of any OECD country).

But yesterday we got some specifics from the government in the form of a new policy on temporary work visas.  In thinking and writing about New Zealand immigration policy, my focus is on the residence approval programme –  which is what drives the longer-term contribution of immigration to population growth –  rather than the shorter-term visa programmes.  But reading through what the government released yesterday, it was hard not to call it a triumph for the business community (short-term) at the expense of New Zealanders (those two aren’t necessarily in conflict of course, it is just that there is no evidence that New Zealand’s liberal immigration policies have done New Zealanders any good).  As the Newsroom article this morning puts it

As soon as the embargo lifted on the Immigration Minister’s announcement on Tuesday, positive press releases flooded in from industry associations whose employers rely on imported labour, including Federated Farmers, Horticulture NZ, Business NZ and New Zealand Aged Care Association.

They see it as a win for employers who will be able to employ overseas workers with greater ease, after passing the initial tests.

Here is the overview document the government published.

Several things struck me.

First, the government and its advisers appear to have little use for economics (yes, some of you may think that to their credit),  What do I have in mind?     There was this, for example, the very first bullet point in the entire document

Ensure that temporary foreign workers are only recruited for genuine shortages, and that employers across New Zealand can access the skills and labour they need;

When there are incipient shortages of tomatoes or lettuces (storms etc) or even houses, the price goes up.   The market then more or less clears and in most cases at the new prevailing prices there are no “genuine shortages”, rather supply and demand adjust to the signal in the price. We see that this week in global oil markets.

But neither central planners in MBIE nor their political masters –  nor much of the business community, when it comes to inputs –  are keen on that sort of approach.  They prefer a model in which wages don’t rise much because whenever there is an incipient shortage –  which would otherwise trigger wage rises –  the employer can find another migrant worker.   A good deal for firms if they get the system rigged in their favour like that, and compromising, in that any firm that had qualms about whether this was really right, couldn’t really take a stand and refuse to get involved or they really would be rendered less competitive than other firms in their sector.

And there was this in a section on “Why the government is making these changes”

The Government is committed to ensuring that regions are able to get the workers they need to fill critical skill shortages, particularly during a time of low unemployment.

Where they show no sign of realising that –  as economists in New Zealand have known for decades – increased immigration has the short-term effect (perhaps lasting several years) of adding more to demand (including demand for labour) than to supply, thus exacerbating capacity pressures in aggregate, not relieving them.   Yes, an individual firm in a sector heavily reliant on immigrant labour might be made better off, but across the whole economy it is no fix at all.  (And if the intuition of this point isn’t obvious, fortunately we mostly don’t import dirt-poor illegals living 20 to a house, so new immigrant workers need houses, shops, offices, schools, roads etc much as you or I do, and building all those things takes real resources – including labour.)

There is a strange mix of central planner tendences and genuine liberalisation at work in the package.  I guess the government would defend that on the grounds of a strong central government hand around lower-paid migrants and more liberalisation for somewhat higher paid roles (the spin is about “highly paid” or “very highly paid” jobs, but that isn’t really so at all).  On the central planner side, there were things like this

The recently announced Regional Skills Leadership Groups will play a key role in informing government and regional responses to local labour market needs. Each Regional Skills Leadership Group will develop a labour market plan for its region to identify the availability of skills and labour in their region and any gaps that need to be addressed to help drive the region’s economic growth.

Or one could use market price signals and the resulting internal resource flows.  But the government believes bureaucrats and local worthies (business leaders with their own interests to advance?) will do it so much better.

Still on the central planner side, industries that are heavily reliant on migrant labour are to be subjected “Sector Agreements”

Sector Agreements will be negotiated with sectors that have a high reliance on temporary foreign workers (especially in lower-paid occupations). Employers who are recruiting foreign workers for occupations covered by a Sector Agreement will be required to comply with the agreement. Sector Agreements will support facilitated access to foreign workers to meet shortages in the short term by making this a more certain and lower-cost process. In exchange, the sector will be required to make commitments and demonstrate progress towards placing a greater share of New Zealanders into jobs in the sector and reducing the sector’s reliance on temporary foreign workers over time.

But there is a great deal of time-inconsistency about all this.  In the short-term, rest homes, road freight etc, will get “more certain and lower cost” access to migrant workers, and yet the sectors will supposedly be signing up to commitments to reduce future reliance on such workers. It will be interesting to see the details of the first such agreements (due mid-2020) but count me sceptical about whether any government will be willing to follow through and actually insist on reduced reliance on temporary foreign workers, having initially made them even easier to get.  All those lobbies will be moaning and complaining five years hence just as they are now.    Much better to put in place some clear and graduated price signals now.

The other area of central planners’ conceit in the document is the distinction between “the regions” and five of the six largest cities (for some reason Tauranga misses out on promotion to big boy status).  This continues the incoherence of the previous government’s approach, offering more residency points for jobs outside the big cities, in the process (almost as a matter of arithmetic) lowering the average quality of the people given residence visas.

Under yesterday’s package

The requirement to undertake a labour market test will be removed entirely for employers in the regions (outside the major cities) seeking to employ foreign workers who will be paid above the median wage. This gives open access to employers in the regions recruiting for jobs paying above the median wage. This means there is no need for skill shortages lists in the regions and the skill shortages lists will only exist for the five following cities – Auckland, Hamilton, Wellington, Christchurch and Dunedin. If a job in a city is on that city’s skills shortage list there will be no labour market test; if it is not on the list then there will be a labour market test (that is, the employer must advertise the job with the pay rate).

There is no attempt at a justification for this differentiation between, say, Tauranga and Hamilton, or Queenstown and Dunedin, or even between Kawerau and Auckland.   It simply continues the planner mentality –  even if we might count getting rid of (bureacrat-determined) “skill shortage lists” in some places as a modest gain in its own right.

And from a Labour-led government –  supposedly focused on “the workers”(especially less well-off), surely it evokes a hollow laugh when they release documents talking of people earning $52000 a year as “highly-paid”.      Such has been the increase in the minimum wage over recent years –  no relationship at all to productivity gains –  that Labour now class as “highly paid” anyone earning only 40 per cent above the minimum wage.

The final bit of the package that caught my eye was this

The Government will reinstate the ability for lower-paid foreign workers to support their partner and children to come to New Zealand for the length of their visa. This was restricted in 2017. The foreign worker will continue to need to meet a minimum income threshold, the purpose of which is to ensure that their income is sufficient to support themselves and their family while in New Zealand.

….Dependent children of a lower-paid worker will have access to primary and secondary education as subsidised domestic students. They will only be able to access tertiary education as full fee-paying international students.

I guess we should be thankful for small mercies re that final sentence.  But really…..the government makes it “more certain and lower-cost” to bring in relatively low-paid migrant workers, and then –  even if there were real economic gains from that particular “trade” –  dramatically erodes those possibilities by allowing such (supposedly) temporary workers to bring spouses and children.   Given the failure of the government to anything serious about fixing the urban land and housing market, that will put further indirect pressure on the housing market (and associated infrastructure) and the (substantial) fiscal cost of any school education for the children of such workers has to be set against the (inevitably modest, in a low-skilled worker) wider economic benefits to New Zealand of the parent being able to work here.

You can see some elements of sense in some of what the government is doing in elements of this package.  Perhaps the “sector agreements” are really well-intentioned, even if they seem most likely to be ineffectual over time in reducing the dependence on these sectors on modestly-paid modestly-skilled short-term foreign workers.    And, in principle, the absence of a “labour market test” for really highly paid or specialist positions makes quite a lot of sense.  But, even in this struggling economy, it is a sick and sad joke to talk of pay rates in excess of $52000 as “highly paid”.  More importantly, there is nothing in the system designed to set a financial incentive for firms to employ locals.

I continue to champion my own model, which I’ve run in various previous speeches and posts.   For work visas, at all levels of skill, in all regions, I would apply something like the following model

Institute work visa provisions that are:

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).

b. Subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).

Doing so would largely get officials completely out of the approvals process (although not from enforcement), would treat all regions equally, and would provide a strong –  and transparent –  incentive to hire (and develop) locals, and bid up wages for locals, where at all possible, while providing easier access (than any government has allowed) where a short-term foreign worker may really be necessary in the short-term.   And the fee would ensure that even if there were no other benefits to New Zealanders as a whole, at least the public finances would benefit directly.

The much bigger issue, of course, is the residence approvals programme.  The government is supposed to be having announcements on that front before the end of the year,

 

Emissions and immigration policy

Just listened to an RNZ interview with National’s climate change spokesman Todd Muller, around the silly question of whether or not a “climate emergency” should be declared.  Muller called it symbolism, but symbols have a place –  it is much worse than that, just empty feel-good virtue signalling  (whether or not you think our governments should be more aggressive in doing something to lower New Zealand emissions).

But Muller introduced his comments referring back to a sense as early as 1990 that something needed to be done.  And it reminded me of the single worst policy National and Labour have presided over for the last 30 years, in terms of boosting emissions from New Zealand: immigration policy.

New Zealand’s population in 1990 was about 3.3 million.  Today it is almost five million.  And here is a chart, using official data (which has some weaknesses, but the broad picture is reliable) of the cumulative inflow of non-New Zealand citizens since 1990.

PLT 2019

That data series was dumped last year, but you can add another 60000 or so people in the year since then.    Almost all of them needed explicit prior approval from New Zealand governments –  more than 1.1 million of them.

Over such a long period, the cumulative inflow becomes a little misleading.   It understates the impact.  Of course, over 30 years some of the migrants will have died, but many more will have had children (or even grandchildren).  Those children will (mostly) be New Zealand citizens, but that doesn’t change the fact that their presence –  and their emissions (resulting from their life and economic activity) – results from explicit immigration policy choices.

Those who are made uncomfortable by all this but simply wish to dismiss it will say “oh, but emissions and climate change are a global problem, and it doesn’t really matter where the people are”.  Strangely, this is not usually an argument the same people invoke when they favour (say) New Zealand oil and gas exploration bans, or other New Zealand specific actions that will have either no impact on global emissions, or only a trivial impact.

As you will no doubt recall, it is not as if New Zealand is already some low-emissions nirvana.  Per unit of GDP (average) emissions in New Zealand are among the very highest, and per capita (average) emissions are also in the top handful of OECD countries.    The typical migrant to New Zealand is not coming from a country that has higher emissions than we do.    Rather the reverse.  Of course, it isn’t easy to distinguish (empirically) the marginal and average emissions, but it is simply silly to suggest that the policy-driven rapid population growth has not had a material impact in boosting total New Zealand emissions –  migrants drive cars and fly, migrants live and work in buildings (that often use concrete), migrants have even helped maintain the economics of the dairy industry.  On a cross-country basis, I showed in an earlier post the largely unsurprising relationship betwen population growth and change in emissions over decades.  New Zealand’s experience was not an outlier (except perhaps in the sense of much faster –  policy-driven –  population growth, reflected in the emissions growth numbers.  If anything, and at the margin, New Zealand’s immigration policy has probably increased global emissions.

Of course, there would be a reasonable counter-argument to all this if it could be confidently shown that the high rates of immigration –  highest in the OECD for planned immigration of non-citizens over the period since, say, 1990 – had substantially boosted average productivity in New Zealand.  Then the additional emissions, and associated abatement costs (not small), would simply have to be weighed against the permanent gains in material living standards from the immigration itself.  But even the staunchest defenders of high –  or higher still – rates of immigration can’t show those sorts of productivity gains and (since demonstrating it would be a tall order) can’t even come up with a compelling narrative in which large productivity gains from immigration go hand in hand with the continued decline in our productivity performance relative to other advanced economies.

If the government (or the National Party) were serious about “doing our bit” (or just “being seen to do our bit”) about emissions and climate change, and if –  at the same time –  they really cared much about living standards of New Zealanders (‘wellbeing’ if you must), they would be taking immediate steps to cut permanent immigration approvals very substantially.  Not only would that lower population growth and emissions growth relatively directly, but it would result in a materially lower real exchange rate, which would greatly ease the burden on competitiveness that other anti-emissions measures are likely to impose over the next few years, would ease pressures on the domestic environment (and might even, thinking of my post earlier this week, ease the economic pressures on the dairy industry, while providing margins to deal directly with the environmental issues around that industry).

For the country as a whole –  New Zealanders –  it would be a win-win.   That isn’t to pretend there would not be some individual losers –  we’d need fewer houses, potentially developable land would be less valuable, and some industries (particularly non-tradables ones) that have come to rely on migrant labour would face some adjustments.  But, and lets face it, there is no sign the existing model –  in place in some form or another for several decades –  has worked well for the average New Zealander –  the productivity performance has been lamentable, and we’ve created a large rod for our own back on the emissions front.

But our political parties – every single one in Parliament, based on words and on their records in government –  would prefer to pretend otherwise, and keep on with the failed, corrosive, immigration policy, which hasn’t worked for us, is unlikely to ever do so (given our remoteness etc) and is so far out of step with what the bulk of advanced countries do.