A fortnight ago, Jacinda Ardern’s Labour Government tasked the New Zealand Productivity Commission (PC) with undertaking a system-wide review of the nation’s immigration program, with particular focus on the “impact of immigration on the labour market, housing and associated infrastructure, and the natural environment”.
The goal of the inquiry is to “enable New Zealand to strategically optimise its immigration settings” so that it maximises community wellbeing and living standards.
The terms-of-reference for the inquiry is especially interested in labour market outcomes arising from immigration:
The Commission should aim to provide concrete advice on how immigration affects labour market outcomes and the overall wellbeing of New Zealanders, including through productivity growth, the development of skills, levels of capital investment and labour market opportunities among different groups. It should assess evidence on the impact of low-skilled migration on wages, working conditions and business models in relevant sectors, and consider the impact on those sectors of reduced access to migrant labour, including any lessons learned from border closures due to COVID-19.
Advertisement
Shortly afterwards, the New Zealand PC released a report, entitled “New Zealand firms: Reaching for the frontier”, which explicitly noted that successive governments had enabled high levels of immigration without targeting this to close the skills gap of New Zealand workers. This mass immigration program had, in turn, resulted in high levels of labour force participation but poor productivity and low wages. It had also disincentivised firms from undertaking productivity-enhancing investment.
As such, the PC recommended the Ardern Government wean New Zealand firms off their heavy reliance on migrant workers:
Aggregate data (Figure 2.2) show that New Zealand businesses are typically capital-shallow (ie, workers have limited equipment and other capital goods to work with). Capital shallowness holds down labour productivity…
The ready availability of labour at modest or low wages (eg, through immigration policies that allow high levels of low-skill migration) has not helped either, because it has reduced firms’ incentives to invest in labour-saving and productivity-enhancing equipment…
Advertisement
On Friday. Prime Minister Jacinda Ardern flagged that the government would shift the nation’s immigration program away from low-skilled temporary visas [my emphasis]:
“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…
“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.”
Yesterday, the Ardern Government officially announced a “once-in-a generation” immigration reset for New Zealand that will shift away from high volume, low skilled migration:
Advertisement
“As we focus on re-opening New Zealand’s borders, we are determined not to return to the pre-COVID status quo,” [Minister] Nash said.
“The pressure we have seen on housing and infrastructure in recent years means we need to get ahead of population growth.”
The government would strengthen employer requirements and labour market tests before a migrant could be hired so temporary workers were only recruited for genuine job shortages. The skilled migrant category would also be reviewed, he said…
“The exploitation of temporary migrant workers – such as paying less than the minimum wage or making people work excessive hours – is unacceptable and breaches New Zealand law,” Nash said…
“High levels of migration have contributed to 30 percent of New Zealand’s total population growth since the early 1990s … this has been fuelled, in particular, by increasing numbers of temporary migrant workers and students”…
He said temporary work visa holders made up nearly 5 percent of New Zealand’s labour force. “That is the highest share – by a significant margin – compared to other OECD countries. Poland is next with almost 4 percent.”
“This means businesses have been able to rely on lower-skilled labour and suppress wages rather than investing capital in productivity-enhancing plant and machinery, or employing and upskilling New Zealanders into work”…
He quoted the OECD which has said: “The employer-assisted temporary work visa system is not limiting recruitment of migrants to resolving genuine skills and labour shortages, is attracting too many low-skilled migrants and may be weakening incentives for employers to employ and train New Zealanders. This has limited our ability to create jobs and improve productivity.”
Bravo New Zealand.
Exactly the same criticisms could be levelled at Australia where labour productivity (and wages) collapsed during the past 15 years of low-skilled mass immigration:
Australia’s labour productivity has collapsed since 2005.
Advertisement
The Morrison Government should initiate a similar review by our Productivity Commission, rather than kowtowing to its business lobbyist mates and declaring open immigration war on Australian workers.
By the same token, Anthony Albanese’s Labor should copy the Ardern Government’s immigration policy platform and take it to the upcoming federal election.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
