Immigration fit for the future

Key Results

Immigration has played an important part in New Zealand’s economic development

• New Zealand, over time, has lost large numbers of skilled people through outward migration, raising concerns about a ‘brain drain’. Because the immigration system selects immigrants mostly on skill, immigrants are more likely to be tertiary educated than New Zealand-born residents and outnumber tertiary-educated emigrants. This means immigration more than offsets the loss of skilled New Zealanders.
• In the last decade, immigration has reduced the risk of labour shortages for employers in diverse sectors of the economy – from aged care to the dairy industry and the IT sector.
• Net migration (of non-citizens and citizens) generally moves in line with net job creation. An exception was the Global Financial Crisis (GFC) in 2009, when net job creation was negative but net migration increased. After the GFC, the Government used immigration policy to stimulate economic growth, supporting the tourism and primary sectors, and growing the international education sector.
• Skilled migrants (both those on residence and temporary visas) have contributed positively to firm productivity, in a similar way to high-skilled New Zealand-born workers.

On average, immigration is not driving down wages or replacing local workers

• Over the last ten years, New Zealand experienced large and unprecedented increases in net migration, and a shift towards more migrants on ‘skilled’ visas filling lower-skilled occupations. Yet during this time, the overall unemployment rate was low or falling, labour force participation high, and non-participation low.
• Immigration has had, on average, small and mostly positive effects on the wages and employment of New Zealand-born workers over the last 20 years.
• Despite positive impacts on average, there is evidence that immigration can have some negative impacts on employment and wages in certain populations. These negative impacts are not systematic, but occur in particular places at particular times, and the same population group can experience positive impacts in different periods of time.
• The absence of systematic job displacement may be due to the high demand for labour over the last decade. But concerns about displacement of local labour in the event of a future economic “shock” or cyclical down-turn in the economy are real. A downturn could result in the loss of jobs and greater competition for remaining jobs.

The immigration system currently uses a range of tools that may suppress wages, job creation, and productivity

• Labour Market Tests (LMTs) can have both positive and negative productivity impacts. LMTs must balance the need to be stringent enough to achieve their objective of managing displacement risks, without being burdensome to comply with. Burdensome LMTs may subdue normal business activity and additional job creation.
• By enabling firms to have easier access to migrant workers because the occupation is on a Skill Shortage List (SSL), SSLs can reduce the need for firms to raise wages to attract local workers or to innovate and invest in capital equipment to raise labour productivity. It can also disincentivise locals to train for these positions and discourage employers to invest in training locals.
• Enabling job to job mobility is one of the routes to improving productivity. The practice of tying migrants to a single employer can lead to negative labour market outcomes for both migrants (including through exploitation) and local workers.
• Managing low skilled migration involves trade-offs. There is a risk that in some cases limiting access to low wage migrant labour may forego an opportunity for higher productivity. However, not actively managing low skill migration risks simply expanding the economy while harming long-term productivity growth.
• Highly skilled migrants are more mobile and can choose to go elsewhere. The current residence policy does not sufficiently prioritise those who would make the greatest contribution to the future of New Zealand.
• The Commission recommends the Government:
  – reduce the use of SSLs for immigration purposes,
  – regularly review visa categories and the residency points system to ensure they sufficiently prioritise high skilled migrants, and
  – cease the practice of tying migrants to a single employer.
• To support the employment standards of all workers, the Government should ensure the Labour Inspectorate is adequately resourced to enforce minimum employment standards and any additional requirements for temporary visas (eg, the requirements for pastoral support and accommodation for RSE workers).

The supply of infrastructure is less responsive to population growth now than in the past

• Infrastructure owned or funded by the public sector has not kept up with population growth. The estimated value of New Zealand’s “infrastructure gap” – the value of what New Zealand should have built but has not – sits at an estimated $104 billion.
• Increased housing demand (for example from population increases) has a larger impact on prices today than it did in the past. House prices now rise more rapidly because housing supply is slower to respond to demand. When demand for housing increases, New Zealand now builds one-quarter to one-third fewer homes now than the middle years of the last century
• While accelerated population growth may have exacerbated New Zealand’s stressed infrastructure and capacity issues, those stresses were present long before the migration surge experienced over the immediate pre-Covid period.
• In the short run, there may be pressures on physical and community infrastructure arising from unexpected increases in migration. Placing restrictions on immigration may provide some temporary relief from such pressure. But using controls on immigration as a primary means of managing these pressures avoids dealing with their root causes.