Immigration — too much, too fast?

• Published date: 13 November 2021
• Author: Brian Fallow comment
• Publication title: Daily Post, The (Rotorua, New Zealand)

In recent years, probably. At least that seems to be the conclusion of the Productivity Commission, which this week released the preliminary findings and recommendations of its inquiry into immigration settings.

Between 2015 and 2020, when Covid saw the border closed, the net inflow of non-New Zealanders comprised the majority of growth in the resident population.

It was a population shock driven by rapid growth in migrants on temporary visas. “In addition to putting pressure on the country’s ‘absorptive capacity’ this growth also saw a notable shift towards temporary migrants filling vacancies in lower-skilled occupations,” the commission says.

Its report does not really define absorptive capacity beyond “our ability to successfully accommodate and settle new arrivals”, but it evidently has in mind the constraints arising from chronic underinvestment in housing and infrastructure (physical and social).

When the Productivity Commission discusses the impact of immigration on productivity, it points to a contrast between micro-economic studies, which conclude that it is positive, and a macro-economic view which is sceptical of a net benefit.

“In most OECD countries, including New Zealand, migrants are on average younger and more skilled than the host population. As a result migration increases GDP per capita because a greater proportion of the population is working and average skills among those working are higher.”

The sceptical macro view, on the other hand, argues that demand-side effects can trump the supply-side gains, by requiring resources like capital and labour to be diverted from tradeable to non-tradeable sectors and by requiring higher interest rates to bring the economy back into internal balance.

“Aspects of New Zealand’s economic performance over the past 30 years are consistent with these arguments,” the commission says, “including a persistent high real exchange rate (despite poor relative productivity growth which would tend to push the exchange rate down), a flat to falling share of exports to GDP, slow rates of productivity growth and high real interest rates compared with other developed countries”. It thinks immigration is unlikely to be the sole cause of these trends, “but the symptoms are consistent with it at least being a contribution”. Disappointingly, it leaves it at that.

Central to the pro-immigration micro view is the need to plug skill shortages.

The process for compiling skills shortage lists could be more robust, the...