Riding the immigration scapegoat
Dileepa Fonseka writes on business and politics.
OPINION The Government has taken so long with its immigration reset that migration flows seem to have rebalanced themselves, and more people seem keen on leaving the country than entering it.
Infometrics forecasts 40,000 New Zealanders could be getting ready to leave the country, right at the tail-end of the first net migration outflow since the 2011 Christchurch earthquakes – and last year saw the lowest number of migrants enter the country since 1970.
You might look at this as a bit of a failure, but in reset and “rebalance" terms it is arguably mission accomplished – now we won’t have quite so many New Zealanders and foreigners moving into the neighbourhood, clogging up roads, using the water, or simply existing.
Deputy Prime Minister Grant Robertson declared victory on Monday saying “we aren’t making the same mistakes of the past such as only relying on immigration to fill our skills gaps”.
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People who want to keep this winning streak going might also have gained a new ally in their fight to depopulate the country: inflation. Infometrics economist Brad Olsen says for the first time in decades an inflation gap has opened between Australia and New Zealand, in Australia’s favour.
There has always been an estimated $200 per week gap in wages between the two countries, but historically this has been counterbalanced by lower inflation and unemployment in New Zealand.
Now inflation is running higher in New Zealand, meaning the outflow of people to Australia could be even stronger than in previous cycles.
“For the last decade or so New Zealand’s unemployment rate has generally been below Australia’s because, all things being equal, the New Zealand labour market was stronger,” Olsen says. “Unemployment is lower [in New Zealand], but our inflation rate is now higher ... that does seem to be flipping the coin a touch.”
It’s not great when a country’s own citizens would rather leave than stay, but admittedly part of the reason for resetting immigration is to avoid New Zealand continuing to be a place where people are likely to do that.
It seems Asian migrants are blamed for a new social or economic ill every decade. This time it is that immigrants are driving down productivity and wages. In the 1990s Asian migrants were wealthy, overeducated and unnervingly well-mannered folks who drove taxis by day and wielded Triad gang memberships by night.
In the 2000s they were potential terrorists, or just bad drivers, who clogged up the motorways and didn’t speak English. From the 2010s onwards they have been seen as exploited temporary migrants who are the root cause of the country’s housing crisis, productivity problems and anaemic wage growth.
Over the last two years the Productivity Commission has released various papers on the subject. Not all of them have been anti-immigration, but none have presented a convincing case for a “Big New Zealand”, or a shrinking one. It is telling that nobody on either side of this debate seems to have changed their position as a result of these papers coming out. If anything a consensus seems to have hardened in the opposite direction. National, ACT and the Greens have presented a near-united front on a number of immigration issues.
Then there’s our real world experience as a country with closed borders. If immigration were the sole cause of all these woes then at a time of ultra-low interest rates, and near-zero access to overseas labour, you might have expected both wages and investment in productivity to have jumped. But wage inflation didn’t keep up with average inflation even with the immigration “tap” turned off.
Wage inflation was running at 2.6% in the year to December 2021, and during the same period inflation ran much hotter at 5.9%.
As for investment spurred on by higher labour costs, lending to businesses as a share of GDP (a measure of how much businesses are borrowing to invest in their future productivity) has actually fallen during the pandemic.
There have been considerable costs to this policy too, including major staff shortages in sectors like healthcare and aged care.
Clearly there are wider factors at play when it comes to wages and productivity than just immigration, but migration is the easiest lever for governments to pull because a fair chunk of voters don’t like immigrants, immigrants don’t vote and the government of the day has near-absolute power over their fate.
However, wading into this mess is more complicated than it sounds. While the electorate doesn’t seem to want immigrants to have jobs, it doesn’t want New Zealanders forced into working the jobs immigrants do, and doesn’t like the price rises that accompany an economy short of workers.
Which might be why some people in government circles seem to be signalling they have softened their stance on the whole thing. Hinting at this future on Monday Robertson added “we also have to start thinking about inward immigration, expanding the labour supply as well”.
Sometimes trying to ride the immigration scapegoat is more trouble than it’s worth.