Independent research organisation the New Zealand Institute of Economic Research is calling for a big increase in the net rate of migration into the country, saying it would boost the economy.
In a new "Insight" research paper NZIER senior economist Kirdan Lees said that increasing net migration would lift incomes "not just for immigrants but for the native population".
Lees did detailed modelling based on 40,000 net migrants a year and said that an additional 40,000 people a year for 10 years increases GDP per capita "by a chunky $410 a year".
“So let’s grow for it and plan to entice more migrants,” he said.
In recent times New Zealand has often had a net migration outflow as more Kiwis head overseas - particularly to Australia.
At the moment, however, net immigration is growing strongly as fewer Kiwis head across the ditch and more immigrants settle in the country.
The biggest net migration gain the country has ever had in a 12 month period is 42,500.
Lees and the NZIER are talking about the country pursuing a policy of a net gain of 40,000 every year.
'More ambitious policy'
"A more ambitious population policy is needed to increase New Zealand’s population," Lees said.
"New Zealand’s point-based immigration framework gets the mix of migrants required about right. But we need to do more to keep lifting the number of migrants that come."
He said almost one-in-four New Zealanders were born overseas, but the current policy of a gross 45,000 to 50,000 migrants a year was too low and very arbitrary – bringing in more migrants would lift incomes.
"Immigrants provide firms with new skillsets, allowing firms to access new markets, new ideas and new products. A deeper population base also helps firms to get big and offset initial start-up or fixed costs that can be high. But our work shows that the impact on incomes outweighs the inflationary impacts of migration."
International studies also point to positive effects of immigration, he said.
How might immigration boost incomes? In the long-run, immigration can help boost incomes because of five key channels:
- Providing firms with new skills: Immigrants offer skills that are different but complementary to native workers, boosting the possibilities of what domestic firms can produce. Immigrants also deepen the labour pool, which helps firms expand and enables a better match between workers and firms.
- Increasing innovation and entrepreneurship: International evidence suggests immigrants lift entrepreneurship through their networks and access to new markets and products.
- Lifting scale: New Zealand is both small and distant from the global stage. Growing the population through immigration can help New Zealand firms scale up.
- Increasing competition: Larger domestic markets increase competitive pressures that force successful firms to innovate to survive and then grow.
- Increasing returns to investment: Immigration lowers average per capita costs of high fixed cost physical infrastructure (such as motorways) and institutional infrastructure (such as a central bank).
In his paper Lees cited a variety of examples from overseas, which demonstrated that migration increased productivity and incomes.
And he said that closer to home, Australia provided a useful case study since it also had a population with a high proportion of migrants and used a points-based immigration framework similar to New Zealand’s.
"In 2006 Australia’s Productivity Commission concluded skilled migrants lift labour participation and increase the capability of the labour force, providing a “positive, but small” increase in productivity. So on balance, international evidence points to benefits from immigration to both immigrants and the native population in terms of a lift in income per capita."
Testing the effects
In terms of testing the effects of migration gains in NZ, Lees said a model was formed using GDP, population and immigration data since World War II and then the question posed: "What would happen to per capita income, in real terms adjusted for inflation, if, over a period of ten years, we gradually raised the rate of net immigration to almost 40,000 additional migrants each year?"
Lees said 40,00 was chosen as the example because it is "significantly higher" than the average net annual immigration flow of 15,000 New Zealand has experienced over the past dozen years, and near the peak of the most migrants we had in any one year.
Lees said the model demonstrated that a "shock or change" to net migration shows that GDP per capita increases "and the accumulated response over 25 years is not trivial – $10,240 in today’s terms or a little under a quarter of what New Zealanders produce on average each year".
"That means every New Zealander produces just under $410 dollars of additional output each year."
Lees said that the current long-term government policy target of 135,000-150,000 of inbound migrants alone appeared to be driven "much more by perception of what is politically tenable than economics".
'Income boost'
"We can boost incomes by growing our population and should look to an immigration target that achieves more ambitious population growth. The target should be tuned to population outflows so the New Zealand population grows each year," he said
Earlier work done by NZIER showed that strong migration growth rates were "entirely plausible".
"Politically there is no easy time to increase immigration," he said.
"In bad times migrants are seen as taking jobs and increasing unemployment even though there is little evidence that immigrants negatively affect either the wages or employment opportunities of New Zealand born workers."
But Lees said with unemployment now on the way down, and employers again looking for skilled labour, this was not going to be a worry.
Housing worries
"In boom times some worry about the pressure immigration seems to put on housing, infrastructure and publicly funded services (like schools and healthcare). We should expect some impact of immigration on the price of housing from the need to home more people and partly because incomes are higher," he said.
"But our work shows immigration raises incomes of the native population – above and beyond any requirement to boost infrastructure or the need to divert resources towards building houses. So fears of immigration overburdening the economy appear overstated."
Lees said on this issue the real question was improving flexibility in infrastructure.
"If it is poor it needs fixing, not sheltering."
Over the next few years net immigration looked set to increase strongly even if the government did not change its immigration quota now.
New Zealand’s high terms of trade would boost incomes, encouraging migrants to come or New Zealanders to stay, just when Australia’s boom was starting to wane.
"Our assessment of the international evidence and our own New Zealand specific work together suggests a positive impact from this immigration on per capita income. So the sooner we attract new migrants to materially lift immigration the sooner we lift average incomes for all New Zealanders," Lees said.
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