Deputy Governor explains how net migration has helped boost labour supply and contain wage pressures; says it's one factor allowing 'accommodative' interest rate settings; notes more young workers arriving in this migration cycle

Deputy Governor explains how net migration has helped boost labour supply and contain wage pressures; says it's one factor allowing 'accommodative' interest rate settings; notes more young workers arriving in this migration cycle

By Bernard Hickey

The Reserve Bank has acknowledged the role of high net migration of young workers in supressing nominal wage inflation in recent years, which has helped to allow the Reserve Bank to run an accommodative monetary policy with low interest rates.

Deputy Governor Geoff Bascand detailed the Reserve Bank's thinking and research in a luncheon speech at Otago University today.

Bascand said rapid growth of the workforce, boosted by new migrants, women, and older workers, had helped create strong economic growth over the past four years without driving up inflation.

Recent low consumer price inflation could be mostly explained by falls in commodity prices and the high New Zealand dollar, "but the higher productive capacity of the economy from rapid growth in the labour force also explains some of the weakness in inflation,” Bascand said.

Over half of New Zealand's population growth over the last four years of a quarter of a million people had come from migration, he said.

"The largest recorded surge in migration in 100 years has contributed to housing and consumer demand and job growth, but without the inflation pressures that accompanied the previous wave," he said.

“Higher labour force participation by women and older workers, together with the characteristics of this particular migration cycle, go a long way to explaining why wage and non-tradables inflation pressures have proven less than expected,” he said, adding that fewer families and more visas had increased migrant participation in the workforce.

'Low wage and inflationary pressures'

"Because our labour supply has increased at a time when businesses are facing lower world demand, it results in lower wage and inflationary pressures. The labour market most directly influences consumer price inflation through wage outcomes and a key driver of wage growth is the balance of supply and demand in the labour market," Bascand said.

The Reserve Bank had created a labour utilisation composite index that showed supply and demand in the labour market had broadly been in balance since early 2014, creating little upward pressure on wages.

"Stronger than expected labour supply, and greater than expected slack, has been a factor in our assessment that monetary policy should remain accommodative,” Bascand said.

“In view of the close relationship between labour market dynamics and inflation pressures, we will continue to monitor a broad range of labour market indicators to help inform our monetary policy decisions,” he said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Forget any wage increases, just be happy with your lower mortgage rates. Is the message.
However, the RB would still be under global pressure to set low interest rates regardless of the avalanche of immigration and students covering many low skilled jobs.

Good comment. Lower mortgage rates = wage increase. Only the savers are too dumb to see that.

Thanks but could you explain to me how this applies to someone without a mortgage? Suppressed wages + lower interest earned on savings...

It doesn't work for debt free savers.

SOoooooooo basically anyone trying to get on housing market is screwed

Well unless you've got rich parents that are willing to lend you the money or gift you a house.

Should have bought your house pre-2010, or better, pre-2002.
Instead of listening to the doomsters/house crash-ers on this site - between 2008 - 2016.

Perhaps: Crash at Mum & Dad's for 18 months, save every $.
Move out of Auckland - it has been sold to new owners!

Sooooooo in 2009 I was in Uni, like you're supposed to be apparently. Yeah

And I have saved every dollar, saved almost 50k in the last year. GF has done the same.

This country is F'd.

Are you and the GF thinking of buying together or separately? As it seems that together you are capable of saving 100K a year, if I am reading it right. With this sort of discipline you cannot fail to become rich. You need a more positive attitude and you are on your way.

SpaceX, well done with the savings, but instead of being so defeatist, why not accept the reality and make it work for you as best you can? There are plenty of very good investment propositions for under $500k that it sounds like you could afford now. If you position yourself right, you could do well out of the gap closure that's starting to happen between Auckland and the rest of the country. Now is obviously not the time for you to buy in Auckland, but that doesn't mean there aren't good propositions around. Assuming you live in Auckland, you might even find a ticket out of the place - wouldn't that be nice? Or, if you're more of a recalcitrant JAFA, you'll likely find your way into the Auckland market this way. Good luck - chin up!

Great to read about migration policy,you have written the article in detail which makes it easy to understand.I appreciate your efforts in making this post.

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Isn't he sailing against the wind here. Remember the UK report that identified that immigration doesn't contribute to economic growth? It does however contribute to competition for jobs, and if you count house prices within the growth calculation -then yes huge growth, balancing other negatives. Where is unemployment at over this period? "The largest recorded surge in migration in 100 years has contributed to housing and consumer demand and job growth" reads to me like cashed up migrants are keeping things going on the money they brought with them, but everyone else is suffering. Smacks of sucking up to the Government by avoiding telling it how it really is.


Yes, originally I recall the justification for immigration was that the wealthy entrepreneurs would bring their capital and skills to NZ, thereby creating new, value add businesses and accordingly improving per capita GDP (and hopefully real wages). Now it is just celebrated as growth for growth's sake which is in effect keeping wages down and arguably leading to a deterioration in living standards for the incumbents.

"Because our labour supply has increased at a time when businesses are facing lower world demand, it results in lower wage and inflationary pressures. The labour market most directly influences consumer price inflation through wage outcomes and a key driver of wage growth is the balance of supply and demand in the labour market," Bascand said.

Did the stability arbitrage fail to extend to wage dependent explosive non-productive debt creation growth due to expedient RBNZ indifference bias?

"it results in lower wage and inflationary pressures." the pressure is I think actually higher just it gets no traction. The reason I am "picky" on the context is I think we'll see businesses cease to be as they cant get more money and cannot absorb costs any more so fold.

Property prices certainly gain traction for those gearing higher salaries at government departments, including the RBNZ - it just takes one at the margin higher price property sale to spillover to the rest.

The Reserve Bank spent $35 million on personnel in 2014-15.
This included all forms of remuneration, direct expenditure
on training, and redundancy payments. Table 4 shows the
number of staff who received more than $100,000 in total
remuneration4, in bands of $10,000.
Table 4
Remuneration in 2014-15
Total remuneration Staff numbers
100,000 to 109,999 31
110,000 to 119,999 28
120,000 to 129,999 9
130,000 to 139,999 14
140,000 to 149,999 11
150,000 to 159,999 6
160,000 to 169,999 9
170,000 to 179,999 8
180,000 to 189,999 5
190,000 to 199,999 6
200,000 to 209,999 6
210,000 to 219,999 2
220,000 to 229,999 1
230,000 to 239,999 2
240,000 to 249,999 2
280,000 to 289,999 1
300,000 to 309,999 1
310,000 to 319,999 2
320,000 to 329,999 1
330,000 to 339,999 1
410,000 to 419,999 1
480,000 to 489,999 1
530,000 to 539,999 1
640,000 to 649,999 1
Total staff receiving $100,000 or more 150


Tito Mboweni, a former governor of the South African Reserve Bank, is receiving “excessive” pay as chairman of Accelerate Property Fund Ltd., after his fees tripled to 1.58 million rand from 506,667 rand a year earlier, the PIC said. Read more

I'm an employer. But I disagree with the idea that migration is useful because it leads to "supressing nominal wage inflation". I have to pay more tax to support the unemployed and underemployed. I see a bunch of the young, who don't have a cent in their pockets to spend in our businesses. Many of those young people are relatives of mine and children of friends.
It's really a rigged economy, run with no regard for the inhabitants, or sensibly for our long term future.

What are you barking about? This is the lowest taxes have ever been for the middle class. We shifted the tax burden on to the poor when my man John raised GST.

Isn't migration great (not). It pushes down wages which means of cause that 90% of NZders are poorer as a result. We are being ripped off and fooled by the Government and elite who get the benefits of migration. The rest of us, the workers just get poorer.

It's presumably great for the migrants. But I guess we don't want to share our toys.....

Excellent news about keeping wages down. Can we please import more painters (lots) and plasterers (plane loads). These guys seem to have not dropped their rates and I'm sick of it.

So National are flooding the nation with immigrants from developing counties who will work for peanuts driving down/capping the wages of the young and poor. This forces the RBNZ to keep interest rates low which drives house prices higher (and rents increase because of the inelastic housing supply). The resulting house price inflation has also forced the RBNZ to introduce minimum house deposit requirements which further marginalises the young and poor (for our own good the governor tells us). National clearly support these minimum deposit requirements as evidenced by a lack of response in their policy following the introduction of the new deposit requirement rules.

The failure of the government's policies to increase housing supply in Auckland coupled with the denial of the influence of foreign/local investors (it's only a supply issue everyone!) and wide boy Key's seemingly indifferent attitude to the plight of us asset poor wage slaves is certainly getting me wound up. I would normally vote National, but I won't now because of the immigration/housing issue. The problem is a Labour/Greens coalition would be even worse on these issues (I believe). Is Winnie the best option of a bad bunch?

Lol. You can't even give a reason why you think labour and greens would be worse. Don't even vote next time. And I'm a NZF supporter

all the major parties National, grrens and labour think immigration is the golden ticket as it brings money into the country,
plenty of studies are showing its a short term fix and like any ponzi you have to bring more and more to keep it up

Tone down the aggression please - I'll certainly be voting thanks as it is my right. I honestly don't know what their policy is - please enlighten me. My comment was based on the policies of the previous Labour-Greens coalition.

AHO, both labour and The Greens have website where you can directly access their policies.
If there are certain items in there that don't make sense, or require further clarification, I'm sure you can email your local labour or green representative.
I'm sure they'll take the time to reply, especially once they've been made aware you could be a potential swing voter.
Politics is a serious business, and I wouldn't rely on hear-say, and media vilification in order to make a decision on how to cast a vote.....

Thank you.

AHO is obviously the type of person to be affected by memes and probably shouldn't be voting. Democracy requires an informed electorate.

I've just read the Green's housing policy. Here is a summary: $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.

Yes. previous policies such as wanting to reduce the immigration rate as campaigned on in 2014 and wanting to ban foreign home buyers. Seems like that's exactly what you wanted.

"aggression" lol.

Does anyone really think who we have in Government makes that much difference ? Does anyone remember the tears of hope when Obama got in ? He has not made a rats ass bit of difference to the average American. Things are so bad they are looking at Trump to sort it out, the worry is he resonates with Hitler, someone else who got in by the desperation of the people at the time. How desperate are we becoming as a nation ?

Here is something I have only recently discovered. If a worker is "contracted" there is no minimum wage. Yes there is legislation in the pipeline to close this loophole. But right now, you can import "skilled labour" pay them $8 an hour as a contractor.
Sure if you get taken to task as to the actual status -employee/contractor- you would probably be a loser, but what god loving thankful immigrant would do this ?
The circumstances around me learning this - My son recently started with a builder and was told this is how he will be treated - as a contractor - fresh out of school and 17 years old... and it appears this practise is rife in the trades. Why are we short of tradesmen again ?

He could dispute that in the employment court and win easily
Who controls how and when the work is done?
keep up your sleeve for if the Sh"t hits the fan could get a nice payout

We need Labour and the Greens to screw the pooch back the other way. It's the NZ way: swing the pendulum left, right, left and it averages out in the centre.

Great to read article about Deputy Governor explaining migration,you have mention very useful information about the topic which i found very interesting to read.I have bookmarked the website to read more.
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