By Bernard Hickey
The Government has pushed back at growing calls for a review of low-skilled migration levels, saying it has not seen any evidence yet that higher levels of relatively low-skilled temporary migration was suppressing wages or substituting for unemployed New Zealanders.
Over the last month, ANZ CEO David Hisco, Reserve Bank of New Zealand Governor Graeme Wheeler and his deputy Grant Spencer, billionaire philanthropist Stephen Jennings and Auckland Chamber of Commerce CEO Michael Barnett have called for a review of migration settings, given concerns that a surge of temporary and often low-skilled migration was suppressing productivity growth and wages, and pushing up house prices and rents.
Treasury warned ministers in December it was concerned lower skilled migrants were dragging on productivity and wages. See my March article on that here.
Last week Wheeler said he was looking at the quality of the surge in migration since 2013. Wheeler pointed out that 160,000 people had entered the country and increased the workforce by 4% over the last two years.
"And that's added some downward pressure on wage outcomes in terms of the expansion in the labour supply. And clearly it's added quite a lot of pressure into the housing market as well," he said.
Immigration Minister Michael Woodhouse denied there was evidence that high levels of temporary migration, particularly to fill labouring jobs on farms and orchards, was suppressing wage growth, although he acknowledged Treasury had warned it was a risk.
"They said there was a risk that that would occur, but I don't think the evidence is clear yet," Woodhouse told reporters in Parliament.
"What we're seeing in the increased labour demand is that is a sign of success, not failure. If you go out into the regions they are screaming out for more workers to meet the labour needs for growing horticulture, viticulture and agriculture industries. You'll see that wages are increasing above inflation. Whether you completely remove the international labour market and have a pure supply and demand model, I think in the short term that could be quite damaging. But in the long term I think it's important that New Zealanders are at the front of the queue for those jobs.
'Less certainty for temporary foreign workers'
He also denied there was exploitation of cheap foreign labour happening in some parts of the country.
"I don't think there's any evidence that that's happening. What we are seeing over time if an industry relies on (international) labour over time, their wages don't tend to rise as fast as New Zealand workers, and that's explainable because they have quite uncertain futures in New Zealand," he said.
"They're on temporary visas and they may need to go home at any time, so they may not get the sorts of promotion opportunities that might be available. Apart from that, I don't think the evidence is clear that there is wage suppression in those occupations," he said.
Quarterly Employment Survey and Labour Cost Index surveys for the June quarter showed wage growth slowing despite an accleration in economic growth. The QES measure of average hourly earnings showed annual wage inflation slowing to 2.1% in the June quarter from 2.8% a year earlier, while the LCI measure showed the Index's annual inflation rate falling to a six-year low of 1.5% in the June quarter. The construction sector's hourly wages grew just 2.1% in the June quarter from a year ago.
'Letting the market decide could be bad in short run'
Asked if migration should be restricted to allow supply and demand to be matched through higher wages, Woodhouse said increased demand for labour was a sign of success and turning off the tap of temporary migrants would be bad in the short run.
"What we seeing in the increased labour demand is that is a sign of success, not failure. If you go out into the regions they are screaming out for more workers to meet the labour needs for growing horticulture, viticulture and agriculture industries," Woodhouse said.
"You'll see that wages are increasing above inflation. If you completely remove the international labour market and have a pure supply and demand model, I think in the short term that could be quite damaging. But in the long term I think it's important that New Zealanders are at the front of the queue for those jobs," he said.
Labour Immigration Spokesman Iain Lees-Galloway released figures last week showing that work visas were issued for 6,500 labourers over the last year when there were 15,600 unemployed New Zealand labourers.
English watching wages
Finance Minister Bill English was also asked about the calls for a migration review and whether low-skilled migration was suppressing wages.
He said the Government was getting more in-depth data on the issue, but had not seen evidence of a link yet.
"The mainstream advice is that it doesn't have much impact. We're pretty interested in the issue because we look at it both from the point of view of household incomes, which we'd prefer to be rising, and also from the point of view of the welfare liability, who are on welfare and you'd want to see in jobs if that was at all possible, so we're pretty interested in how that interaction goes," English told reporters.
"Up to now that advice has been that there isn't a substitution effect. We're always working at it because we'd like to see the long-term cost of welfare come down and the best solution to that is people getting jobs and we would want to see New Zealanders incomes lifting," he said.
"We have been looking at it for two to three years. Everyone understands there's parts of the country where there's use of migrant or temporary labour and there's people who are unemployed. You're always looking at how those two things interact."
English pointed to growth in wages in Christchurch during the most intense period of the rebuild as a sign that demand growth for more workers that exceeded supply would lead to wage inflation rising.
"You saw it happen in Christchurch and now it's happening north of Taupo because the construction industry is growing at about 20% per year. It is pulling people in. It is having to pay more, particularly for areas that are short. If you hear the anecdotal evidence it's going to build up to an increase in wages," English said.
"That's what's you'd expect. If wages aren't rising, there isn't a shortage. I'd hope that is the case in the construction because there's a lot of houses that can be built in Auckland, that's picking up steam pretty fast. It would be great if there's sufficient labour for that to happen without the costs of the houses going up even faster."