How Does Immigration Benefit the New Zealand Economy?

Answering that question proves to be challenging. This preliminary assessment suggests the economic benefits to incumbent New Zealanders may not be great.

During the Vogel boom, say between 1871 and 1881, the population of New Zealand doubled, as did real GDP (as best as we can measure). That means per capita GDP was much the same at the end of the boom as it was at the beginning. Was it a boom then?

The reason is instructive. Vogel’s strategy had involved heavy overseas borrowing. Some of the proceeds had been used to ship migrants. That is why the population grew so quickly. Vogel, rightly, had encouraged young women to migrate here in order to get a better gender balance. Although he did not get to one for one (something not attained until the 1920s if we include soldiers away during the Great War) the number of women rose faster than the number of men. While the population doubled, the employed male workforce increased by only 60 percent. So their productivity measured by market output rose at about 1.4 percent p.a., much like it has done for most of our post-1860 history.

Despite the lack o0f GDP growth, the men were better off. They had companions (who were productive in their homes, if unpaid) and they had children. This is a useful reminder that GDP may not always be a good measure of living standards. More generally, it alerts us that assessing an economy with high migration can be complicated.

Thus it is today. The proud boast is that GDP is growing at about 2.9 percent p.a. but since the population is growing at 2.3 percent p.a., GDP per capita is growing at only 0.6 percent p.a. (This is about half the long-term growth rate, something I need to come back to in a later column.)

But whatever the average increase, the increase for those who are not immigrants is lower because the immigrants are more likely to be in paid employment; the opposite of the Vogel era. It is difficult to calculate the real production rise for incumbent New Zealanders, but my stab at the figure is that it is between 0.0 and 0.3 percent p.a.

There was another major difference between the Vogel boom and this one. Vogel also used the proceeds from the borrowing to build infrastructure: telegraph, roads, railways, ports ... Current international research often suggests that the rates of return on today’s new infrastructure are above 10 percent p.a. That of 140 years ago was probably even higher.

Today, we are not borrowing for infrastructure. It is true that there are major programs in the broadband rollout and in some roading. We are getting hopelessly behind in housing, and a lot of effort is being put into recovering leaky and earthquake risky buildings which is not so much additional infrastructure as replacing poor investment in the past. The best I can estimate is that national capital per head is not really keeping up with economic growth. Sitting in your car in yet-another-bloody traffic jam, you may agree.

So some benefit from immigration, some do not. Presumably the former include the migrants themselves, but it also includes businesses which make profits from their additional employees while not having to trouble themselves in finding suitable New Zealanders or upskilling them. Those who may not have benefited include New Zealanders who do not get the upskilling and don’t get the jobs, those who miss out on decent housing or suffer from infrastructure failing to keeping up with population needs.

A complication is that the additional workers probably contribute more in taxes than they use social expenditure, so from these dimensions the young, the sick and the old are better off (assuming the government uses the extra revenue for spending rather than cutting taxes).

In summary then, immigration seems to be of little economic benefit to New Zealanders in terms of raising their standard of living, especially if it is used as an alternative to policies such as upskilling the labour force and if we do not build the infrastructure that the expanding population and economy needs. This conclusion obviously applies more severely the greater the level of immigration.

That leads to two policy conclusions. The first is that we need a comprehensive and detailed economic review of immigration instead of flying by the seat of our pants as this column has been forced to do. Second, it is likely to conclude that we need to be more restrained about levels of immigration in certain areas. (There is almost certainly a third policy conclusion. That we should have carried out the policy analysis earlier – but that concluion generally applies to most policies.)

Let me make it clear that this is not an anti-immigrant column. One of the few things I am sure of is that I will not vote for an anti-immigrant party (even if they indicate their position only with dog whistles). What the column is arguing is that we need to be more sensitive to the impact of immigration on the economy and that it need not necessarily be a good thing in narrow economic terms (as the women Vogel’s scheme imported were not). It is rejecting the neoliberal approach that immigration policy should not be coordinated into comprehensive macroeconomic policy. In particular, I should not be surprised if we need to restrain immigration a bit more, pay more attention to upskilling domestic labour and get a better balance of infrastructural expansion.