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OPINION: Reduce immigration to increase wealth

GUEST OPINION

There is now widespread acceptance that immigration is driving up house prices. The question is why it took so long to work that out?

We were told that house prices were a supply side problem, which meant that government should make more land available and the problem would go away. But this ignored the obvious – markets don't just consist of supply, they also consist of demand. 

The advisers were ignoring half of the market. Of course, property developers and immigration consultants did well out of this view, but did the average Kiwi? The answer is no, and especially not new home buyers.

For many years, we have been told that high levels of immigration are needed to help the economy grow. This argument states that with a bigger population, manufacturing industries will expand, reduce their costs and become more competitive on the international market.

After 20 years of high migration levels, we can now say this policy has failed. Our manufacturing has not grown. In fact, the opposite has happened with many companies closing down or going offshore. 

One study showed that between June 2004 and June 2010, manufacturing declined from $4858 million to $4057 million in 1995/96 prices.  Another paper noted that between 2003 and 2009 manufacturing’s contribution to GDP stood still.

The myth that a big population will result in more economic growth has led some commentators to guess what the optimum population size is for New Zealand. These commentators need to visit India where they will discover that large populations do not drive wealth. 

It is the skills in a society that create wealth. It is time to forget population growth and look at the skills that New Zealanders possess.

Myths about immigration
There are a number of myths associated with immigration. One of the most common is that migrants are more likely to be entrepreneurial. However, the former Department of Labour’s own figures show that migrants have a poor rate of entrepreneurship.

The reasons for this is the migrants do not understand the New Zealand business environment. They frequently bring business models based on cheap labour and large markets. Those models do not work in New Zealand, so the entrepreneur ends up, for example, buying a pre-existing café, which results in no new economic activity.

Another myth is that immigration helps the economy by boosting trade. This is not completely inaccurate as immigration does help trade. The problem is it helps imports a lot more than exports, as migrants want to consume the products they used to get at home. 

One study, for example, found that if New Zealand receives 10% more migrants from a particular country, exports to that country grow by 0.6%. However, it also found that New Zealand’s imports from that country grow much more, by 1.9%. This has a negative effect on NZ's balance of payments, and is the last thing we need.

There is a huge misperception that our immigration policy is letting people with the skills we need into the country. But a closer examination reveals a very different picture. Recent figures show that only 44% of residence approvals came under the skilled/business category. 

These should be our most productive migrants but only 71.8% of them are earning wages or salaries. Some of them have very low skill levels, and have included occupations like florists and shop assistants. Such people should never be allowed in while unemployment persists.

Points system
Potential migrants are assessed under a points system for their skills and education, among other categories, and given points for each category. If a migrant's points add up to 140 or more, the migrant is invited to apply for residence and will most likely be accepted into the country.

If the immigration service only accepted migrants with 140 points or above, the policy would be more successful. But sadly, if not enough people with 140-plus points apply, the response is to lower the points threshold; that is, the quality of migrant is reduced in order to maintain quantity.

I recall a student of mine who entered the country with only 105 points. She had no skills of value to New Zealand. Furthermore, she only obtained 105 points by working for a New Zealand-based Chinese employer as a retail shop assistant selling vegetables for below the minimum wage. In return, the employer wrote a letter saying the student’s skills were needed by his company. This is a common way of entering the country.

A large number of sales people are being granted residence despite the low training required. Some are given responsibility for part of a shop and are called sales managers. These jobs could be done by New Zealanders.

Substitute for training
Many New Zealand employers are using immigration as a substitute for staff training. They find it easier to employ a migrant under current policy than to train an unemployed local.

This attitude could be seen in a recent item on TV3 News in which a restaurant manager opposed government’s attempts to cut back on immigration: “I think their goal is to reduce the unemployment level. That’s a worthy goal," he said. "[But] does that become the restaurant industries responsibility?”

Some employers do not see it as their responsibility to provide jobs to New Zealanders if workers can be sourced more easily from off-shore. When any skill deficiencies are noted, Immigration New Zealand allows more migrants into the country when government should instead be looking at why insufficient numbers of New Zealanders are being trained in these skills.

This is an area where the government can do much to improve the efficiency of the labour market. There is a huge mismatch between skills supplied and skills required. There are a number of reasons for this. In past years, the Department of Labour and the Ministry of Social Development had been using different systems for classifying jobs. The consequence was migrants in professions where we had unemployment were accepted into the country.

One of the reasons for the poor match between the supply of and demand for skills is that New Zealanders are being trained in the wrong areas. The labour market is complex and many school-leavers have no sense of reality. Our young workers can spend three years studying to acquire skills they will never use.

Not only is this a waste of training, but it can be soul-destroying for young Kiwis who have worked so hard for their qualifications. The Ministry of Business, Innovation and Employment needs to be more proactive in providing information and using it to make the labour market more efficient.

Time to face facts

For 20 years, New Zealand has maintained high levels of immigration in the hope it would generate economic growth. We can now conclude, thanks to a wealth of evidence, that the policy has failed. We were sold a lemon. Only the property developers can smile, while the rest of country must shoulder the cost of new infrastructure to accommodate the growing population.

There have been no new industries. The growth we have enjoyed has been driven by the same industries that drove it in the past; tourism and agriculture, especially dairy.

There is no doubt that immigration is necessary to provide some skills – construction skills for the Christchurch rebuild, for example. But Auckland is the prime location where migrants settle and it's incurring a lot of infrastructural costs as a result, with little economic benefit.

To ensure the benefits of economic growth are enjoyed by all New Zealanders, the next government needs to look at dramatically reducing migration numbers.

It is time to overhaul immigration policy and the way we view the labour market. An efficient domestic labour market, with skills training that accurately addresses the needs of employers, is the key to an affluent society. It is the way in which we can reduce unemployment, provide training and careers for our young, and reduce the pressure on house prices.

Greg Clydesdale is a senior lecturer in commerce at Lincoln University

The views expressed in this article do not necessarily reflect the views of Lincoln University

Comments and questions
23

Excellent article Greg telling it like it really is. Will things change? nope. Because the current immigration model isn't designed to increase NZ prosperity, instead it's designed to facilitate human trafficking and the largesse of those who profit from it. As we've seen from very high profile cases reported widely in the media the profit from immigration corruption goes right to the top, and NZ has no anti-corruption authority.

Greg - attached paper ( below ) out of date but contains some figures in terms of connection between property and immigration. Certainly primes the pump.

However, you need to look a bit deeper I say - in fact all OECD countries will struggle without supplementing local workforce with immigrants in terms of tax intake in futuro - such taxes pay for things like policemen and hospitals and I assume a portion of your salary ?

http://queencitylaw.co.nz/wp-content/uploads/2011/12/2006-immigration-law-powerpoint-presentation.ppt

You raise some very good points above. I am still waiting for an opposition party to come up with some firm numbers to address this immigration issue.

I agree with this article, and have tried to convince people that the large number of immigrant taxi operators in NZ with higher education -some with university degrees ,is not acceptable.This is just one fault in the system,but is an example of false assessment by government officials who fail to find out the real reasons for an applicant to gain entry to NZ.
The cost of supporting immigrants and their families must be out of all proportion to their productive value,,and especially when elderly family members who do not work are allowed to settle in NZ and have full use of government benefits.

More immigrants and less academics please ;-)

It's true. Immigration was supposed to make us rich.That was its primary rationale for allowing so many in. But it hasn't. It has failed and consequently it should cease at these current high levels.

All immigration has done is to put a very heavy burden on New Zealanders in terms of competition for jobs, housing, places at Medical and Dental School, infrastructure etc., for what is really very little benefit for the average Joe Bloggs. And for those who argue that New Zealand now is so much more interesting than it was 20 or 30 years ago because we can now get a better cup of coffee and a good curry (or yum char) at a delightful little ethnic restaurant need to go and get a life. I can't think of a more shallow reason to try and justify the very high levels of immigration that we have had over the last two decades, given the paucity of its return. I am also mindful of the almost total lack of any significant studies into the cost impact of immigration on the governments books vs. the increase in GDP that such immigration has brought. Are immigrants in fact generating sufficient extra GDP to justify their cost to the tax and ratepayer? My suspicion in totality is that they probably don't.

Sounds like Greg feels the boat is full. Great for him that he (or his family) still made it, given that all of us are just immigrants to New Zealand. Just some of us arrived a bit earlier than others.

Feels as well great how he talks about his students "She had no skills of value to New Zealand" - Gregs words, not mine. Greg, I suppose this was after she took lessons with you, so how would this reflect on your teaching skills?

But I give you that it is election time - surely somebody has to draw the immigration card, and for some reason we always find somebody who does. Poor New Zealand.

From my personal experience in New Zealand: I used to work in a high tech company which couldn't have made it without immigrants (actually 2/3rd's of the highly qualified engineering staff came from overseas). And yes, while we get probably as well from time to time some social ballast, most of the immigrants I know are hard working and intelligent people and greatly contributing to our country.

Not so sure, whether we can say that as well about Greg - if we keep publishing anti immigration views like his, than we might at some stage turn off the tap of foreign fee paying students who happen to pay the salaries of people like Greg. Now - this may or may not be a good thing if we look at the specific case, but I don't think it would benefit the country.

This is a, not very bright article. it implies that houses will get cheaper if we have more emigrating than immigrating. Like we were!!!! Under Labour!!!

Of course, if people left the country the price of houses would go down. A decrease in demand will have an impact on prices. However, I dont think Clydesdale is suggesting we go that far.

Dead right, John. And that was when house prices rose the most.

As for the rest of it, there have been major confounding factors including the GFC and the Asian economic revolution. Asserting the influence of immigration can be isolated for blame seems to be such a spectacularly heroic assumption that I sense an ideological basis.

More depressing small-mindedness. Mr Clydesdale bases his argument on the assertion that we have had '20 years of high migration levels'. This may be true in the sense in which is is relative to our total (tiny) population, but it's certainly not true in a scale sense, or relative to the geographic size and potential of this country. His argument against scaling up of our local markets and our businesses falls over right there.
And comparing this country to third world India with its corruption and entrenched caste system is simply blatantly disingenuous.
We do need a grown up conversation about what our population growth rate should be, how to benefit the regions and how to plan and fund our infrastructure.
But we need to have this conversation without the distractions or distortions of red-herring arguments.

Yes, Anon, brilliant thinking, surely without any small mindedness. If it hasn't worked after 20 years let's dig even faster!

Mr Clydesdale bases his argument on evidence and it is compelling. NZ has added more than a million to its population in the past thirty or so years, yet the average wage (inflation adjusted) has dropped. Unchecked immigration hasn't worked, we are worse off by so many measures, especially quality of life.

The fact is New Zealand's wealth comes mainly from its very limited natural resources. Every new mouth to feed reduces everyone's net wealth, not increases it, it is simple maths.

Innovative "new economy" start-up businesses are highly likely to be sold and end up moving overseas, again reducing the net wealth. Why would any successful business remain thousands of miles from its main markets unless it is tied in some way by natural resources?

If there is any truth that in this century, accelerated immigration brings increased prosperity to everyone, show us the evidence to rebut Mr Clydesdale. There is already plenty to show the opposite, that it is a massive burden on everyone.

"There is now widespread acceptance that immigration is driving up house prices." No there isn't. In fact, the evidence suggests immigration has bugger-all to do with house prices - what correlation there is between the two simply reflects business cycle effects, i.e., when the economy is strong, ihouse prices rise and migrants want to come here. One does not *cause* the other.

So Bunter doesnt think the level of demand affects price - where did you study economics?

Immigration is a factor in housing demand but strangulation of supply is the stupidity that raises prices.

Yes, we could drop prices by reducing our population but for some reason Clydesdale doesn't think his readers would buy that obvious consequence if his case were valid.

You must be a property developer- wanting more land to subdivide but not wanting to lose customers. Both sides of the market affect prices, but you are only prepared to consider one.

This is the best article I have ever seen in a newspaper. People need let go their ego's and open their eyes. With wide eyes the above truth is obvious. Well done Greg.

Lincoln University is definitely out of my list for post-graduate studies as it clearly is not capable of supplying me the skills important for NZ. What more being mentioned openly in the media by the apparently world-class lecturers.

Too many students come use local universities as a path to residency but they are full of theory and have no practical skills (regardless of the university they go to).

This is a classic example of narcissism in some who think they trump immigrants. There is always a spectrum of graduates and unfortunately the author and you (Willie) have decided to pick on perhaps the ones who are struggling.

NZ has to compete against the likes of US, Canada, Australia, etc for foreign talents and policymakers unfortunately (for you) chose residency pathway as the drawcards. The state of University of Canterbury is a good example of how important international students are in making the finances stack up. If we do not send out the right message, more international students will be heading towards Auckland only (who welcome us with both hands hopefully) and as a consequence, Government funding will naturally head there too resulting in lower funding for the rest of the universitites. To a more extreme extent, Greg Clydesdale could one day be shown the door.

You say I am picking on the struggling students - too right I am. If they want an education, we can sell it to them, but we should not sell citizenship.

When it comes to immigration, we dont want the strugglers. We want the best migrants who can perform, not fresh faced college students with no business experience. There are enough New Zealand students who find it hard to get work - kiwis should have first choice at jobs, not foreigners.

Same wrong statement like house prices - It all depends
If you would take all migration skills out of the country, then New Zealand would face more problems than we already have.
But to think that you only have to let immigrants in and the economy will grow, that is also quite naive.
4 Mio. on an Island - what do you want to produce?
And you want to compete against China?
Renaming MAF to PI means still Milk and Agricultural products are our main export products
Are they sustainable long term - Not very likely

NZ houses are the most expensive in the world (if you put the price into relation of earning).
Cost of living is extremely high,
Lost of skilled Immigrants an NZlanders leave the country, because it is to hard to have a descend lifestyle
Pure NZ - for how long
NZ is repeating mistakes others have made decades ago

I think this are the problems we should all discuss
Where are the university programs to really create innovations and support Start ups to create new Industries?
Why we do not copy successful strategies?
Where are the new Ideas

There is no easy fix, so lets concentrate on the important topics

Immigration has been around for over 100 years. My Grandmother was an immigrant to this country. We need to do it the right way and get everyone papers that immigrate here first; then we need to have states in this country that can deal with more population like northern states that have fewer people. If there is a process that isn't a problem, but when people just avoid the process it becomes a real problem. The United States is a great country and we have always had empathy for others, but it has to be done with the correct process and find places that can deal with more people and their needs. We have to limit the amount of illegals to this country by doing this the right way. Then, we have to find work for the immigrants. My Grandmother came into this country with a nursing profession, and we have to have more manufacturing available for people here. We can't keep send work elsewhere. It's not rocket science. Work for your keep and always do what you have to do to make a living. This is what we have to instill in every citizen..