Productivity Commission: Mass immigration stifles productivity

Last week, Jacinda Ardern’s Labor Government tasked the New Zealand Productivity Commission (PC)  with undertaking a system-wide review of the nation’s immigration program, with particular focus on the “impact of immigration on the labour market, housing and associated infrastructure, and the natural environment”.

The goal of the inquiry is to “enable New Zealand to strategically optimise its immigration settings” so that it maximises community wellbeing and living standards.

The Ardern Government is especially concerned with labour market outcomes arising from immigration:

The Commission should aim to provide concrete advice on how immigration affects labour market outcomes and the overall wellbeing of New Zealanders, including through productivity growth, the development of skills, levels of capital investment and labour market opportunities among different groups. It should assess evidence on the impact of low-skilled migration on wages, working conditions and business models in relevant sectors, and consider the impact on those sectors of reduced access to migrant labour, including any lessons learned from border closures due to COVID-19.

The New Zealand PC has also released a report, entitled “New Zealand firms: Reaching for the frontier”, which explicitly notes that successive governments have enabled high levels of immigration without targeting this to close the skills gap of New Zealand workers. This mass immigration program has, in turn, resulted in high levels of labour force participation but poor productivity and low wages. It has also disincentivised firms from undertaking productivity-enhancing investment.

Accordingly, the PC wants the government to wean New Zealand firms off their heavy reliance on migrant workers:

Despite large inflows of migrants to New Zealand over the last 10 years, skilled labour shortages continue. This suggests an ongoing mismatch between the supply of labour and the needs of firms. That mismatch is not being met either by the domestic education and training system, or skilled migration. The lower-skilled end of labour supply also has a mismatch. Some New Zealand industries, including in the primary sector, rely heavily on temporary migrant labour to meet their seasonal employment needs. This in turn weakens the incentives to invest in productivity-enhancing automation.

The Government should commission a review of migration policy. The review should consider the optimal level and mix of permanent and temporary migrants to support innovation and productivity (humanitarian immigration, such as refugees and asylum seekers, would be outside the scope of the review). The review should assess the role and objectives of migration policy, together with New Zealand’s education and training system, in meeting firms’ demand for labour. The review should also look to reduce inflows of low-skilled and temporary migrant workers over time.

The Government should work collaboratively with industries that currently rely on seasonal migrant labour, to develop a planned transition away from such reliance, and determine the role of government in supporting that transition… This may include supporting industries to accelerate the development of automation and other labour-saving technologies, build the necessary skill base for higher-tech production practices, and make jobs more attractive to domestic workers

Aggregate data (Figure 2.2) show that New Zealand businesses are typically capital-shallow (ie, workers have limited equipment and other capital goods to work with). Capital shallowness holds down labour productivity…

The ready availability of labour at modest or low wages (eg, through immigration policies that allow high levels of low-skill migration) has not helped either, because it has reduced firms’ incentives to invest in labour-saving and productivity-enhancing equipment…

Exactly the same criticisms could be levelled at Australia where labour productivity (and wages) collapsed during the past 15 years of mass immigration:

Australian labour productivity growth

Australia’s labour productivity has collapsed since 2005.

The Morrison Government should initiate a similar review by our Productivity Commission, rather than kowtowing to its business lobbyist mates and declaring open immigration war on Australian workers.

Unconventional Economist
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  1. BubbleyMEMBER

    “The Morrison Government should initiate a similar review by our Productivity Commission, rather than kowtowing to its business lobbyist mates and declaring open immigration war on Australian workers.”

    List this under – Things the LNP government wont do.

  2. kiwikarynMEMBER

    We import third world migrant workers to drive taxis, clean offices, wash restaurant dishes, serve in dairies and pump gas at service stations, while generations of Maori and Pacific Islanders spend their lives on the dole. Then they have the cheek to claim “institutionalised racism” is why they are poor.