More immigration?

So, our labour market is looking extremely tight. According to the department of labour all nine of the main occupation classes are currently suffering from labour shortages, and these shortages are likely to continue into the medium term. So the country needs more workers, and it takes time to breed them, so why don’t we get them in from overseas?

The government seems concerned about letting people into the country as it might cause inflation. But if we are actually suffering from a chronic labour shortage, a few extra pairs of hands will surely help suppress inflationary pressures.

As long as the individuals we bring in are more productive than the average New Zealander everyone is better off. Whats the problem?

  • CPW

    The DOL framework doesn’t really make sense in a situation like this. When there are labour shortages in a few occupations it makes sense to publicize this fact on the grounds that either better information or better policy might be able to match spare workers to occupations with shortages.

    But the idea of labour shortages across all occupations is meaningless IMHO. It just implies that aggregate demand exceeds aggregate supply, and there is no fix for this problem (except presumably to reduce aggregate demand via monetary policy).

    You can try to import more workers to attack the problem from the supply side, but unless they have higher savings rates than natives you won’t correct the underlying imbalance (and the conventional wisdom is that they worsen the problem due to high expenses as they establish households). Will be interesting to hear your take on this though Matt.

    Of course, importing high-skill workers, where possible, seems like an excellent strategy for long-term growth, but I’m not convinced that in the short-term it is a fix for the problem of an over-heated economy.

  • Robbie

    Surely the only consistent line for long term growth and prosperity is restricting welfare state entitlement, for example existing citizens and anyone who works here for five years, and just open borders…

  • Matt Nolan

    I completely agree that importing some workers won’t do us much good when we have a short term labour shortage (as it could just be cyclical). However, there are a number of industries that have suffered from a shortage of labour for a significant amount of time. I believe DOL calls these industries where there is an absolute shortage domestically.

    Our current pool of skilled migrants all come in based on the fact that they can satisfy absolute skill shortages, as long as we stick to that criteria, an increase in immigration could be useful for the economy. As long as the migrants are entering industries where their input is strongly needed and they are relatively productive then I don’t see any problem. Productive migrants will produce more than they consume, and it will benefit all of us, especially as there doesn’t seem to be anyone in NZ both able and willing to do some of these jobs.

    I fully accept your point that a labour shortage across all occupations is relatively meaningless. However, as we are a small open economy we have a significant export industry, where the demand for labour depends on world, not domestic demand. World growth is running more strongly than domestic growth, and as a result there are long-term problems in staffing some of our export firms.

  • Matt Nolan

    Robbie, I like the open borders call. Ultimately if all countries could co-operate then open borders would be the way to go, as it provides the closest thing to a free-market for labour.

    It makes me laugh that people criticise globalisation, when we haven’t really tried it. True globablisation would have free borders for workers.

  • CPW

    I think your prescription for more migration would be correct if excess demand was simply a reflection of strong global demand. Realistically I think it is a stretch to describe the current NZ situation in those terms. The major constraint on exporters for the last couple of years has been the fact that they are losing money, not that they can’t find staff. The excess demand is mostly in the domestic economy, although this does have a spillover effect onto exporters’ cost and labour pressures.

    Still there might be some value in making a job offer in export industry more valuable than a non-export industry in the skilled migrant selection process (although isn’t this in effect an export subsidy?).

    Open borders really deserves a post of its own, if only to rile up the wingnuts. I think the basic gains from trade argument holds up – both natives and migrants would be slightly better off. Realistically though, western societies would find the extreme poverty most of the migrants would end up in intolerable (maybe even utility reducing in net terms), even if the migrants themselves would be better off than in their home country.

  • Matt Nolan

    I agree that part of the excess demand is the result of strong domestic demand. However, I’m talking about the long-term shortages that we seem to have, these seem to exist whether we have a strong or weak economy. In this situation you would expect prices and wages to fly up right, however they haven’t. Now there is a pool of workers willing to come in and the increase labour supply for these jobs, I say we let them.

    The reason I’m so willing to let them is that industries that are given the title ‘absolute skill shortage’ are industries where wages have risen quickly and our own labour market hasn’t responded. In this case there is some high value underlying work that is not being performed.

    Furthermore, New Zealand does not have a comparative advantage at producing some forms of skilled labour. As a result, it will be more efficient for us to bring the skilled labour in then invest resources training them ourselves.

    The ultimate measure is whether the worker produces more than they consume. If they produce more then they consume then there is some surplus to throw around the economy. If all skilled migration was based on that measure, it would be super.

    I see with the open border argument you are saying that the fall wages in developed countries would lead to crazy political and social ramifications. You’re right. That is why individual governments do not want to open up there borders.

    However, I get annoyed when people from the far left say they hate globalisation, they want higher wages, and they feel sorry for the poor overseas. They don’t seem to understand the tradeoffs associated with economic policy. We have to make a choice, if we want to bring in more of the poor from overseas, we have to accept that some wages will be put under pressure.