5 Conclusion

The objective of this study was to better understand the impact of immigration on the New Zealand economy overall and on different parts of the economy. To achieve this, different combinations of the scale and composition of the immigrant inflow was tested. Impacts on productivity and trade were also explored.

From an economy-wide perspective, the increased immigration scenarios investigated resulted in similar impacts. However, there were considerable differences in detail, depending on the assumptions about market responses. In general, the results of the modelled scenarios found that increased immigration:

• reduces production costs
• improves the competitiveness of New Zealand producers, benefiting exports
• benefits domestic investment and/or consumer spending, depending on the skills composition of the immigration inflow
• results in higher revenues to government, which outweigh the impact on spending, so translate into an improvement in the balance of the government's accounts.

The four results listed above combine to improve both real GDP and real GDP per capita.

The scenarios predict outcomes for 2021 and are compared with a baseline level that is interpreted as a business-as-usual scenario with no major policy changes. Many core economic factors, such as productivity, export demand, terms of trade, and demographic changes, are similar to recent historical levels.

An average annual net PLT inflow of 40,000 non-New Zealand-born migrants, double that of 20,000 in the baseline, was found to add 6.1 percent to the resident population in 2021. This took the 2021 population from 4.5 million in the baseline to 4.8 million, and added 7.4 percent to the labour available to the 2021 economy compared with that in the baseline.

Real GDP was 7.6 percent higher, taking GDP per capita to 1.5 percent or $1,000 above the baseline in 2021. Differences in the make-up of this larger economy are most noticeable in the external sector, with export volumes recorded as 8.5 percent above baseline.^[46]

A total cessation of the current net immigrant inflow was also tested that allowed an ongoing outflow of New Zealand and overseas born at current levels. This scenario gives a New Zealand resident population of 4.1 million in 2021, 9.6 percent below that in the 2021 baseline. Consequently, the labour available in 2021 is 10.9 percent below the 2021 baseline figure.

The results for this experiment record a GDP in 2021 of 11.3 percent below that of the baseline. Consequently, GDP per capita is 1.8 percent below the baseline level.

The impact of this smaller economy is felt most by the export sector, where volumes in 2021 are more than 12.9 percent below the baseline. This effect arises from a higher price level, so reduced competitiveness, which results from the smaller quantity of labour available.

The difference between the baseline and the results for a zero net immigration inflow can be viewed as the impact of the current level of immigration inflow continuing over 2006 to 2021. With no further net immigration inflow between 2006 and 2021, the New Zealand population is projected to be 4.1 million with an annual GDP figure of about $220 billion.^[47] However, the baseline picture, which assumes a continuation of current immigration inflows, results in a significantly larger New Zealand population of 4.5 million and annual GDP of $248 billion in 2021.

Consequently, the aggregate addition to the population of 437,000^[48] arising from the current inflow of immigrants over the 15-year period yields an extra $28 billion in annual GDP in 2021. That is $1.9 billion per year less than the baseline and a $1,000 lower per capita GDP.

Experiments were also undertaken where the composition of the additional labour was specified in favour of particular higher-skilled categories. Such a scenario can be seen as mimicking some change in policy direction or external impetus.

Overall, this scenario resulted in a slightly higher impact on overall GDP with GDP 0.1 percent higher than in the scenario that did not specify the skill mix of the inflow. Additionally, there were small, but noticeable, differences in the make-up of the impact on GDP. In particular, the benefit to the export sector where the additional immigration inflow was of specific skills totalled 8.3 percent above baseline. This impact is not as large as the 8.5 percent recorded in the scenario where the composition of the inflow was demand determined. An increase in domestic consumption made up the difference.

The reason for this distinction lies in the make-up of the selected skill group; namely, the managerial, professional, associate professional, technician and trades workers occupations. An increase in labour resources concentrated in these skill categories benefits, in relative terms, the services sector more than the manufacturing sector. The fact the result was not a great deal higher than when the skill level was not specified illustrates how the export sector requires semi-skilled, as well as skilled, labour resources in order to expand its activities. For example, occupations such as machine operators and clerical staff in manufacturing, drivers in the transport sector, and sales and restaurant workers in tourism-related industries are also export-related requirements.

A scenario experiment was undertaken assuming productivity in 2021 is 1 percent above the baseline and accompanying the increased immigration. This assumption pushes the impact on GDP to 8.7 percent above the baseline, with GDP per capita 2.5 percent higher. The productivity improvements translate into lower per unit resource costs for New Zealand producers. This, in turn, means competitiveness gains for exporters. Such gains also flow through to income gains to the household sector, thus facilitating consumption gains.

Another scenario was motivated by the argument that increased immigration might assist New Zealand producers to develop new products, contacts, and export-market opportunities. This argument, however, suggests there may also be an increased openness to importing activities. Consequently, this scenario models an increase in immigration accompanied by expanded world markets for New Zealand exports as well as an increased market share for imports. The impact on GDP is similar to the impact without these assumptions, with GDP per capita 1.5 percent higher than in the baseline. Undoubtedly, there is an additional benefit to exports, with volumes 8.9 percent above baseline compared with the 8.5 percent recorded in the absence of these assumptions. This impact, however, is countered by a similarly larger impact on the import side of the GDP equation.

Increased immigration inflows result in a larger economy. Further, under the assumptions adopted for the experiments presented here, increased immigration inflows result in a positive effect on GDP per capita. The current net inflow of around 20,000 overseas born per year results in a significantly larger and more externally focused economy than if there were no inflow of immigrants.

The modelling experiments do not support arguments in favour of entirely high-skill focused or targeted immigration inflows. Such targeting does not appear to significantly increase the overall benefits to increased immigration flows. When an economy grows labour is required at all levels. However, this result highlights the need for a range of skill levels to enable the economy to grow, it does not tell us anything about appropriate policy to offer potential immigrants (eg, different types of permits might be required to attract immigrants with varying skill levels).

Of the assumptions tested, additional benefits increase significantly only when productivity improvements accompany the increased immigration inflow. This suggests that if immigration policies or programmes were to target particular skill categories, the focus should be directed to those skills that have significant potential to improve overall productivity.

The CGE model used has been made available to the Department of Labour so the Department can explore other topics and different impacts of immigration. Such a model allows the impacts of various changes in policy or the impacts of external shocks to be modelled and the economy-wide, as well as sectoral, impacts to be better understood within a robust and widely recognised framework.

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Footnotes

^[46] This scenario let the model determine the skill composition of the inflow.

^[47] All GDP measures are expressed in constant 2006 dollars.

^[48] Note, as explained in section 3.1 while there is a 36,000 difference in the net annual inflows between scenario B and the baseline, this difference is imposed gradually over the 15-year period. Thus, the 437,000 figure is less than 36,000 multiplied by 15.