Appendix D: Short-run impacts of increased immigration scenario

This appendix summarises the results from a short-run simulation of the increased immigration scenario A presented in section 4.1. Scenario A assumed an annual inflow of overseas born of 20,000 per annum additional to that in the baseline. Further, the additional labour supply is fully demand (model) determined. That is, the skill mix of the migrant inflow is consistent with the employment requirements across various sectors, assuming no change in relative wage rates.

The short run assumes a five-year period over which the increased immigration inflow gradually builds. The short run assumes a first year in which the net inflow is 10,000 above baseline, building up to 20,000 above baseline in the fifth year.

The additional inflow of migrants takes the resident New Zealand population in 2011 from its baseline figure of 4.19 million to 4.26 million. This adds another 2.2 percent to the labour force in 2011 or the equivalent of nearly 43,400 full-time equivalent workers for the workforce.

In addition to the reduced magnitude of the immigration 'shock', the short run also imposes the inability of sectors to access additional physical capital stock for production above the baseline level.^[50] Consequently, production can expand only through the application of additional labour to the same quantity of capital that was available in the baseline economy.

With such a constraint on the response of the production side of the economy, the impact of the immigration shock in the short run is muted. At the overall level, the short-run impact of the additional labour resources is a 1.1 percent increase in gross domestic product (GDP). With the severely restricted ability to reallocate resources across the sectors in the short run, the composition of above-baseline GDP is similar to that in the baseline. The only noticeable difference among the headline GDP components is the slightly smaller expansion in imports. This difference arises as the additional labour resources marginally reduce production costs across the board, making New Zealand products marginally more competitive than those from overseas.

The short-run impact of the increased immigration scenario is to accentuate the heightened labour intensity of the new economy (Table D1). This is reflected in the employment figure of 2.2 percent above baseline, compared with GDP being only 1.2 percent above baseline.

Table D1 Short-run macro results of increased immigration scenario

	2011	% change
	Baseline	Short-run scenario H on baseline	Short run
Real GDP components (2006 $m)
Household consumption	106,494	0.6	107,102
Investment	43,992	2.4	45,028
Government consumption	32,613	0.8	32,885
Export volumes	54,281	0.2	54,365
Imports	55,307	0.9	55,788
GDP expenditure	182,895	0.8	184,424
Production factors
Capital stock (2006 $m)	541,816	0.0	541,816
Employment (000 FTEs)	1,884	2.2	1,925
Price indices (2006=100)
GDP deflator	112.5	0.3	112.8
Gross output prices	111.6	0.3	111.9
Consumer prices	116.4	0.4	116.8
Real wage rates	101.0	-1.8	99.1
Balances
Balance of trade ($m)	-3,222	-500	-3,722
as % of nominal GDP	-1.6	na	-1.8
Core Crown ($m)	10,353	386	10,739
as % of nominal GDP	5.0	na	5.1
Memo: population (000s)	4,188.3	1.8	4,263.3
GDP per capita ($000s)	43.7	-0.9	43.3

At the sector level, the relatively labour-intensive machinery and equipment manufacturing sector benefits more than the agriculture and food processing sectors (Table D2). This results in the neutral impact for total export volumes in that the above-baseline figure is the same as that for overall GDP.

Table D2 Short-run impact on industry output of increased immigration

	2011	% change
	Baseline	Short-run scenario H on baseline	Short run
Sector output (2006 $m)
Agriculture	19,827	0.5	19,916
Other primary	14,076	0.5	14,141
Food, beverages	32,504	0.4	32,641
Machinery and equipment manufacturing	17,854	0.9	18,016
Other manufacturing	33,039	0.9	33,344
Building and construction	33,872	3.3	34,979
Trade, rests and accommodation	53,670	0.7	54,068
Transport and communications	28,758	0.7	28,958
Finance, business services	47,552	0.9	47,962
Government, education, and health	39,090	1.2	39,575
Other services	56,913	0.6	57,279
Total	377,156	1.0	380,879

As to the occupation breakdown, the increased technical and trades workers fits with the machinery and equipment manufacturing results (Table D3). The results for the other occupation categories also mirror those for the longer-term scenario (see Table 4.3).

Table D3 Short-run impact on occupation employment of increased immigration

	2011	% change
	Baseline	Short run scenario H on baseline	Short run
Labour by occupations (000 FTEs)
Managers	270	2.5	276
Professionals	309	1.5	313
Technicians	239	2.5	245
Sales and clerical	483	1.6	491
Primary sector workers	125	1.3	127
Trades workers	178	6.0	189
Machine operators and labourers	280	1.4	284
Total	1,884	2.2	1,925

One noticeable difference, though, is the result for managers. In this short-run scenario the demand for managers increases by less than that for technicians, whereas this relativity is reversed in the longer run. This difference can be traced to the constraint on capital stock, as capital and managerial labour, to a degree, are complements in the production process. Thus, the inability to access more capital in the short run constrains the increase in demand for managerial skills in response to the increase in immigration. In the longer run, however, the increased availability of capital brings forth an increased demand for managerial skills.

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Footnotes

^[50] The 0.3 percent result for capital stock for scenario H listed in Table D1 arises from the increase in capital in the owner-occupied dwellings sector. As for all scenarios, this is assumed to change in line with the number of households adjusted for changes in household tenure.