Natural resources

Immigration will increase competition for scarce natural resources, such as land, water and energy resources. This competition will alter the relative price of these resources. These effects are likely to be strongest for limited and non-renewable resources, such as land or minerals, but will also affect renewable resources that feed into outputs such as hydroelectric electricity generation.

Commercial and residential demands for land may be a particular issue for agricultural and horticultural production in New Zealand. Converting the land over time to non-agricultural purposes may result in the diminishing marginal productivity of the remaining land. That is, the conversion of fertile parcels of land to alternate uses means expansion of farm-based production will occur on poorer quality and less productive land.

In addition to the implications for increased competition amongst alternate land uses, there are issues around housing and urban design. Increased residential demand may mean existing residential or commercial zones support higher density, such as apartment blocks or mixed use buildings that provide both residential accommodation and commercial space. Greater residential demand may also increase the relative price of some types of housing, such as free-hold houses. Depending on the land (and land use) constraints, greater demand may make new housing developments feasible thereby affecting both the price and the stock of housing. Immigration would have a particular effect if there are minimum population thresholds below which new residential developments are not cost-efficient. Therefore, if immigration leads to land conversion, and if the development has sufficient density, then the housing stock per person may increase and may result in more affordable housing. The trade-off would be lower availability of land for alternate uses.

Labour supply and employment

As shown in the earlier sections the net impact of migration depends on the age profile of migrants.^[32] The average migrant is older than the average New Zealand-born person, at 41 years old versus 35 years old. However, the proportion of conventional working age people (18-64 years old) is much higher amongst the migrant population than the New Zealand population, at 71 percent versus 59 percent. This suggests that immigration may both increase the proportion of the population in the labour force and lower the average age of New Zealand's labour force.

Where immigration leads to a higher labour force participation rate then the labour force will grow more quickly than the population. Under certain conditions, this effect may result in growth in output per person, or living standards. In particular, growth in the labour force would need to be matched by growth in the stock of human capital and technology. These aspects are discussed below, but as well as expanding the labour supply, immigrants may be targeted so as to bring an mix of skills, experience and knowledge consistent with the government's economic policy. Furthermore, as noted in section 5, immigrants tend to have higher education participation rates than the New Zealand-born, although with variation across the migrant sub-groups, which may result in human capital accumulation over time.

The age profile of the working population has a dynamic effect on employment outcomes. Geographic, occupational and industry mobility are all greater amongst younger people, as the benefits of changing jobs decline with age. A second dynamic is that formal and on-the-job training take place at younger ages, where such training may be more effective. Therefore, lowering the age of the labour force may result in higher productivity growth as workers train more, and more effectively. In addition, this process may also accelerate the adoption and diffusion of new innovations into the workplace. A third dynamic is that migrants with work experience can increase competition at senior levels of the workforce. This competition could have the effect of changing earning relativities and providing greater use of senior level workers. This effect would be stronger in domestic industries with low upward mobility, and where New Zealand-born workers would have a lower chance of advancing to senior levels over time.

A further dynamic is how immigration affects demographic variables such as family formation, natural population increase and social attitudes towards participation in the labour force. Immigration will directly increase the labour force plus there will be additional impacts as immigrants have children who join the labour force. The impact of immigration on the labour participation rate is unclear. As shown in section 6, migrants are more likely than New Zealand-born to be outside the labour force or unemployed. Regardless of the size of the labour force, however, the impact on the economy will depend on the relationship between the labour force, employment and the resulting real relative price of labour.

Human capital

The lower employment rate, however, is not necessarily a negative result. Section 5 shows that migrants overall tend to have higher study participation rates, which is one reason for not being counted in the labour force. Therefore, migrants potentially accumulate more human capital due to their higher participation in education on average. This may directly contribute to a more productive workforce, assist with innovation and the diffusion of new technology as well as having positive spill-over effects on co-workers.

Financial and physical capital

The relationship between capital and the labour force is central to output per head. Therefore, a critical question about the impact of immigration on the structure and performance of the economy is whether it increases the stock of capital per head.

Immigration has the potential to generate additional financial capital inflows and better access to foreign capital markets. Furthermore, migrants may have different consumption-saving patterns.^[33] This may directly alter the economy's rate of physical capital accumulation, as well as altering the real interest rate, that is the incentives around the supply of savings and demand for investment, which may affect the behaviour of the New Zealand-born.

Immigration would create additional demands on the infrastructure required to service a population (for example, transport networks, water and drainage infrastructure, health and education facilities, and community amenities). Therefore, immigration is likely to increase the demand for investment in physical capital. In turn this will entail real capital expenditure in order to maintain the capacity and level of infrastructure services. Increases in infrastructure investment may also generate flow-over benefits to other residents.

Consideration of capital items brings further issues to the fore, including who and how capital expenditure is funded. Central to this aspect is the inherent lumpiness of capital expenditure. In this context it is important to note that the average impact of a migrant may be difficult to measure (or, even, interpret), while the marginal impact of a migrant will be significantly different (and, similarly, difficult to interpret).

Production function parameters and technological progress

In addition to affecting individual factors of production, such as labour and capital, immigration may affect economy-wide factors such as how effective the economy is at converting inputs to output. These aspects may be considered as parameters, or underlying factors.

Economies of scale arise when a proportionate increase in all factors of production, i.e. the scale of production, results in a greater than proportionate increase in output. Alternatively, economies of scale can be thought of as an improvement in resource productivity resulting from a larger scale of production. The long-run expansion of the entire economy and its effects on productivity has the potential to increase the rate of economic growth, or at least offset some of the negative effects from increased competition for, and use of, scarce resources.

In addition to economies of scale, there is a related concept of economies of scope. This concept suggests that the cost of production may fall as a wider range of products are produced together. As well as increasing the overall demand for products, immigration is likely to increase the variety of products demanded. While some of this demand may be met by domestic production, this demand may generate links with new foreign markets. Two immediate consequences of this are an expansion of product variety in New Zealand and the potential for reciprocal trade, which may contribute to generating economies of scale. Ultimately, the creation of demand for a wider variety of products may encourage the establishment of domestic industries, for example, the wine and olive oil industries.

As noted above, immigrants potentially lead to faster human capital accumulation. In turn, this could facilitate technological progress in the economy, that is, the invention, diffusion and adoption of improved processes and equipment. Where immigration accelerates the rate of technological progress, it has the potential to offset the negative effects of diminishing marginal productivity of individual factors of production noted above.

In addition to factors such as economy size and the rate of technological progress, immigration has the potential to draw New Zealand closer to the rest of the world by establishing or strengthening networks with immigrants' birthplaces. This may improve New Zealand's global connectedness, which may facilitate trade in both inputs and outputs.

Regional impacts

These may differ depending on the demands created by relative regional immigration and the capacity of the existing infrastructure of each region.^[34] Section 4.5 shows that the immigrant population tends to shift out of the metropolitan cities of Auckland and Christchurch to Wellington, the Rest of the North Island and the Rest of the South Island regions as it becomes established. The earlier immigrant groups tend to have a higher positive net fiscal impact, but with both greater revenue and expenditure per capita. Therefore there is likely to be regional variation in both the demand on services, the types of services required (as an immigrant's needs are likely to change over time as they become established), as well as the ability of the regional population to fund them in the long-run.

Scope of measured impacts

Allied to the consideration of capital requirements, longer-term aspects of immigration may also have revenue implications as immigrants establish businesses. In particular, revenues from company tax may be relevant, as well as income tax receipts arising from employment effects of immigration. Therefore, a long-run analysis of the impact of immigrants that incorporates such components may provide a more comprehensive picture of the fiscal and economy-wide impacts of immigrants.

Summary

This section considered the long-run impact of migrants to complement the main snapshot focus of this project. This analysis uses a production function framework to consider the impact of immigration on the structure and performance of the economy. This framework includes variables such as natural resources, labour, capital and technology. It allows both qualitative and quantitative evaluations of the impact of immigration on the whole economy.

Immigration will increase competition for natural resources, altering relative prices and the affordability of certain resources, such as land and energy. However, immigration may also permit more efficient use of some resources by increasing population density above some minimum threshold.

The labour market impacts of immigration will depend on how it affects the age and skill composition of the labour force and participation rates. Immigration may also have dynamic effects by altering the labour force's geographic, occupational and industry mobility. A further dynamic effect is how migration affects the rate of human capital accumulation and the adoption and diffusion of technology into the workplace.

Productivity depends on the relationship between labour and capital, in particular the capital-labour ratio. Immigration has the potential to draw in additional financial capital, improve access to foreign capital markets, and the aggregate saving rate. This may increase the economy's rate of physical capital accumulation and alter the real interest rate, that is, the relative return on investment. In turn, immigration is likely to lead to greater infrastructure, which has the potential to provide flow-over benefits to other residents.

In addition to affecting individual factors of production, such as labour and capital, immigration may affect economy-wide factors. These factors include the scale and scope of the economy and how quickly knowledge and skills are accumulated and introduced into the economy. Immigrants may also improve how New Zealand is connected to the rest of the world, opening and/or improving access to both input and output markets.

Previous Section | Table of Contents | Next Section