5. Conclusions

This paper examines how the supply of immigrants in particular skill-groups affects the wages of the New Zealand-born and older immigrants. Migrants in New Zealand have different skill characteristics than the New Zealand-born and we would therefore expect any negative wage impact of migration to be greatest within skill-groups. In particular, both recent and earlier migrants, on average, have higher levels of qualification than New Zealand-born workers, and are more likely to be in more highly-paid occupations. Thus, we would expect migrants to be substitutes for New Zealand-born workers with the same skill attributes, but potentially to be complements with New Zealand-born workers with different skills sets.

We identify the impact of recent immigration on the labour market using the 'area-analysis' approach, which exploits the fact that immigration is spatially concentrated, and thus a change in the local supply of immigrants in a particular skill group should have an impact on the labour market outcomes of similarly skilled non-immigrants in that local labour market. We estimate both CES and Generalised Leontief (GL) production functions using local inputs, thus allowing for different degrees of substitutability between various skill-migrant status groups, and use an instrumental variables estimation strategy to reduce the bias due to groups locating in areas where wage growth is expected to be high for that group.

We examine two factors contributing to the wage and employment impacts of immigration. First, immigrants may change the skill mix of the population, with the consequent impacts on wages and employment reflecting the degree of substitutability between different skill groups. Second, if nativity groups are imperfect substitutes within skill groups, the changing nativity-mix of skill groups will affect relative wages and employment rates. We use two different characterisations of skill - one based on age and qualification, and one based on predicted occupation. We find that there is greater substitutability between age/qualification groups than between predicted occupation groups, implying that changes to the wage and employment impacts of immigration flows will be stronger where they change the occupational mix. Within skill groups, we find greater substitutability between nativity groups when defining skills in terms of age and qualifications than we do when defining it in terms of predicted occupation. Any wage or employment impacts of immigration will be more strongly felt by other workers with predicted occupations similar to those of immigrants, and less strongly felt by other workers with the same age and qualification characteristics.

Simulations of the impact of different potential immigration scenarios show that the impact of immigrants' changing the skill distribution are small relative to the impact that arises from the changing nativity mix within occupations. The strongest wage and employment impact of a change in the number of recent migrants falls on recent migrants themselves. Our CES estimates imply that doubling the size of recent migrant inflows lowers the wages of recent migrants by 4% to 14% and lowers their employment rates by 10% to 13%. Less restrictive GL estimates show a much larger negative wage impact on recent migrants of around 60%. The impact on New Zealand-born workers of a doubling of recent migrant inflows is positive, but small - raising employment rates by between 1.4-1.8% and wage rates by 0.2-1.9% depending on the model assumptions. The only evidence we find of negative impacts of recent migrants on wages for New Zealand-born workers is when we increase the relative skill-composition of the recent migrant inflows; this has a small negative impact on the wages of high-skilled New Zealand-born workers which is offset by a small positive impact on the wages of medium-skilled New Zealand-born workers.