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Migration Trends and Outlook 2007/08

SPECIAL FEATURE: ECONOMIC IMPACT OF IMMIGRATION - SUMMARY OF FINDINGS

Introduction

The impact of immigration on the host country is complex and a source of sustained debate. The impact of immigration is multifaceted, having intersecting economic, social, institutional, and environmental aspects. The implications can also be vastly different for source and host countries.

The extent of global liberalisation during the two decades to 2007/08 and the significance of immigration for the societies of source and host countries have resulted in a large volume of research on the impact of immigration (and, albeit to a lesser extent, emigration[11]). For example, Longhi and colleagues conducted a meta-analysis of studies on the labour market impacts of immigration by analysing the size of 1,572 effects discussed in 45 primary studies conducted between 1982 and 2007.[12]

Understanding the economic impact of immigration is particularly important for New Zealand, because past international inward and outward flows have contributed to a population of which more than one in five people (21.2percent) were foreign born in 2006, an increase from just under one in six in 2000 (17.2percent) and well above the average of one in nine in countries of the Organisation for Economic Co-operation and Development (OECD). Therefore, it is vital we better understand and quantify the importance and consequences of immigration in the support and development of New Zealand's economy.

Many countries are introducing specific policies aimed at attracting skilled migrants, but this has been a focus of New Zealand for a long time.

Figure 2.1 shows the share of the foreign-born population with tertiary level qualifications in various OECD countries in 2001. At 31percent, New Zealand has the sixth highest proportion of foreign-born individuals with a tertiary qualification out of the 25 countries reported. Also of note is that New Zealand migrants make up a larger proportion of the population than in any of the countries with higher proportions of foreign-born individuals with a tertiary qualification.

Figure 2.1 Proportion of migrants with tertiary-level qualifications by OECD country, 2001

Figure 2.1 Proportion of migrants with tertiary-level qualifications by OECD country, 2001

Data Table for Figure 2.1

Source: OECD. 2008. International Migration Outlook: SOPEMI - 2008 edition. Paris: Organisation for Economic Co-operation and Development.

(Note: The OECD's Continuous Reporting System on Migration is known by its French acronym SOPEMI.)

Economic Impacts of Immigration

The OECD noted in its 2003 country report on New Zealand:[13]

while there are comprehensive surveys of the labour market experience of migrants and of their direct contribution to public sector finances, few studies have attempted empirical modelling of the overall and longer-term impact of immigration on the labour market or its consequences for the economy.

The Department of Labour's International Migration, Settlement, and Employment Dynamics research team is in the final year of a three-year programme of research titled the Economic Impacts of Immigration.

The objectives of the Economic Impacts of Immigration research programme are to:

The research programme is in two stages. The first stage aims to increase understanding of the impact immigration has on specific sectors of the economy. This includes how immigration affects the labour market (in terms of implications for the New Zealand-born population and in terms of outcomes for immigrants), the fiscal impacts, impacts on the housing and rental markets, and whether immigration has a discernable impact on innovation, firm performance, and trade.

The second stage of the research programme is to model the economy-wide impacts of immigration. Immigration and, more broadly, population change, affect and interact with many domestic markets, which in turn interact with each other and the rest of the world. One of the most useful ways to understand the overall impact of immigration on the economy, and the subsequent gains and loses, is to use a computer model to bring all the elements and interactions together. The Economic Impacts of Immigration programme has used a computable general equilibrium model to simulate changes in immigration levels and its composition and to estimate the economy-wide impacts of such changes.

Sections 2.3 and 2.4 overview the key findings of completed projects within the Economic Impacts of Immigration programme[14] and outline research being undertaken within the programme, including economy-wide computable general equilibrium modelling.

Economic Impacts of Immigration - findings

The key findings from the Economic Impacts of Immigration research programme relate to:

Fiscal impacts of immigration in 2005/06

Migrants pay tax on income and purchases on goods and services, consume government goods and services, and claim benefits, just as other members of the population do. Fiscal Impact of Migrants to New Zealand 2005/06 reports on an accounting exercise to estimate the interaction and extent of consumption and contribution by migrants.[15]

On census night March 2006, New Zealand had a migrant population of about 927,000. The study estimates that this migrant population had a positive net fiscal impact of $3,288million in 2005/06. The New Zealand-born population of 3.1million people had a lower net fiscal impact of $2,838million.

The net fiscal impact is the difference between revenue and expenditure. The study estimated that migrants contributed $8,101million through income taxes, GST, and excise duties. Estimated fiscal expenditure on the migrant population was $4,813million (including government spending on education, health, benefits and allowances, and superannuation). In other words, overall migrants contributed 68percent more in taxes than they received in benefits and services (compared with the New Zealand-born population's 13percent). Migrants contributed 24.7percent of government revenue and accounted for 18percent of government expenditure. The overall magnitude of any effect will also be influenced by whether the current budget is in surplus or deficit.

The study shows that all sub-groups of the migrant population had positive net impacts, although the scale differed by duration of residence, region of origin, and region of residence in New Zealand. The variation by region of birth reflects differences in immigration criteria by region of birth.

The net fiscal impact of migrants increases with duration of residence. The net fiscal impact per person was $2,680 for recent migrants (in New Zealand for less than five years), $3,470 for intermediate migrants (in New Zealand for 5 to 15 years), and $4,280 for earlier migrants (in New Zealand for more than 15 years). The net fiscal figure for the New Zealand-born population was $915 per person. Figure2.2 presents the fiscal impact by the revenue and expenditure categories.

Figure2.2 Per capita fiscal impact of migrants by duration of residence, 2006/07

Figure 2.2	Per capita fiscal impact of migrants by duration of residence, 2006/07

Data table for Figure 2.2

Notes:

• New migrants have been in New Zealand up to five years, recent migrants from 5 to 15 years, and established migrants for more than 15 years.

• Benefits & allow's = Benefits and allowances; GST&exc duts = goods and services tax and excise duties; Nat super = National Superannuation.

Source: A Slack, J Wu, and G Nana. 2007. Fiscal Impact of Migrants to New Zealand 2005/06. Economic Impacts of Immigration Working Paper Series. Wellington: Department of Labour. Available at http://www.dol.govt.nz/PDFs/fiscal-impacts-of-immigration-2005-06.pdf.

The main cause of the net fiscal impact being larger for migrants than for the New Zealand-born population is the difference in the age profile of the two groups. Migrants tend to be relatively young, single, and employed in relatively well-paid jobs. Given the strong links between age and the major public expenditure items of health and education, immigration tends to increase education expenditure and lower health expenditure, with the net balance being a reduction in total expenditure.

Although this study takes a snapshot rather than a life-cycle approach, it is likely that in the long run a migrant's net fiscal contribution will be larger than that of a New Zealand-born person. This is because New Zealand does not incur the education, training, and health costs of young people who enter New Zealand when they are of working age. As a result, migration to New Zealand is likely to mean a net fiscal transfer to New Zealand.

Figure 2.3 shows that migrants from all regions of birth have a positive net fiscal impact. The figure also shows significant differences between regions of birth, which reflects the different characteristics of the regions. For example, migrants from the United Kingdom, Europe, and North America are likely to be skilled migrants. Many migrants from Asia, especially China, are foreign fee-paying students.[16] Further, New Zealand has immigration categories that reflect its special relationship with the Pacific, and although these categories still require a job offer (and minimum income), the entry requirements are lower than for other categories.

Figure 2.3 Per capita fiscal impact of migrants by region of birth, 2006/07

Figure 2.3	Per capita fiscal impact of migrants by region of birth, 2006/07

Data table for Figure 2.3

Note: Benefits & allow's = Benefits and allowances; Eur&N Am = Europe and North America; GST&exc duts = goods and services tax and excise duties; Nat super = National Superannuation; Pac Islnds = Pacific Islands.

Source: A Slack, J Wu, and G Nana. 2007. Fiscal Impact of Migrants to New Zealand 2005/06. Economic Impacts of Immigration Working Paper Series. Wellington: Department of Labour, Figure 7.3, p55. Available at http://www.dol.govt.nz/PDFs/fiscal-impacts-of-immigration-2005-06.pdf.

Migrants' total net fiscal impact increases with their duration of residence across all migrant groups. The net impact per capita by region of birth, however, differs markedly between recent and earlier migrants. It increases with duration for Pacific migrants, but falls for migrants from the United Kingdom, Ireland, Europe, and North America. Earlier migrants from the United Kingdom, Ireland, Europe, and North America are more likely to be claiming National Superannuation than recent migrants are.

Migrant type and labour market outcomes

In 2006, 25percent of the working age population (15 years and over) were born overseas compared with 22percent in 2001 and 18percent in 1981.[17] Between 2001 and 2006, the working age population grew by around 271,000. Of this group, just over 162,000 (60percent) were born overseas. Furthermore, the working-age group with the highest labour market participation rate (30-49 years) had a net inflow of 64,200 migrants and a net outflow of 1,200 New Zealand-born individuals.

The retention of migrants between censuses has improved. The out-migration rate is defined as the relativity between the existing migrants who leave between censuses and migrants who arrive. For every 100 migrants who entered New Zealand between 2001 and 2006, 24 migrants left the country. This compares with an overall out-migration rate of 42 between 1996 and 2001. The highest rates of out-migration are for migrants from the United Kingdom and Ireland. This group is likely to be fluent in English and have fewer constraints to global mobility. The prolonged period of economic growth in New Zealand as well as changes in immigration policy to focus on matching migrants and employment are likely factors contributing to the improvement.

The labour market outcomes for migrants improve as their length of residence in New Zealand increases. In most cases, most of the differences in labour market outcomes across the sub-groups of the migrant population can be attributed to non-migrant-related characteristics (that is, by differences in age composition and highest qualification attained).

Housing markets and migration

Housing Markets and Migration: Evidence from New Zealand investigates how population change (including international migration, the return migration of New Zealanders abroad, and internal migration) affects local housing markets.[18] This study is one of the first studies to be conducted at such a detailed level of analysis in New Zealand.[19]

Overall, population growth and house prices were found to be associated during 1991-2006. For example, a 1percent increase in an area's population was associated with a 0.2-0.5percent increase in house prices. The impact on rents was smaller. Findings indicate that the link between migration flows and house prices may not be causal, as both may be affected similarly by factors such as the economy and expectations.

The source of population growth was broken down to separate the impacts that new migrants, New Zealanders returning from abroad, and movements within New Zealand might have had on house prices. Immigration flows are an important contributor to population change, but no evidence was found that the inflow of migrants affected house prices.

Local house price increases were more associated with the location that returning New Zealanders settled in than with where migrants lived. For example, locations with onepercentage point higher inflow rate of return New Zealanders had 6-9percent higher house prices and 4percent higher rents. It is unclear what drives this association; whether returning New Zealanders are increasing house prices or whether New Zealanders are moving back to areas that have had higher-than-average price increases.

Economic impact of immigration on housing, 1991-2016

Economic Impact of Immigration on Housing in New Zealand 1991-2016 explores links between immigration and housing demand and supply.[20] The study investigated the housing behaviours of five different household types between 1991 and 2006. This information and assumptions about migration flows was used to 'forecast' two scenarios showing likely patterns of household formation, housing choices, and the future demand and supply for different tenures in 2016. Special attention was paid to trends in Auckland, which is New Zealand's largest city, comprising 32.4percent of the country's population and 37percent of the total foreign-born population.

A descriptive analysis of trends using the 1991 to 2006 censuses found that the number of new households being created between censuses was relatively stable (ranging from 80,000 between 1996 and 2001 to 109,000 between 2001 and 2006).

Of the increase of 109,000 households, around 42,000 were migrant couple households and 36,000 were New Zealand-born couples. The only decrease was that of 40,000 New Zealand-born single households (some would have coupled or moved overseas). (See Table 2.1.)

Table 2.1 Tenure and dwelling type ratios for selected household types, as at 7March 2006
Household type Living in
Own home (%) Private rental (%) House (%) Single-storey flat (%)
New Zealand-born couples 77.1 20.0 90.6 4.5
New Zealand-born and migrant couples 77.0 20.2 87.3 5.4
Migrant couples 62.4 27.3 78.0 10.5
Migrant couple with 15 or more years in New Zealand 77.0 13.3 86.2 6.7
New Zealand-born single 51.5 34.1 69.7 16.8
Single migrant 48.9 32.9 61.3 18.8
Single migrant with 15 or more years in New Zealand 59.6 24.5 65.9 19.5

Source: K Sanderson, G Nana, D Norman, and J Wu. 2007. Economic Impact of Immigration on Housing in New Zealand 1991-2016, Economic Impacts of Immigration Working Paper Series. Wellington: Centre for Housing Research Aotearoa New Zealand and Department of Labour. Available at http://www.chranz.co.nz/pdfs/the-economic-impact-immigration-on-housing-in-nz-1991-2016.pdf.

In general, the housing behaviour of migrants who have been in New Zealand for more than 15 years is similar to that of New Zealand-born residents.

Housing behaviour is linked more to the partnership status of household members than to members' place of birth. In other words, couples with the same birthplace have more in common with couples generally than with single householders from the same birthplace.

Housing tenure and dwellings scenarios - New Zealand 2016

The household behaviours observed between 1991 and 2006 and two migration scenarios are used to project a picture of demand in New Zealand in 2016: a 'conservative' migration scenario and a 'growth' migration scenario.

Under both scenarios for 2016:

Housing tenure and dwellings scenarios - Auckland 2016

Between 2006 and 2016, the number of households in Auckland will grow each year by 4,752 (conservative scenario) to 7,012 (growth scenario). Migrant couples will make up a significant share of this growth: 33percent (conservative scenario) and 37.7percent (growth scenario).

The increase in those renting from the private sector over the 10 years to 2016 in Auckland will be well above the national rate in both immigration scenarios.

While most Aucklanders will continue to live in houses, the rate of growth will slow relative to the number of households living in flats or apartments.

Assuming the increase in households translates into demand for new dwellings, demand is not expected to exceed supply. However, the type of dwelling built may need to be adjusted to reflect changing demand patterns.

Settlement patterns and geographic mobility of recent migrants

Settlement Patterns and the Geographic Mobility of Recent Migrants to New Zealand examines the characteristics of local areas that attract new migrants and gauges the extent to which migrants settle where there are the best labour market opportunities rather than where there are already established migrant networks.[21]

The study indicates that recent migrants are more likely to settle in areas where a larger proportion of previous migrant populations from their region of origin have settled ('migrant networks'). Earlier migrants (in New Zealand for 5-10 years) are also likely to be resident in these areas, but to a lesser extent.

No evidence was found that recent migrants chose to settle in areas with better than average labour market conditions.[22] Some evidence suggests earlier migrants are more likely to have relocated to areas with better labour market outcomes for the total population. This suggests labour market conditions become a more important determinant of settlement location in the longer term, but migrant networks remain the dominant factor.

The finding that migrant networks play a dominant role in early settlement is particularly striking in a country such as New Zealand with immigration policies that favour skilled migrants. It is likely that this feature would be more pronounced in countries that do not select migrants primarily for their contribution to the labour market.

Interestingly, controlling for migrant networks shows migrants are less likely to settle in areas with a high proportion of migrants from other regions of origin. This is true for both recent and earlier migrants. Somewhat surprisingly, migrant networks have a greater impact on the settlement decisions for those from English-speaking backgrounds than for those from non-English-speaking regions.

Further work

Additional research

Three additional pieces of research are expected to be completed in early 2009.

Computable general equilibrium modelling

One objective of the Economic Impacts of Immigration research programme is to understand the interaction between immigration and economic performance. The assessment of the impacts of a particular immigration policy on the New Zealand economy requires the integration of all these effects into a single economy-wide model. A computable general equilibrium model is the best framework in which to analyse the economy-wide impacts of immigration and has the benefit of allowing in-depth sectoral impacts.[23]

The computable general equilibrium model first estimates a base case, in this case 2006/07. Economic data and demographic data (and projections such as population projections) are taken from this year. This coincides with the recent census and the first stage Economic Impacts of Immigration research projects.

The economic shock in this research is a change to the size and/or composition (skill mix) of immigration flows. The impact of the shock is estimated by comparing the base case and the scenario. Scenarios vary by the scale of the inflow (including a scenario with no immigration) and the composition of the inflow (that is, varied skill levels), and tests trade and productivity assumptions. The final scenario will enable a comparison with Australian Productivity Commission research that estimates the economic impact of a 50percent increase in Australia's skilled migrant flow.[24]

Summary

The Economic Impacts of Immigration research programme is ongoing and final results are due in early 2009. The completed work adds to our understanding of the economic impacts of immigration.

At the time of the fiscal impacts study, the Government was in fiscal surplus and it would be expected that most groups would have a positive net fiscal impact. The net fiscal impact of the non-New Zealand-born population is estimated to be greater than that of the New Zealand-born population for reasons including the different age structures of the migrant population and the New Zealand population. New Zealand immigration policy focuses on attracting and retaining skilled migrants to fill labour shortages, but a marked difference in skill composition exists between the two groups.

Migrants contributed to 60percent of the 162,000 increase in the growth in the working age population between 2001 and 2006. The high participation working age group (30-49 years) had a net inflow of 64,200 migrants and a net outflow of 1,200 New-Zealand born individuals.

How has the inflow of migrants into New Zealand affected sectors such as housing and rental markets? The research shows that although immigration flows are an important contributor to population change, the inflow of migrants has not had an impact on house prices. Local house price increases are associated more with the location to which returning New Zealanders settle rather than where migrants live.

Migrants are more likely to settle in areas with more migrants from their region of origin. This factor seems more important than the labour market outcomes of an area. Although, labour market outcomes become slightly more important over time, migrant networks remain the predominant factor.

Work is being conducted to investigate how migrants' education and skill levels match their occupations and how this evolves as they integrate into the labour market and wider society. The links between workforce characteristics, innovation, and international connectedness are also being explored, as is the impact of migrant inflows on the labour market outcomes of New Zealanders.

Computable general equilibrium modelling is also under way to estimate the economy-wide and sectoral impacts of different immigration scenarios.


[11] In this context, emigration means leaving New Zealand to settle in another country and immigration means coming to New Zealand.

[12] S Longhi, P Nijkamp, and J Poot. 2008. Meta-Analysis of Empirical Evidence on the Labour Market Impacts of Immigration, IZA Discussion Paper 3418, Bonn, Germany: Institute for the Study of Labor (IZA). Available at http://ftp.iza.org/dp3418.pdf.

[13] OECD. 2003. OECD Economic Surveys New Zealand: The economic impact of migration, OECD Economic Surveys. Paris: Organisation of Economic Cooperation and Development, p73.

[14] All final reports are on Immigration New Zealand’s Economic Impacts of Immigration website: http://www.immigration.govt.nz/migrant/general/generalinformation/research/impacts.htm.

[15] A Slack, J Wu, and G Nana. 2007. Fiscal Impact of Migrants to New Zealand 2005/06. Economic Impacts of Immigration Working Paper Series. Wellington: Department of Labour. Available at http://www.dol.govt.nz/PDFs/fiscal-impacts-of-immigration-2005-06.pdf.

[16] In 2004, international education was estimated to be worth $2.2 billion: Infometrics. 2006. The Economic Impact of Foreign Fee-Paying Students. Wellington: Ministry of Education.

[17] G Nana and K Sanderson. 2009. ‘Migrants and labour market outcomes’, Economic Impacts of Immigration Working Paper Series, unpublished.

[18] C Mar and S Stillman. 2008. Housing Markets and Migration: Evidence from New Zealand, Economic Impacts of Immigration Working Paper Series. Wellington: Department of Labour. Available at http://www.dol.govt.nz/publications/research/migration-and-housing/migration-and-housing-markets.pdf

[19] With the exception of Coleman and Landon-Lane (2007) who analyse the relationship at the macroeconomic level: A Coleman and J Landon-Lane. 2007. Housing Markets and Migration in New Zealand 1962-2006, Discussion Paper DP2007/12. Wellington: Reserve Bank of New Zealand. Available at http://www.rbnz.govt.nz/research/discusspapers/dp07_12.pdf.

[20] K Sanderson, G Nana, D Norman, and J Wu. 2007. Economic Impact of Immigration on Housing in New Zealand 1991–2016, Economic Impacts of Immigration Working Paper Series. Wellington: Centre for Housing Research Aotearoa New Zealand and Department of Labour. Available at http://www.chranz.co.nz/pdfs/the-economic-impact-immigration-on-housing-in-nz-1991-2016.pdf.

[21] C Mar, M Morten, and S Stillman. 2008. Settlement Patterns and the Geographic Mobility of Recent Migrants to New Zealand, Economic Impacts of Immigration Working Paper Series. Wellington: Department of Labour. Available at http://dol.govt.nz/PDFs/settlement-patterns.pdf.

[22] Better than average labour market conditions means better than average employment levels for the general population, previous migrants from the same region, or individuals of the same skill level.

[23] Computable general equilibrium modelling is described in Productivity Commission. 2006. Economic Impacts of Migration and Population Growth, Final Report. Canberra: Commonwealth of Australia. Available at http://www.pc.gov.au/__data/assets/pdf_file/0006/9438/migrationandpopulation.pdf.

[24] Productivity Commission. 2006. Economic Impacts of Migration and Population Growth, Final Report. Canberra: Commonwealth of Australia. Available at http://www.pc.gov.au/__data/assets/pdf_file/0006/9438/migrationandpopulation.pdf.