Bernard Hickey: Migrants can keep wages down

An influx of outsiders brings colour and culture to our land, but is it good to the economy.

On the face of it, migration seems an unambiguously good thing for society and the economy. The boom in arrivals since the late 1990s has undoubtedly made us a culturally richer, more diverse place.

Can we imagine Auckland without a Diwali festivaland Chinese New Year celebrations?

There is broad political consensus, except from New Zealand First, in favour of 90,000 to 100,000 new permanent residents being approved every two years.

That is different, however, from the 221,741 who arrived in the past two years to the end of August, as measured by Statistics New Zealand.

Since October 2013 that included students working in term time and on holidays. It also included holidaymakers and others on temporary work visas who aren't subject to the more exacting skills-based assessment for permanent residency.

Debate is growing about the effect on wages of this surge of temporary workers and students, who often take low-wage jobs in hospitality, tourism and dairying.

Wages have been stagnant at the lower end of the jobs spectrum for the past couple of years, despite strong economic growth. There has been plenty of exploitation of these migrants.

Meanwhile, the record high net migration of 60,300 in the year to August has been a factor in Auckland's 25 per cent house price inflation over the past year.

Economic theory suggests bringing in skilled workers should lift overall productivity and ultimately wages and wellbeing.

But people are having second thoughts, particularly now so many of the student and short-term migrants are in lower-skilled jobs and Auckland's housing supply remains constrained.

Two data points published over the past fortnight challenge the conventional thinking.

First, per capita GDP fell slightly in the first half of the year despite overall GDP rising 0.2 and 0.4 per cent in the March and June quarters. Hourly wage inflation is mired at under 2 per cent.

Second, the 9300 houses built in Auckland to August were soaked up by the 27,900 migrants who arrived in that time. That meant Auckland's shortage of about 25,000 was not whittled away by the recent spike in building. If anything, it worsened as Auckland's population grew naturally, with about 15,000 more births than deaths.

Strong migration has artificially juiced up GDP and house prices. But does it make everyone richer?

Australia's Productivity Commission in 2006 looked at whether a surge in arrivals would lift per-capita incomes. It found it was unlikely to help much.

Not all migration boosts the economy. A proper inquiry by our Productivity Commission would test those assumptions and allow better choices.