6  Wider Impacts

Migration can have wider economic impacts than purely through the avenues to per capita growth set out in the growth accounting framework. These wider impacts are set out briefly below. While they are not central to the core discussion in this paper they are briefly discussed here for the sake of completeness.

6.1  Fiscal impact

The fiscal impact of an increase in immigration can be significant, particularly where tax contributions do not match the receipt of public expenditures such as health and education on the new immigrants. It can be difficult to accurately gauge the fiscal costs that migrants impose on society. Different results can be achieved depending on the measures taken and the way that private and public good provision is treated. In the context of their work on Britain, McCarthy and Collins (2001, p23) conclude only that it is “quite possible that fiscal externalities erode the gains from free migration”.

For the US, Borjas (1995, p4) shows that there was an increase in the fiscal costs of migrants to the state between the 1970 and 1990 censuses. Immigrants shifted from being less likely to receive welfare to more likely over the time period. This is correlated with their tendency to be less educated. It is difficult to accurately reconcile the costs that migrants impose on a society with the benefits that they create. Borjas (1994) provides a set of estimates of the costs and benefits of migration in the United States using 1990 census data. He estimates the net benefit to the welfare system (tax income minus cash benefits and means-tested entitlements) at around $US60 billion. This is a simplistic analysis in that it assumes a zero marginal cost of providing other social services to migrants, such as infrastructure.

McCarthy and Collins (2001, p22) note that if you use an average cost Borjas’s calculations would indicate immigrants are a large net cost. Yet again, the inclusion of public good provision would reduce this cost (eg defence). The evidence gathered in New Zealand would not support a similar conclusion here.

In 2003 BERL (Nana, Sanderson and Goodchild 2003) carried out a study using demographic and other data from the 2001 census and government accounts data for the year to June 2002 to estimate the fiscal impact of migrants to New Zealand in the June 2002 fiscal year,[16] That study estimated that migrants to New Zealand had a positive net fiscal impact of $1.7billion in the year to June 2002.[17] Revenue from the sub-groups of the migrant population is a function of income. Therefore, as noted by the study, the income of each group is strongly dependent on its age profile.[18] The impact of the age-profile of various migrant groups is to lead to high income earnings for migrant groups but this difference can be attributed to the comparative age-composition.

Two sub-groupings were calculated to have a negative fiscal impact; new migrants from Asia and new migrants from the Pacific Islands. Their fiscal impact became positive as their duration of residence in New Zealand increased (Nana et al 2003).

Export education is an industry that has a significant fiscal impact. It was responsible for the substantial growth in temporary permit applications from 00/01 until 03/04, although demand decline during 2005. Export education has two important links to immigration: first, migrants who are studying, while not currently participating in the economy, are increasing the resident stock of human capital and are settling in to New Zealand; second, export education is a $2 billion industry in New Zealand providing employment opportunities for New Zealanders and foreign exchange earnings; and finally, foreign students who return to their source country can act as international contacts thus increasing New Zealand’s global connectedness.

6.2  Economic costs

In addition to the fiscal effects, immigrants can impose wider economic costs (and benefits). Although there are direct fiscal costs when welfare payments are made to unemployed migrants, the economic consequences of unemployment are likely to be much higher. In addition, there may be pressures on infrastructure.

The characteristics of the migrant population provide a basis for establishing the costs of migrants. In New Zealand new migrants have an unemployment rate above the native average, and their income differential (depending on sub-group) takes some time to converge with native incomes. The age structure of the migrant population, which puts migrants disproportionately into the working age group means that they may have a lower tendency to be utilising publicly funded education and healthcare.

An increase in immigration can put pressure on infrastructure, for example it can lead to increased demand for housing, schools, hospitals and roading. However, the overall impact is likely to be relatively small since the net migration effects are small, although there may be some geographic concentration (NZIER 2003).

Migrant inflows to New Zealand have typically concentrated themselves in major urban centres, with Auckland, Wellington and Christchurch being the greatest receivers of migrants (Newell 2001). More than two thirds of the migrants who had arrived in New Zealand over the five year period prior to March 2001 had settled in the Auckland region. The overseas born account for 34 percent of Auckland’s resident population compared to 20 percent for the whole of New Zealand (Nana et al 2003). Auckland also receives a larger proportion of new migrants. Thirty four percent of migrants resident in Auckland are new compared to the New Zealand-wide proportion of 28 percent. The increase in temporary migration has also contributed to the perception of Auckland as a migrant city. This appearance is likely to have been responsible for some of the increased political attention that migration has received in recent years. The new SMC seeks to address this by awarding bonus points to job offers places outside Auckland.

While cities that experience large migrant inflows can experience consumption gains, such as those of Auckland in the mid 1990s (particularly in the property and construction sectors) rapid population increases can also have negative effects, including pressure on infrastructure and services. An increase in demand for housing is the oft-cited example for Auckland. An increase in demand for housing can have a positive effect for property owners by increasing prices, but can negatively impact on homebuyers. Increased demand is only likely to lead to a rise in prices if there is a supply constraint.

Despite this, the inflow of migrants into Auckland is sometimes pointed to as the major reason for infrastructure pressures in Auckland, such as traffic problems. There has been an argument that the higher net migration of the mid-1990s resulted in house prices increasing to the point that they threatened to have wider inflationary impacts. The high inflows in 2002/03 have also been correlated with rising property prices (OECD 2003a). Rising house prices increase the returns to investing in property. As a result more people may invest in property, reducing the capital available for productive investment. Conversely, public good provision does not incur any extra cost for each additional migrant.

There can also be positive agglomeration and economies of scale effects as a result of population concentration. It is difficult to find evidence on whether this has occurred in Auckland as a result of migration. If there have been scale effects then they would increase per capita GDP growth, with potentially significant effects. Further investigation into this would provide useful information to policy makers on potential economic gains from migration. It may also have an effect on the perception of a concentrated population of migrants as being a negative effect of migration.