A sharp reversal in migration trends

Population growth is made up of two components – natural changes, i.e., births and deaths; and net migration¹. The focus of this article is on the latter and its importance in a country like New Zealand where it is not feasible to rely solely on natural increases, which aren’t high enough to fill gaps in the labour market and drive economic growth. 

Post the baby boom era between the mid-1940’s and 1970, fertility rates in New Zealand fell drastically from a peak of 4.3 babies per woman in 1961 to a record low of 1.6 in 2020, which is well below the replacement rate of 2.1. Add to this a trend of ageing population and it is not hard to understand the heightened role migration has and will continue to play in shaping our economic growth, especially given our slow productivity growth.

There are a multitude of economic, socio-political and ecological factors that drive net migration numbers. Immigration policy settings, in particular, can greatly influence the magnitude of non-citizen migration and the characteristics of such migrants entering the country within a specific time period. For instance, in the graph below we see a sharp reversal in trends in the year 2013-14. Migration now contributes more to our population growth than natural increases. This change in pattern is a result of a steady rise in the number of temporary visas issued, particularly essential skills and student visas. In 2020, 62 percent of the growth in our population could be attributed to migration.

Data on international migration released by Statistics New Zealand (Stats NZ) shows that as expected, there has been a significant drop in net migration as a result of the COVID-19 pandemic, falling by over 98 percent between February and April 2020 – a direct result of the border restrictions imposed by the government in March 2020. The pandemic has also brought about the reversal of some long standing migration trends. Historically, New Zealand has seen an annual net loss of citizens and an annual net gain of non-citizens. For the first time on record, in January 2021, this trend reversed and the annual net migration of citizens exceeded that of non-citizens by 8,900 people. The year ended February 2021 saw a net loss of non-citizen migrants for the first time in over 40 years, with 2,700 more non-citizen migrants departing the country than those arriving. In the year ended March 2021, the net loss of non-citizens widened to 8,900.

The latest provisional data from Stats NZ for March 2021 highlights just how big of a hit migration has taken as a result of the pandemic. Net migration in the year ended March 2021 was just 6,600, compared to 91,900 the year before, the largest ever drop. This was thanks to the lowest number of migrant arrivals since 1986 – only 36,400 people arrived in the country between March 2020 and 2021.

The immigration minister, Kris Faafoi, has said that once borders reopen, we will not see inward migration revert back to pre-pandemic levels. Policy failures have meant that housing supply and infrastructure investment have failed to keep up with the levels of migration we have seen in recent years. Evidence has shown that all of this has led to potentially large agglomeration benefits not being realised and has even led to a direct reduction in productivity. Moreover, many businesses exploit low-skilled temporary migrants to keep operating costs low.

Policy can encourage innovation and drive productivity growth by influencing the skills composition of migrants. The table below shows the top ten occupation groups of permanent migrant arrivals to the country in the year ended March 2020. There is a mix of high, medium, and low skilled workers. It is important to note that since departure cards have been phased out, it is not possible to know the occupations of people leaving the country.

Going forward, there are going to be some major changes to immigration policy – the government aims to encourage businesses to upskill citizens and restrict low-skilled and temporary migration. However, limiting inward migration is not a panacea to all the economic and social problems this country faces. It may be tempting to blame migrants for skyrocketing house prices, low productivity, and low wages; but substantially reducing migration will only lead to acute labour market shortages and slower growth in the future. There is no way around the fact that immigration policy must be accompanied by wider structural changes to increase the elasticity of housing supply, and making urban infrastructure more resilient.

It is important to also consider the long-term effects of our changing demographic structure. Policymakers need to bear in mind that the combination of high-skilled emigration, low fertility rates, and ageing population will significantly alter the size and composition of the labour pool employers draw from in the future. Immigration is a powerful tool that can be used to drive future economic growth and mitigate the negative consequences of these demographic shifts. New Zealand is still a young country with a huge potential for growth – we must focus on how to support the population growth that is required to drive our economic growth in the long-term.