Liam Dann: The brain drain returns as NZ reboots migration

OPINION:

Of all the variables that influence our economy, few have been disrupted as radically as immigration in the past two years.

We’ve effectively turned the whole country off and on again.

But (as I always tell the IT department) rebooting might not resolve all the issues.

It looks like New Zealand faces a return of the infamous “brain drain” as borders open and our young skilled workers head offshore for their “big OE”.

The threat of a mass departure in the coming months is exacerbated by the lure of higher wages in international markets tempting older, skilled workers.

Labour shortages are currently a global phenomenon, which means opportunities abound for those with an inclination to get out and see the world.

There was also a large number of Kiwis who were living internationally but returned to the security of our shores when the pandemic hit. Many of them will have retained connections to their adopted homes, making it easier for them to head back.

We shouldn’t be surprised by this.

It was inevitable that there would be a sudden outflow as border restrictions eased.

We shouldn’t be too alarmed by it either.It is really just a sign that normal service is resuming, albeit with an initial catch-up spike.

It is worth remembering that the “brain drain” has been a near constant phenomenon for the past 50 years.

When the pandemic hit, the trend reversed and we got a gain of Kiwis coming home for the first time in 20 years (the last surge of returnees was post-9/11).

Kiwis working abroad still add value to the nation – either through the skills and experience they eventually bring home with them, or through the connections they offer to New Zealand based businesses looking to export to the world.

The problem – as highlighted by Kiwibank chief economist Jarod Kerr last week – is that we aren’t about to see immigrant workers arriving in significant numbers to balance up the population ledger. At least not this year.

Kerr estimates we may see an annual net loss of 20,000 migrants this year.

That is a big population loss for an economy that is geared to running on large annual population gains.

The big deficit is expected because of the way the border reopening has been staggered.

Prior to Covid, the top three sources of non-NZ arrivals were China, India and South Africa.

All three were non-visa-waiver countries, which means the border doesn’t open for them until December.

Even if that time frame comes forward a bit(as the others have) it still looks like there’s a period coming up where a lot more Kiwis will depart than new migrants will arrive.

There’s still plenty of people in the world who want to live here.

But the process of getting long-term immigration back to levels we have become accustomed to will be slow.

That rebuilding process also faces the current Labour Party policy of restricting low-skilled immigration, with a view to keeping that part of the labour market tight and – hopefully – boosting wages and productivity.

That’s an admirable long-term goal.

But in the short term, population loss will be an economic head-wind, adding to the problems we’re already grappling with this year.

The economy will likely slow more than expected. Labour shortages will likely get worse.

It could also mean that house prices fall further.

Those last two issues aren’t clear-cut negatives.

Many New Zealanders will be happy to see house prices fall further as supply catches up with demand.

Labour shortages are a big problem for business and are likely to create more inflation pressure.

But they can also mean unemployment stays low.

Wage inflation doesn’t look so bad if you’re the one getting the pay rise or swapping to a higher-paid job.

What these issues highlight is that the merits of immigration are debatable.

Some people hate it. Some people love it.

I’m broadly in the latter camp. I think New Zealand is all the better for the multi-cultural dimension that immigration has added in the past 20 years or so.

But there’s no doubt we got ahead of ourselves with population growth last decade – failing to keep up on building the infrastructure and residential housing we needed.

The record levels of immigration we saw through the middle of the last decade flattered GDP growth for the John Key government.

Even when we were being talked about as a rock star economy, GDP per capita never looked too flash.

The solution is probably to find some kind of happy medium.

For all the talk of restricting immigration, Labour is still targeting a net migration gain of 30,000.

The number itself isn’t likely to be politically contentious.

The issue will be that hitting it any time soon will be difficult if we apply the tougher policy settings and limit low-skilled workers.

Kiwibank sees immigration picking up and net migration returning annual gains of around30,000 later next year.

It also sees a big short-term issue for the economy in what is already looking like a tough year.

The immigration policy is a key plank in Labour’s plan to boost productivity and I doubt they’ll drop it.

But the next few months may provide a serious test of the resolve, particularly if we see the economic growth dipping closer to recession.

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