Here are two news stories from the past few days, one from this country and one from Australia, which deal with plugging labour force gaps.
The local story was the extension of the seasonal work permit pilot scheme for foreigners to work in horticulture. The Australian story credited John Howard’s baby bonus with lifting the birth rate.
The New Zealand story was about stopgap policy. The Australian story was about strategic policy.
Australians for some years have debated population policy and the baby bonus was not just an election bribe but also the beginnings of a make-your-own workforce bid anticipating the impending glut of baby-boomer oldies.
That glut will push up the dependency ratio — the ratio of non-working-age people to those doing the work — even if more oldies work past 65.
And that has important implications for economic growth. One explanation of the Irish economic miracle of the 1990s, often ascribed to low taxes, is that it coincided with an historic low in the dependence ratio. The same applies right now in China.
So keeping the ratio down makes sense. New Zealand has instead chosen to pre-fund pensions at 65 through the Cullen fund, which amounts to an encouragement to baby-boomers to retire at that age rather than work on.
The excuse for that is that New Zealand does not face such acute shifts in the dependency ratio many developed economies — and China — face from the 2020s. The overall birthrate here is near replacement level, higher than those countries and than Australia’s.
But New Zealand leaks workers in large numbers to richer Australia and the world beyond. So there is a relentless need for immigrants.
Moreover, if Australia’s dependency ratio falls relative to New Zealand’s in future and consequently the gap in economic performance between the two countries widens further, more workers will likely scarper across the Tasman for the good life.
So still more immigrants would be needed here to keep the dependency ratio manageable and wealth creation at reasonable levels.
That sounds straightforward but this is not a simple exchange, nor a zero-sum game.
Replacing employees who leave costs a firm more than keeping the employees. The same goes for replacing home-grown and educated workers with workers from offshore — even if they speak English and fit easily into our way of life. Education qualifications often don’t match, for example.
Moreover, as competition round the ageing developed world heats up for English-speaking immigrants, New Zealand will increasingly have to plug workforce gaps with people from other sources.
This will add to social, ethnic and cultural diversity. Such diversity adds social and cultural richness but also poses challenges for social management and cohesion, as France, Holland, Britain and Australia among many countries have been finding (and South Auckland tells us). Once-ultra-liberal Holland has introduced a “civic integration examination” of language, customs, civic and social values. Australia is heading down the same track. Don Brash has mused on it here.
Moreover, what would such immigration do for making us a higher-income country?
Immigrants who bring with them international market connections, entrepreneurial, management and research skills and investment cash do contribute to that goal. But if most immigrants are just replacing run-of-the-mill emigrants to Australia, they are not likely to.
And what if immigrants provide low-cost labour that keeps alive industries that would not otherwise be internationally competitive? That surely works against the economic transformation goal.
Yes, except that horticulture and pastoral agriculture, two of the users and importers of low-cost-labour, provide our export cash flow. Tourism, another low-wage industry, is our biggest single foreign exchanger earner. Without that cash flow, the economy would be in serious trouble. And, for example, without low-cost cow-milkers Fonterra would not be employing higher-income-earners down the production chain.
So perhaps we could emulate Switzerland and import cheap labour to do dirty work and in a sense quarantine them while real New Zealanders climb up the wealth tree.
This may sound crude but actually we are doing it. David Cunliffe’s announcement on Sunday extending the seasonal work permit pilot is geared in large part to workers from the Pacific who provide indispensable seasonal labour for horticulture.
Those workers as a result get higher wages than at home and their families live better from their remittances. There is also evidence that remittances improve education and free up resources for investment in recipient economies.
So that seasonal labour is a sort of extension of New Zealand’s aid programme — and, through properly managed rotation, it can lift skills and opportunities in recipient economies.
And that could be vital for more than those economies. Over the next 40 years Melanesia’s population will double from 7 to 15 million. There will not be jobs at home. If the region is not to disintegrate into chaos, work will need to be found for them somewhere in the region — which means in Australia and New Zealand.
So immigration is not just a jobs issue or a wealth issue or an issue or population policy. It is also a strategic issue, about our self-interest in a stable neighbourhood.
Winston Peters made a career of carping about immigration. Now he is Foreign Minister, with a special interest in the Pacific. Last month he said the government is considering Pacific labour mobility “with some urgency”. Maybe policy is about to get strategic.