Is outward migration a problem?
Posted September 24, 2008on:
Over at Kiwiblog, David Farrar comments on outward migration from New Zealand. He concludes by stating:
Inwards migration of new New Zealanders (which is a great thing) helps keep the overall population stable, but that does not mean there isn’t a serious problem with the numbers leaving.
A similar theme was mentioned a few weeks ago in an extremely interesting newspaper article by David Grimmond, which concluded:
Ultimately outward migration flows are a barometer of perceptions of government management. The steady growth in departures suggests a growing disillusion with the current government. It potentially also suggests a lack of confidence that the alternative will make much difference.
However, I don’t feel that this view of outward migration gives us the full picture of what is good and bad – lets discuss (Note: The Standard discusses the issue here):
Why do people migrate
As the department of labour points out there are a myriad of exciting reasons why people migrate, such as the weather. Now although this discussion by DOL has been roundly criticised (even by myself), it is appropriate to look at it this way if we are going to focus on the level of departures as both authors have (as opposed to growth rates – which should be a function of “changes” to the situation between the two countries, and as the Standard points out it should also be a function of population growth).
Saying that “the gross PLT loss of citizens over the last five years is equal to losing Hamilton & Palmerston North”, as Mr Farrar did say, does not actually tell us anything about whether this was a positive or negative factor overall, for the welfare of the people involved (our migrants and people in New Zealand).
When discussing welfare policy we have to figure out what group we are trying to “maximise lifetime happiness for”. People migrate overseas because it makes them happier in some way. As a result, simply saying that it is bad ignores their lifetime happiness but does it not matter?
Furthermore, if people move overseas how does this actually impact on New Zealand? Our GDP will be lower, but what about GDP per capita, what about incomes, what about happiness – it really doesn’t tell us anything about the outcomes for people still in New Zealand.
It is conceivable that someone moving overseas may be good for them, and for the people remaining in New Zealand (by increasing the amount of capital per person) – if this is what is occurring (which is possible) then what would the issue be?
So large outflows don’t have a welfare cost?
This is not completely what I am saying – but if I had no information I would make this my default position.
Ultimately, if outflows from New Zealand are the result of bad policy then there may be scope for government to intervene and help itself. However, if this is the case we have to state what the government is doing wrong – rather than just assuming that rising migration is the result of policy failure.
Fundamentally, people leaving New Zealand does not have to be seen as a cost to New Zealand – it is merely the movement of a bunch of individuals that are doing what is in there own best interest, the country division is a smokescreen that hides this.
But wages in NZ are too low!
Ok, so we have a “shortage of labour” and our wages are “too low” – what is this relative to again. In equilibrium our wages will change to adjust for any shortage of labour – could it be that people are bleating about a problem that doesn’t really exist.
As well as a open goods market we are now part of a open labour market, as a result firms have to be willing to pay market wages in order to keep labour – or else deal with having less labour than they would like.
However, this also means that there is greater potential for policy failure. If tax rates are higher, or regulatory conditions are stricter, then they would be overseas, it is going to be much more difficult for firms to compete, as they will be unable to hold onto their skilled labour resource.
The implicit belief of many authors, including David Farrar and Dave Grimmond is that the government has created a situation which leaves firms in a more difficult situation than they would otherwise be. The migration inflow in this case is a symptom of the true cost associated with the net outflow of New Zealand citizens which is a weaker NZ economy through a disadvantage in the labour market.
Although there may be some truth to this – I don’t think it is accurately represented by looking at departure numbers outside of the context of other situations (strong Aus and UK economies are HEFTY drivers of departures from NZ!).
Should we be concerned about people moving overseas – no. We should only be worried if we think that the lift in departures is the result of policy related factors – not if we think a policy can “fix the problem”.
My distinction may seem a bit arbitrary so let me explain.
A policy related factor is one where government action pushes people to leave that would have stayed in some optimally defined environment. An example of this is allowing taxes to rise for fiscal drag – in this case the tax burden increases past the level it was structurally set for, which in turn drives up migration. Here rising departures is a symptom of poor policy decision making. Furthermore, a tax policy that ignore the “cost” in the labour market associated with higher taxes, namely the outflow of more people, will come up with a tax level that is too high to be optimal – in this case policy may need to be re-thought out.
However, migration itself is not something we should attempt to “fix” with policy. Just because people are leaving does not mean we have to turn around and change our tax or benefit system to prevent it. Ultimately, as long as our policies remain focuses on what we think is optimal for society, the outflow of people is simply part of that process – focusing on migration itself is akin to trying to target the means to an end, instead of the end itself (which is social welfare).