The immigration-inflation conundrum

Friday, 19 August 2022

Mandeep Kumar’s big mistake was getting married.

Kumar, an information and communications technology technician, had lived in New Zealand since 2013 without ever travelling back to India to visit his family.

In 2020 he finally had the time to go, and planned to make the most of it: go back to India, get married, spend two months seeing family, then come back.

But while he was in India, New Zealand’s border closed, and he wasn’t allowed back in.

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Now that the borders are open he still isn’t allowed back in, because he has lost his job, his visa has expired and he isn’t eligible for a new one.

“My savings are finished. It’s just my parents who are supporting me,” Kumar says.

“My whole family worried about me. My future is at stake. I contributed my [good working] years for NZ but in return they abandoned me.”

Migrant Workers Association president Anu Kaloti says she raised the issue of people like Kumar with a Government minister recently and was told there were not enough jobs to allow migrants with once-valid visas to re-enter the country.

“I had to say to that Minister: if you go around, even in your electorate, you’ll see on a daily basis several shops that have handwritten signs up on the window saying ‘we’re closed today because we don’t have enough staff’.”

There are other signs: 40% of respondents to a Canterbury Employers Chamber of Commerce Unemployment survey said they had turned down business opportunities due to a lack of staff, wage inflation is running at a 14-year high of 3.4%, unemployment is at a near-record low 3.3%, and price inflation has hit a 32-year high of 7.3%.

Kumar isn’t allowed back because he is part of a migration “tap” that the Government doesn’t want to turn back on because they think people like him will suppress wages and overwhelm the country’s infrastructure.

But this week there was a monetary policy announcement from the Reserve Bank highlighting a tight labour market as a cause of inflation and noting interest rate hikes would be needed to keep wage rises in check and help demand better match supply.

On Thursday, Reserve Bank Governor Adrian Orr made a quip to NewstalkZB radio host Mike Hosking that: “Some slowing is needed, we can’t print people”.

Reserve Bank chief economist Paul Conway says this joke was intended to illustrate that this time it is supply-side issues, including tight labour markets all over the OECD and in New Zealand, that are primarily behind inflation issues.

Kumar seemingly can’t win – his absence is contributing to inflation, but his presence would allegedly cause wage deflation.

A spokesperson for Immigration Minister Michael Wood acknowledges some sectors and businesses are facing shortages but says the Government is investing in skills and a streamlined immigration system.

“As the Reserve Bank noted, New Zealand is not alone in experiencing a scarcity of workers. This is being seen internationally.”

There are more people out there like Kumar, and Kaloti says it has been emotionally draining to read their stories.

“We should just bring them back, even if that means the Minister has to use his special power to bring in a category. Right now is the time to fill labour shortages in the labour market here.

“They have their IRD numbers, they have their bank accounts, they will hit the ground running … they will go and work wherever we want them to go work.”

Is there a case for allowing more people like Kumar in?

Sense Partners economist Shamubeel Eaqub says there has always been an economic case for immigration, but it is not so much an economic question as a political one of what kind of society we want.

Eaqub believes we need to settle on a population target and demographic goals like delaying the ageing of the population.

“It should not be about meeting short-term labour force needs, you can’t play with people’s lives because ‘I need a few workers today’.”

As for hopes that clamping down on immigration will lift wages, his point is that the RBNZ has a history of acting to prevent wage inflation, so the wage gains from a clampdown on labour supply would likely be offset by higher interest rates anyway.

Conway disputes this characterisation: “We’re all in favour of wages going up as long as that’s underpinned by a more productive economy.”

“If we can grow our productivity then some of that flows into higher wages, some of that flows into a better return on capital, so that’s non-inflationary, so it’s not like the Reserve Bank is anti-wages going up.”

The alternative to bringing people like Kumar in is for firms to invest in improving their productivity so that Kumar isn’t needed, but the rub is higher inflation leads to higher interest rates, which also discourages investment in better productivity.

National’s spokeswoman on Immigration Erica Stanford says higher interest rates are partly why productivity-enhancing investment isn’t happening.

Her party’s policy is for an overall loosening of immigration policy and that “stranded” migrants like Kumar should be allowed back into the country.

“We need to take it from a fairness perspective. The deal was you come here and pay for your education and you get post-study work visa rights at the end to pay back your fees, to improve your English and to get New Zealand work experience.”

But she acknowledges that when it comes to immigration being a fix for short-term inflation the issue is a complicated one.

Migrants don’t just potentially solve supply issues, but they also bring on the demand for more services, so their net contribution to bringing down inflation is unclear.

Conway acknowledges the disconnect between the current interest rate environment and the need to encourage longer-range investments that improve productivity.

His hope is businesses will look through the high interest rates of the current business cycle to invest in higher productivity in the longer-term.

Conway sees no reason for a “big New Zealand” strategy of a 6 million-person country and believes we could be a small high productivity nation.

However, it begs the question: when has a small country ever achieved high productivity such a long distance away from major markets? Conway cites Scandinavian countries, but the straight line distance between Stockholm and Frankfurt is the same as that between Auckland and Invercargill.

Meanwhile, Kaloti says people like Kumar will likely keep making their pitch to be let back in if only because they have already invested so much in moving here.

Kumar’s exclusion from New Zealand was so abrupt that he left behind his degree certificates and other possessions.

He paid rent for 6-months so that his landlord wouldn’t throw those things out, but then he lost his job and ran out of savings.

Kumar asked his former landlord to hold onto his possessions, but can’t guarantee that actually happened.

“I have no idea whether they are safe or not now.”