Outflows to Australia from New Zealand

One of the concerns we have for the next few years is that there will be a large net migration outflow from New Zealand to Australia. Already the net annual loss across the ditch has risen from just below 15,000 in April last year to 21,000 in December. The average loss for the past 15 years has been 20,000 per annum and the most recent peak was a loss of 35,000 in January 2009. On average this net loss across the Tasman is comfortably offset by a gross inflow of people to New Zealand from other parts of the world with the net overall migration change for the country being +15,000 per annum for the past decade. In fact New Zealand's population churns so much (inflows averaging 2.1% and outflows 1.7% of population) that approximately one in four New Zealanders is foreign born compared with an OECD average of one in ten. A clear implication of this for employers is that it is highly likely a sizeable number of employees will be from offshore. In fact, the most recent census data shows that between 2001 and 2006 60% of the 271,000 growth in the working age population was of people born overseas. This following graph looks at the annual net loss of people to Australia from 1995 and includes a line showing the difference between the rate of unemployment in New Zealand and the rate in Australia. The net annual migration loss is measured on the right hand side upside-down. There is a reasonable correlation between relatively high unemployment in New Zealand and strong net migration outflows. However this relationship has broken down since 2009 with the net migration loss collapsing in spite of a much weaker labour market in New Zealand than in Australia. In fact the relationship has also come unstuck between the broad trend in the NZD/AUD exchange rate and net migration flows shown in the next graph on the following page. We put this sharp easing in the net migration loss from over 35,000 to 15,000 down to caution amongst potential migrants created by the Global Financial Crisis. People have we believe put off their migration plans because of their worries about global developments increasing the risk associated with moving offshore. But what this implies is that the recovery we have already seen in net migration outflows across the Tasman since May will continue potentially very strongly over the next couple of years. That is, not only will there be a normal outflow of people one would expect given the different labour market strengths and given the exchange rate making Australian wages look more attractive, but also catch-up outflows of those who held off relocating over 2009. Yet on top of this there is another factor likely to accelerate the net outflow. Last year Australia's migration policy was changed with the effect being a reduction in the number of people with general skills able to enter the country but extra access for those with higher skills. New Zealanders however do not have to meet skill criteria for shifting to and working in Australia. Relative demand for Kiwi staff has been boosted by this policy change and this perhaps helps explain why at the Oz Jobs Expo run in Auckland over the weekend of February 12-13 employers from Australia were seeking staff in 297 separate job classifications. http://www.ozjobexpo.com/index.php?page_id57 The unemployment rate in Australia is currently 5% and would have been 4.9% in January were it not for the interruptions to activity caused by the Queensland floods. There are already skill shortages and now demand has increased further for engineers to work on infrastructure reconstruction, and tradespeople to work on rebuilding housing. Demand from the minerals sector is escalating anew as global commodity prices rise. The Government is also rolling out broadband across the country so there is increasing demand for telecommunications technicians along with crews for stringing up and digging in the cables. Yet at the same time as it is likely many skilled people will leave New Zealand for the brighter lights and higher wages of Australia in the coming two years shortages of skilled people are already appearing here. The direct evidence can be found in the long lists of immediate and long term skills shortages on Immigration New Zealand's website. (See references below) But anecdotes abound also regarding shortages of finance and accounting professionals http://www.scoop.co.nz/stories/BU1009/S00164/nzfinance-sector-still-suffering-skills-shortage.htm , ICT people and chief information officers http://www.nzherald.co.nz/technology/news/article.cfm?c_id5&objectid10663348 , and of course engineers, teachers, and health workers. In addition, the Business Council of Australia has recently called on the Australian Federal Government to expand skilled immigration to meet worsening shortages. It is early days yet, but there is already evidence of the general labour market tightening up in New Zealand even with a 6.8% unemployment rate. A net 7% of respondents in the NZIER's Quarterly Survey of Business Opinion said in the December quarter that skilled labour was hard to find. This is still well below the average for the past ten years of 26% but a long way from the net 42% finding it easy to get skilled people in the middle of 2009. The second of the two graphs below we have included to show two things. First, that at the moment the labour market is still relatively loose and the overwhelming majority of businesses do not feel shortage of labour is constraining them. But second, the labour market was a major constraint on growth in businesses between 2003 and 2008 and we believe many businesses remember the difficulties they had and will be looking to avoid similar problems once the economy is much stronger next year. Evidence that labour demand as opposed to simply perceptions of shortage are rising can be found in a number of surveys. The Department of Labour's Jobs Online report is showing a rising trend though the pace is slowing, and employment intentions are rising in the NBNZ Business Outlook survey for February and the NZIER's December quarterly survey. For extra emphasis regarding the upside risk concerning migration outflows to Australia, consider what may be a change in Kiwi householder attitudes towards saving. If there is truly a structural lift in determination to save this seems just one small step from concluding that the best way to save yet still be able to do the things one was consuming before the change would be to work in Australia. The alternative is to build savings while remaining in New Zealand yet do this by sacrificing consumption especially compared with the 500,000 or so of our relatives across the Tasman spending and saving. In addition there may be a generational change in attitude underway with regard to why young people go overseas. In the past it was for a life-enhancing overseas experience. Nowadays it appears more about consciously gaining work skills and experience, repaying student debt at a faster pace than on a New Zealand income, and perhaps even building a nest egg before buying a house in New Zealand. This latter point may especially influence those with medium skills heading to the mines in Western Australia or inland Queensland. Experience has taught us that forecasting migration flows is extremely difficult. But a number of relatively strong factors have lined up at the same time. A low NZ dollar against the Australia dollar. Much higher unemployment in New Zealand than in Australia. A change in Australian migration criteria making Kiwi employees relatively more accessible than before. Catch-up departures by those who put off relocation plans during the Global Financial Crisis. Our expectation is that the net annual migration loss to Australia will continue to grow over the next two years with potential to exceed the net loss of 35,000 recorded in January 2009. The February 22 earthquake in Christchurch can only work toward increasing this net outflow even further. Migration and House Prices This topic is not wholly relevant to the discussion here regarding the threat to skilled labour availability in New Zealand of a potentially large surge in the net migration outflow to Australia. However the issue was raised in the recent Savings Working Group report that strong net inward migration places upward pressure on house prices and that therefore in the interests of discouraging saving through competitive house purchasing there should by implication be restrictions placed on migrant numbers. The evidence however does not support this claim. The academic study cited in the Savings report Coleman and Landon-Lane 2007 concludes a 1% of population migration inflow boosts house prices by between 8% and 12%. However a further study by Stillman and Mar 2008 found a 1% increase in an area's population within New Zealand was associated with only a 0.2% - 0.5% rise in house prices. They also found however that a 1% higher rate of inflow of returning New Zealanders was associated with a 6-9% rise in house prices. In the words of the Department of Labour report New Zealand Research on the Economic Impacts of Immigration 2005-10: Synthesis and Research Agenda page 26 given the uneven distribution of immigrants across New Zealand, if immigration were the key driver of recent house price inflation, then it would be expected that areas with higher inflows of immigrants would have the highest levels of house price appreciation. This was not found to be the case and suggests that the relationship at the national level may be a consequence of omitted aggregate time series factors that raise both immigration and house prices. If anything the research evidence is that only restricting the return of New Zealanders would suppress the migration impact on house prices if it exists at all. (We have written a separate paper on this issue.) References MOTU research paper http://motu-www.motu.org.nz/wpapers/09_05.pdf Immigration NZ list of long term skill shortages and immediate shortages. http://glossary.immigration.govt.nz/NR/rdonlyres/063ECB35-F5D5-44D8-8325-7041A727A9D5/0/INZ1093November2010.pdf http://www.immigration.govt.nz/nr/rdonlyres/89185a40-27d3-41f4-84be-30129920411d/0/issl.pdf Department of Labour, New Zealand Research on the Economic Impacts of Immigration 2005-10: Synthesis and Research Agenda http://www.dol.govt.nz/publications/research/synthesis-research/ This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. BNZ strongly recommends that readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither the Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication. Article: http://tonyalexander.co.nz/wp-content/uploads/2011/06/Migration-losses-to-Australia.pdf