Less immigration to New Zealand linked to higher unemployment

08 June 2005

New Zealand's unemployment rate could rise as much as 0.5 percentage points in the next couple of years due to an expected decrease in new immigrants, according to the International Monetary Fund (IMF).

In theory, more immigrants increase the supply of workers, which would increase unemployment. But immigrants also increase total demand by spending money and investing and can actually create new jobs, the IMF says.

"By generating greater demand and limiting wage growth, they create more jobs that they themselves occupy," the report says.

In a report showing more immigration tends to lower the unemployment rate, the IMF says the slowdown in people coming to New Zealand to live last year was expected to continue in coming years. That, in turn, would lift the unemployment rate by up to half a percentage point from its present level.

It rose from 3.6 per cent to 3.9 per cent in the March quarter, but remains one of the lowest in the Organisation for Economic Cooperation and Development.

In the year to March 2005, there was a net gain of long-term migrants of 10,000, down 64 per cent from the inflow of 28,000 people in the previous March year. Migration hit a peak of more than 41,000 in 2003. Some economists predict the net migration inflow will fall below 10,000 this year, with some forecasting even lower figures. The smaller number reflected a fall in arrivals and more people moving overseas.

Immigration and housing prices

There is also a link between immigration and house prices, with migration fuelling a sharp rise in house prices in recent years, the IMF report says. However, in the late 1990s more people left the country than arrived in New Zealand, and house prices fell by an average 5 per cent in 1998.

The median house price fell from NZ $280,000 in March this year to NZ $272,000 in April. House building consents fell 33 per cent in April, which economists said showed an underlying weakness, in line with expectations that the market would slow down even more.

The IMF report says that in New Zealand higher net immigration tends to lower the unemployment rate and increase labour force participation.
New Zealand, the United States, Canada and Australia have all seen increasing populations as a result of immigration. But the flows in and out of New Zealand have been highly volatile, and that has a big effect on unemployment, the report says.

Net immigration from Australia is a bigger factor in bringing down the unemployment rate than arrivals from other countries, the IMF report says. That suggested migrants to and from Australia may have more applicable skills, than other migrants.

In recent years, about a third of migrants have come from Asian countries, with most of the rest from Britain and Australia. About 40 per cent of the people leaving New Zealand permanently go to Australia.