Brain drain or brain exchange?

The Productivity Commission recently completed its inquiry into long-term immigration settings. As part of its research, the commission looked at New Zealand’s history with immigration and at policy settings immediately before the pandemic, examining the specific contribution made by migrants to firm productivity.

Brain drain or brain exchange?

The loss of large numbers of skilled Kiwis heading overseas has hit the headlines with the so called ‘brain drain’ phenomenon. However, for workers coming to New Zealand the immigration system pre-Covid (particularly the skilled migrant category for permanent residency and the essential skills visa for temporary workers) selected mostly on skill.

Immigrants were much more likely to be tertiary educated than New Zealand-born residents and outnumbered tertiary-educated emigrants. This prompted a 2019 OECD paper to more accurately label the flow of skills across the New Zealand border as a ‘brain exchange’.

Chronic labour shortages in many industries have also been a source of concern in the decade pre-Covid. Worker shortages were felt across the economy from the dairy industry, to IT, hospitality and aged care.

New Zealand is small, so training all the types of skills needed in a modern dynamic economy is challenging. But immigration can help address labour shortages by bringing people with skills, helping to remove bottlenecks to firm growth and productivity.

This is part of the reason behind a substantial rise in temporary, relative to permanent, immigrants. This trend (see Figure 1) also reflects several policy choices around working holiday schemes; greater work rights for internal students; and expanded recognised seasonal employer visa caps.

Access to global skill channels crucial to productivity

The contribution of immigration to productivity relies on effective selection – by individual firms for work visas and by the government for residency. However, it’s not just the skills ‘on paper’ that contribute to productivity.

From their experiences overseas, migrants bring new ideas, processes, goods and services. They also bring international linkages – contacts and knowledge of overseas markets that help New Zealand firms successfully expand overseas. Migrants can bring their own sources of capital, investing directly or encouraging local firms to invest in machinery and technology.

New Zealand research shows migrant skills channels are not simply theoretical. Firms with more highly skilled recent migrants are more likely to report introducing new marketing methods and new goods and services.

Studies also find an association between firms employing high-skilled migrants and exporting, particularly to their home country. The knowledge migrants bring with them – of their home market, or of ways of working – increase New Zealand’s human capital.

Skilled migrants contribute positively

The Productivity Commission found that high-skilled migrants make a greater contribution to firm performance than medium-skilled local workers. In particular, skilled migrants on residence and temporary visas who have lived in New Zealand for over five years contribute as much productivity as high-skilled New Zealanders.

Most importantly, skilled migration complements production in many ways. The commission found evidence that high-skilled NZ-born workers make a stronger contribution to output when they work in firms with more migrants. This is likely due to a mix of skill differences. Spill-overs from this sort of migrant employment include more opportunities for investment and more jobs.

Selecting high-skilled migrants matters

To maintain productivity gains and to create new jobs, New Zealand’s residency selection for non-family and non-humanitarian reasons should continue to tilt towards high-skilled migrants – to compensate for an emigrating and aging workforce and to prioritise skills that are hard to replicate.

High-skilled migrants raise the overall skill composition of New Zealand’s workforce, and they are able to do more in combination with the types of skills and tools on hand.

The Government should make it easier for top talent to enter New Zealand by speeding up visa processing and increasing certainty about the likelihood of achieving residence.

Other short-term wins involve reducing complexity and administrative discretion, and more recognition of comparable foreign qualifications for highly-skilled workers. The Productivity Commission’s previous work on frontier firms indicated this talent is crucial for developing innovation ecosystems that can help lift productivity.

More transparency needed

More transparency and clarity is needed about government objectives for immigration. A core recommendation from the Productivity Commission’s immigration inquiry is for governments to regularly publish an immigration Government Policy Statement.

This would clarify the planning range for approving new residents and the criteria for how firms select migrants for temporary work visas.

Immigration policy shouldn’t just react to short-term pressures or challenges, like a pandemic, but also be strategic with clear and connected long-term objectives to attract and retain skilled migrants who can positively contribute to New Zealand’s productivity.

Professor Gail Pacheco is Commissioner at the New Zealand Productivity Commission Te Kōmihana Whai Hua o Aotearoa. This is supplied content. 

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