Inside Economics: Why do we need more migrants when there are 200,000 people on the dole? Plus the lessons from the Iran conflict

NZ Herald

14 hours ago

Where are these immigrants going to find work when they do arrive, or do they head to the nearest Winz office? It would be helpful if the writer would expand his thoughts and explain exactly how 30,000-40,000 immigrants arriving each year would be gainfully employed.
Regards,
Graeme Etheridge
A: A fair question from Hawke's Bay reader Graeme, who submitted this as a letter to the editor.
At face value, you might wonder why we need immigrants when we also have a large number of people on the dole.
The first point I'd make is that immigrants buy houses and cars and consume goods, adding to the size of the overall economy.
They also start businesses and employ people.
So if immigrants are coming with financial means and skills then they can grow the economy.
The second point is that New Zealand's natural population is barely self-replacing.
Given our ageing population, there are considerably more people retiring than there are entering the workforce.
Zero-immigration experiment
You only have to look back as far as 2021 to see what happened to the economy when the borders were closed and we didn't have immigration.
We had an immediate labour shortage.
While this pushed wages up and was initially a good thing for many workers, the economy quickly hit capacity and then headed into inflationary territory.
Unemployment technically fell to a historic low at 3.2%.
But we still had 185,000 people on the Jobseeker benefit during that period.
As with the number you mention above, it's important to remember that the large number on the Jobseeker benefit is partly due to what used to be called 'sickness beneficiaries' being included in the Jobseeker category.
A more direct comparison with those we might have once described as being on 'the dole' is the sub-category 'Jobseeker Work-ready'.
Currently, of the 210,000 people on the Jobseeker benefit you mention, just 117,426 people are work-ready.
This was up 9132 or 8.4% when compared with March 2024.
Clearly now, as unemployment is rising, isn't the time for an influx of immigrants.
But this tends to be a self-regulating issue. People don't come to the country when employment prospects are low. Right now, our net migration gain is just 21,000 – the lowest it has been (outside Covid years) since 2014.
Back in 2021, when employers were crying out for workers, there were still 106,000 people on the Jobseeker benefit classified as work-ready.
It's not a fact we as a nation should be proud of, but many of those 106,000 were not really work-ready.
For a variety of social reasons, they have fallen outside the system, have missed out on a good education and aren't going to fill skills gaps in the labour force any time soon.
If you're suggesting we should do more as a society to address these issues and make sure all Kiwis have the capacity to be productive members of the workforce, then I'm with you.
Addressing the wasted human potential caused by social inequality would be a great way to lift the productivity of the nation.
But we also need to be realistic.
Post-Covid surge
Anyway, when we opened the borders in 2022, immigration rates went through the roof. We saw the net gain peak at a record 138,000 people in the year to October 2023.
That is unsustainably high. But it is worth noting that massive population growth did not push unemployment up massively.
After that period of record migration gains, unemployment was still sitting at just 4% at the start of 2024, well below New Zealand's historical average.
It was only in 2024, when Gross Domestic Product (GDP) growth faltered, that unemployment started rising sharply.
I think there is a sweet spot for the scale of net immigration gain where it adds growth to the economy without putting too much pressure on infrastructure and resources.
Economists will argue about where that sweet spot is. But then, hey, when did economists ever agree on anything?
The economy seemed to be doing very well, with a 50,000-70,000 net gain through the Sir John Key years.
But I think ultimately we put more pressure on housing and infrastructure than we were able to deal with.
Anyway, I suggested a steady net gain of around 30,000-40,000 in my article. That's roughly in line with what some demographers – such as Professor Paul Spoonley – have suggested.
You could make the case for a lower number or make the case for a higher number. But I'd be sceptical of claims that New Zealand would thrive without any net migration gain.
I think the economy would lose momentum and we'd start to see deflation, as they have done in places like Japan.
What's ultimately more important than the exact number of migrants is that we develop a stable long-term policy to ensure we can manage population growth.
It would be good for our economic stability to avoid the kind of large peaks and troughs we've been through in the past few decades.
And if you run high net migration and book the economic gains, then it is important to balance the ledger by investing appropriately in new housing and infrastructure.
But once again, I'd stress, this is where the issues lie around immigration – much more so than employment, which fluctuates much more based on the level of activity and confidence in the economy.
Iran conflict – crisis and confusion
When I started the first draft of Inside Economics on Monday morning, there was panic about oil prices and the sharemarket as the world sought to make sense of the US bombing of Iran's nuclear sites.
At the time of writing (on Tuesday), oil prices have plunged, sharemarkets have spiked. Iran has fired missiles.
Oil prices dipped back to the level they were before Israel bombed Iran.
Am I prepared to make any assumptions about what will be happening on the markets by the time you read this? No, that would be nuts.
Financial market sentiment can turn on a dime – and economic sentiment isn't much less fickle this year.
I think one of the most important things that economy watchers can take from the events of the past few weeks is that we should be wary of making assumptions.
Will we see Donald Trump's big tariffs reinstated? If so, how will markets react? Who would know? Photo / Getty Images
We're in a highly volatile period for geopolitical events. We can't pick what will happen next, and we can't even pick which events will rattle markets or feed inflation.
That's why the Reserve Bank will likely keep its pathway for interest rates fluid. It can't provide more certainty with its forecasts because that would be delusional.
It may well pause and keep its powder dry on July 9 by keeping the Official Cash Rate (OCR) on hold.
It's worth noting that July 9 will also mark the end of the three-month pause that US President Donald Trump called for his 'Liberation Day' tariffs.
Will we see the big tariffs reinstated? If so, how will markets react? Who would know?
The Reserve Bank meets again to produce a full Monetary Policy Statement on August 20, which isn't so far away.
Perhaps by then, things will all be a lot clearer ... (if anyone from DB is reading, feel free to put that line on a Tui billboard).
Forecast downgrade
The buzz about last week's strong first-quarter GDP results was somewhat muted by the knowledge that data we'd already seen for the second quarter suggested slowing growth.
So it's not hugely surprising to see that ANZ economists have downgraded their forecasts for the second quarter – from 0.4% to 0.1%.
The move incorporated some 'payback' from the first-quarter bounce and centralised some of the weaker, higher-frequency data that we'd seen already, ANZ economist Matthew Galt said.
'Looking through the near-term noise, the economic recovery that started in the last three months of 2024 is expected to continue in 2025, albeit with a slight delay versus our previous forecast.'
Underlying momentum would gather pace in 2026, Galt said.
'We expect annual average growth to come in at 0.9% over 2025, rising to 2.4% in 2026, and 2.7% in 2027 as the economy returns to trend.'
So the good news is that we're still headed in the right direction, things are just taking their time to improve.
'Underpinning this forecast, net exports are expected to hand the baton of growth to domestic demand over the coming year, with private consumption supported by easier monetary conditions and an eventual recovery in labour market conditions,' Galt said.
ANZ expects the unemployment rate to peak in the next couple of quarters and to start to decline from year-end.
Business investment is also expected to lift.
'Ongoing fiscal consolidation means the government consumption share of GDP is expected to drift a little lower from here as private sector shares (household consumption and business investment) recover.'
In a similar post-GDP note, BNZ's Doug Steel picks flat growth in the second quarter.
'Last week's GDP data confirmed decent growth in the first quarter of the year. But timely indicators suggest there has been a sharp slowdown since then,' Steel said.
'The economy looks to have struggled to grow at all in [the second quarter].'
Steel described the failure of the economy to fire, despite positive tailwinds from higher export income and lower rates, as concerning.
'This trajectory is important to monitor, along with its implication for a heavily negative output gap and influence on core inflation over the medium term.'
A critical part of monitoring the economy's trajectory and pressure on resources will be in upcoming confidence surveys, he said.
The New Zealand Institute of Economic Research releases its Quarterly Survey of Business Opinion on July 1. ANZ's consumer and business confidence surveys drop this Friday and Monday, respectively.
Inside Economics takes a break ...
This column will take a break for the next two weeks (the school holidays) so the author can spend some much-needed time worrying about getting his children to the right places on time, instead of worrying about the economy.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select 'My newsletters'. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to [e-mail] or leave a message in the comments section.