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Insights 26: 15 July 2016
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Counting on immigration
Dr Rachel Webb | Research Fellow | rachel.webb@nzinitiative.org.nz
Before making an important decision it is a good idea to take a deep breath and count to ten. Policy decisions should be the same. Stay calm and focus on the numbers.

Immigration policy is particularly contentious. Immigrants are a convenient scapegoat for many pressing issues. Internationally, politicians are exploiting populist immigration fears to push reactionary policy. Just think of Donald Trump.

New Zealand is not immune from such populism either. The housing crisis has ignited anger towards migrants and some politicians look eager to fan the flames.

But immigration policy is too important to be decided with a hot head. Policy is best determined by a calm, careful consideration of quantifiable factors. It’s a numbers game so let’s start counting.

Though it is a truism, the first number that immigration policy must consider is the population. So, how many people do we want in New Zealand? 

There are benefits and costs to having a larger population. More people obviously put a strain on infrastructure. On the other hand, more people can also create a more robust and diverse economy.

There is another factor to consider: demographic change. An ageing population needs young people to support it. Bringing in young migrants can help to lower an important number: the average age.    

Economic performance is another key figure to consider. How can immigration boost our economic growth? And how can policy be fine-tuned to extract the most benefits from our migrants? 

Skilled migration has obvious economic benefits and potential for large spillovers. But let’s not forget that unskilled immigration can help fill the gaps of important jobs that New Zealanders are reluctant to do. How many skilled and unskilled migrants do we need? How many do we want? And how can policy attract those that we most desire?

I have recently joined the research team at The New Zealand Initiative. I am a quantitative economist – a professional number cruncher if you like. My first task will be to investigate immigration in New Zealand. We want to find out whether New Zealand’s current immigration system works – or how it could be improved.

Making good immigration policy requires more than a deep breath and counting to ten. But let’s urge policy makers to make policy with a clear head and to keep the numbers in mind. We are all counting on them.


Jennings’ challenge to New Zealand
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
Distance makes the heart grow fonder, so they say. But sometimes distance can also make you see things more clearly – not just if you are farsighted.

Last night, the Initiative hosted Stephen Jennings for a dinner lecture. Jennings, the Taranaki-born economist and investor, has spent the past 24 years outside New Zealand. First he pioneered capital markets in post-communist Russia. Now he heads Africa’s largest urban development company.

Despite this high-flying international career, Jennings has not lost interest in his native New Zealand. However, his continental distance allows for a sober look at our domestic affairs. 

Jennings reminded us of the much discussed paradox of New Zealand economics: “New Zealand has immense natural capital, excellent institutions and outstanding indicators for ease of doing business. We also have a fiscal position and government debt situation that should be the envy of the Western world. Nevertheless, we suffer from persistently low productivity growth.”

He then went on to explain some of the reasons behind this paradox. They are the issues that the Initiative has also been working on: New Zealand’s poor performance in capital connectivity; our deteriorating position in international education rankings; and our out-of-control housing market.

In the end, Jennings left us with proposals for six reforms New Zealand should undertake immediately. This is what he would do:
  • A total overhaul of our education system with a focus on performance management;
  • a comprehensive review of the tax treatment of housing and capital gains;
  • a comprehensive review of the ownership and governance arrangements for our primary industries;
  • the privatisation of all state-owned enterprises;
  • radical planning reform to allow New Zealand cities to grow and build the houses the country needs; and 
  • regulatory reform to reinforce New Zealand’s strong anti-corruption credentials.
For a political class accomplished in mediocrity (with a few laudable exceptions), such ambitions might seem outlandish. But Jennings challenged his audience to think about New Zealand’s success measures differently. 

He asked: “Do we think it would be acceptable for our international sports teams to aim to be 20th in the world or worse? Do we think our athletes should have coaches and training facilities that are worse than the average for their international competitors? Do we think our sports teams will be winners on the international stage if they have very limited international competition?”

To all these questions, the answer would be “Of course not, that would be absurd.”

So why should our economy and our businesses be any different?


Unequal households: a modest proposal
Dr Eric Crampton | Head of Research | eric.crampton@nzinitiative.org.nz
I have a solution to inequality.

It will take a long time, and I don’t think you’re going to like it. 

I don’t like it either. 

But, it is a solution. And with all the shouting that something must be done about inequality, this particular something might be more effective than a lot of the other proposals floating around the traps.  

Let’s step back to a potted history. For much of history, marriage was different than it is now. People chose their partner based on who was their best possible match out of a pretty narrow set of options. 

And, as economists Betsy Stephenson and Justin Wolfers put it, people looked for good partners based on complementarities in production: someone who was really good at working outside of the home and earning money would try to find someone who would be really good at raising the family inside of the home. 

And so there was a lot more variability within couples. 

When there is more variability within couples, kids across different households wind up being more similar to each other. 

As technology changed and household appliances made housework feasible for two working partners, marriage changed too. People started looking for partners who enjoy the same things that they do. People who like going to the opera are less likely to partner up with somebody who prefers stock car racing. Couples started looking more and more like each other, matching on preferred recreational activities, earning potential, education, and even political party preferences. 

More equality within households then leads to more divergence across households – and especially for the kids.

This has shown up strongly in American data where, if people chose their marriage partners randomly, one measure of income inequality, the Gini coefficient would drop from 0.43 to 0.34

It has not yet shown up as strongly in New Zealand data, where inequality has been flat or declining for over a decade, but that could only be for lack of thorough interrogation of the data.

But if we follow the American trends, the college-educated will wind up only marrying the college-educated, and society starts following diverging tracks. 

There is only one thing for it: Ban the college educated from marrying each other. Before it is too late. 

By the way, some of the country’s top debaters will be arguing about it in August. Please join us there.
 
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