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High Net Migration - a lifeline for the labour shortage or potentially bad news for inflation?
New Zealand has recorded its highest net migration level since December 2020, with an annual net migration gain of 33,200 new people in New Zealand compared to a loss of 17,500 according to Stats NZ data.
While this may help to address the range of labour shortages that certain sectors of the Kiwi economy have been battling since before the pandemic, it could also fuel inflation in the short term. This warning comes from Infometrics senior economist Brad Olsen.
As Olsen notes, the influx of people will increase both supply and demand in the economy.
While net migration may indeed provide a much-needed lifeline to sectors struggling to find staff in a tight labour market, it also has a potential downside - particularly in terms of inflation. Olsen commented the associated increase in demand on food, fuel, consumer staples, and housing caused by the influx of new residents could increase inflation in the short term.
"Of course, these people that are coming to New Zealand need services and goods to survive and so do their family, but at the same time, those people coming into the country are also a pool of talent we can use to address some of those higher demands that we see across the economy," he said.
Since the government updated the Green List so that it includes more jobs in sectors such as construction, engineering, trades, health, and tech the number of people coming in to the country has increased – which could indicate that these new entrants could be filling skill gaps in these areas.
"We would expect to start to see a higher number of the people coming into New Zealand, having some of those visa opportunities that the government has been pushing for and with the Green List being constructed specifically to address some of the skill shortages that we've got across the economy, there's a good expectation that the people we're getting coming into New Zealand will be starting to at least begin to address the needs we've got.”
The additional supply of workers could also address the persistent labour shortages that have themselves contributed to high inflation levels, particularly in areas where labour costs are a large proportion of the cost such as building and construction.
With inflation remaining close to multi-decade highs of 7.2 percent, additional upwards pressure is not ideal.
While it remains to be seen whether these new entrants will actually fill skill gaps in sectors such as construction, engineering, trades, health, and tech. Still, the updated Green List offers some indication that the government is taking steps to address these shortages. By providing visa opportunities in these areas, the government may be able to attract more skilled workers to the country, which could help alleviate the persistent labour shortages and fuel economic growth.
"It's clear so far that again, New Zealand's economy is still trying to do too much with too little, and despite the fact we are seeing more people come into the country, we haven't been hearing that feedback on the ground yet from businesses who are saying that it's becoming easier to find staff."
It’s easy to see that while net migration may come with potential downsides, it also offers plentiful opportunities to address persistent labour shortages across many sectors. By taking steps to attract skilled workers to the country, the government could help alleviate these shortages and fuel economic growth.