John Milne
Auckland, May 24, 2023
Migration numbers have risen rapidly after the borders opened, but the Treasury forecasts that they will fall just as fast.
That is good news for workers’ wages, but bad news for employers.
Boom Burger’s ‘Mr Bombastic’ burger was made with premium beef, jerk sauce, lettuce, tomato, pickles, pickled red onions and kewpie mayo.
Rising wages and costs
A Hospitality New Zealand study calculates the cost of ingredients for a typical burger rose from $5.60 in 2019, to $7.15 this year.
But that was just one of three factors that drove the decision to close down Wellington’s Boom Burger: slow customer demand through the pandemic, the rising costs of ingredients, and the cost of hiring workers.
Wages contributed $4.83 to the cost of a typical burger in 2019; by 2023 they were estimated to add $5.94 and that was before last month’s hike to the minimum wage.
That final workforce problem was what prompted Trinity Group Director Jeremy Smith, the owner of the defunct Courtenay Place burger store, to raise his hand at a post-Budget luncheon and ask Finance Minister Grant Robertson to ease the recruitment challenges for employers.
He questioned whether it was reasonable for employers to have to implement the new Fair Pay Agreements, as well as increases to the minimum wage and navigating visa rules for migrant workers.
Another employer, a vegetable producer in Gisborne, asked the government to stop micro-managing migrant labour and their pay rates.
“All the different people that we have hired in the last six months, every one of them has been paid at different minimums,” he said.
Robertson acknowledged some issues around immigration since shutting the borders.
“We are making it significantly easier to bring people in and we are seeing that in the numbers,” he said.
Wages are forecast to rise faster than inflation, and that’s a problem for employers. If the new Treasury forecast is right, that is now being exacerbated by a fall in migrant workers.
The strange and short-lived spike in migrant workers has confounded the government and risks plunging the economy into a recession, just as Treasury had predicted that we might avoid one.
Migration and Inflation
Markets Editor Andrew Patterson reported that the huge net migration surge is having huge impacts on the economy.
Migrant workers are helping with labour shortages and putting downward pressure on wages but are generating more demand for houses, infrastructure, and spending on education and health.
Robertson told the ANZ luncheon that the government had worked to make it easier for people to bring people in, by adjusting work visa requirements and speeding up processing at Immigration New Zealand. The quid pro quo was that Ministers wanted to ensure the influx of migrant labour did not place too much pressure on inflation.
Both migration and tourism have returned much faster than expected, Robertson said, but Treasury officials would be the first to admit there were challenges to sustaining that. Net migration was forecast to settle at 40,000 a year.
“So, that is somewhat down on where we were running into Covid when we were up to a net 70,000, but it is still a very solid level.”
“It is worth noting that unemployment is now forecast to hit 5.3% as its peak, rather than 5.5%. And employment continues to grow; this is one of the really interesting aspects of how we think about what’s happening here.”
Labour supply boosted
According to the Treasury’s Budget Economic and Fiscal Update, net migration will boost the supply of labour, but it will also boost demand for labour by increasing aggregate demand in the economy. The net impact will vary across industries.
“Some industries will find that the recent surge in migration helps to ease acute labour shortages that have developed in recent times, particularly export industries that do not rely on domestic demand,” the update said.
“However, our expectation is that the demand boost from migration will slightly outweigh the supply boost when assessed across the whole economy. Consequently, surging net migration has contributed to the view that unemployment will peak lower than expected at the Half Year Update, and that wage growth will be strong.”
Despite shutting down Boom Burger, Trinity Group still owns and operates The Arborist, Lulu, Trinity Hotel and El Horno.
Smith said that fixing the problem is not as simple as just glibly telling restaurants and bars to pay their staff better.
“It is becoming very difficult to bring in migrants, and few hospitality employers would be hiring them at the minimum wage,” he said.
The only exceptions would be young working holiday visa workers, who may get trained and then leave, he said.
”They will say, I cannot tell you how long I am gonna stay. Over this last summer, we have had about five working holiday staff pass through; often you have just got them trained and they are moving on again. So, some of them, depending on experience, will start at minimum wage. But if they come with some experience and a good attitude, we are invariably paying them more than minimum.”
Declining demand
In some respects, though, a decline in migration now may not be a problem – because there is also a corresponding decline in customer demand as the economy slows.
“My instincts say that things are slowing up and we are going to need fewer staff. And so, I think that the ones that have come in already have helped get the numbers right, in terms of what we need,” he said.
The Treasury’s Forecasting Manager Peter Gardiner explains why he expects inbound migration to fall away, just as fast as it has risen.
“The pace of the return reflects a judgment that much of the current record high levels of net inward migration of overseas citizens reflects pent-up demand that is not expected to endure,” he told Newsroom.
Population estimates form an important part of the economic forecasts as they directly influence both the demand for goods and services from the New Zealand resident population as well as the potential supply of labour.
These population estimates are a function of both natural increase (that is, the net of births and deaths) and net inward migration.
In the absence of arrival and departure cards, Statistics NZ use a statistical model to produce provisional migration estimates. As new data become available each month, the provisional migration model revises as it has more information about the border crossings it is trying to estimate.
In the two years immediately before Covid-19, net inward migration was running around 50,000 people per annum, slightly down from the average in the two preceding years of around 60,000 per annum which was the highest level of net inward migration since 2002. In fact, over the two decades leading to Covid-19, net inward migration had averaged around 30,000 people per annum, which included the period from 2010 to 2012 where net migration was actually negative to the extent of around 12,000 people leaving every year.
Net Immigration rises
“When Covid-19 hit and the New Zealand borders closed, net migration jumped to a peak of just over 90,000 people in the year ended March 2020,” Gardiner said.
“This reflected a combination of New Zealanders both returning home and delaying leaving, as well as a number of overseas people staying longer than they had intended and remaining in the country for longer than 12 months out of 16 – the threshold at which a person is classified as a migrant. Once the borders closed, net migration fell away and became slightly negative.”
Since the borders reopened and people began moving across borders again, net inward migration has bounced back with a net inflow of foreign citizens more than outpacing a net outflow of New Zealand citizens.
Annual net inward migration reached 65,000 people in the year to March 2023, with net inward migration of 12,000 people in each of the February and March months alone. These months were the highest net migration on record. “They likely represent a degree of pent-up demand from overseas people wanting to come to New Zealand, which is not expected to endure,” Gardiner explains.
“The Treasury forecasting model incorporates a medium-term assumption that net migration returns to around 40,000 people per annum, which is around the average level of net migration seen over the previous decade.”
In the absence of definitive information around the intentions of overseas and New Zealand citizens, he says Treasury’s forecast for net inward migration returns to this medium-term assumption over the forecast horizon.
Jonathan Milne is the Managing Editor of Newsroom Pro. The above article and images which appeared in the Newsroom have been reproduced under a Special Agreement.
