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The Impact of Immigration on the New Zealand Labour Market

Michael Tse & Sholeh A. Maani

The University of Auckland

Economics Department

Paper presented at ‘Economic Impacts of Immigration and Population Diversity, International Workshop’, 11-13 April 2012

Question & Motivation

• A large segment of the NZ population is foreign-born (almost a quarter).

• A key policy question is whether or not immigration affects the labour market opportunities of the existing workforce?

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The direction of the impact on existing workers is dependent on a number of factors. These include:

• Substitutability between immigrants and natives. Are immigrants and the native-born with similar educational qualifications complete substitutes?

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Elasticity of substitution

• If immigrants and natives are substitutes, then the inflow of immigrants would reduce wages in the labour market (Borjas, 2003; Orrenius & Zavodny, 2007)

• If immigrants complement native workers, then we would expect positive changes to earnings from immigration (Ottaviano & Peri, 2007; Borjas, Grogger & Hanson, 2008)

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Immigrant education and experience

• The value placed on education and experience acquired abroad is often less than the value placed on domestic education and experience (Lalonde & Topel, 1991; Duleep & Regets, 2002; Akresh, 2006; Antecol, Kuhn & Trejo, 2006)

International literature

• Altonji & Card 1991 and Borjas 2003: 10 % point increase in fraction of immigrants reduces the wages of less skilled by 3-4 %.

• Card 2005, Addison and Worswick 2002 : Mare’ and Stillman 2009, no significant adverse effect

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Modelling approaches of wage effects for the native-born

• 1. Spatial approach(Card, 1990, 2001, 2005; Altonji & Card, 1991; Dustmann, Fabbri &

Preston, 2005).

• 2. Factors of production approach• (Borjas, et al., 1996, 1997; Jaeger, 2007Leamer, 2000; Orrenius &

Zavodny, 2007, Mare’ and Stillman, 2009).

• 3. National level analysis (skill group)(Borjas, 2003, 2004, 2005; Orrenius & Zavodny, 2007).

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Data

• New Zealand Income Survey (NZIS), 2002 to 2007

• This is an individual level data released under the Confidentialised Unit Record File (CURF) format.

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Modelling Approach• National level analysis based on skill and

work experience categories

• Wage effects of immigrant supply shocks

Extensions:• We add spatial regional controls• We incorporate ‘effective immigrant

experience’

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• Immigrant supply shock:

• Pijt immigrant supply shock• M (Immigrant), N(Native-born)• i educational qualification• j experience group • t year

• 4 educational categories:

• No schooling• School qualification (high-school

completion)• Post-school• Bachelor or higher degree

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Model

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• Immigrant shock, fixed-effects and interaction effects on earnings and hours worked:

• Pijt immigrant supply shock• i educational qualification• j experience group • t year

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Index of Congruence

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a native-born

b immigrant

c occupation (two-digit)

Borjas (2003), Welch (1999)

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Results

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• Immigrant shock, fixed effects and interaction effects:

• Pijt immigrant supply shock• i educational qualification• j experience group • t year

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Spatial Correlation

• each cell is now defined as (r, i, j, t). That is, each cell is determined by a specific region, education level, experience group, and year.

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Defining Effective Experience

Let X be the effective experience of an immigrant worker:

• A age

• Am age at migration

• AT age of labour force entry

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• We estimate the three coefficients above in a standard immigrant assimilation regression of the form:

• Ic = 1 immigrant entered as a child

• Id = 1 if entry as adult• N native born 24

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= 0.4 a experience overseas conversion

= 0.7 m experience after migration

= 1.1 t experience of child immigrants

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Conclusions

We extend the standard national level approach to incorporate local government regions in the analysis.

• We defining groups by region-education-experience, and it has some impact on the results, but the effect is small.

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• We adjust for the value firms place on experience acquired abroad, and ‘effective experience’ for each worker.

• Based on this experience framework the estimates of wage effects continue to be small.

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