Contribution to a panel which is a part of the launch of the Australia-New Zealand Connections Research Centre (ANZRC), University of Canterbury, Christchurch, Friday 10 October 2008.
Keywords: Globalisation & Trade; Labour Studies; Political Economy & History;
The Trans-Tasman labour market is over two hundred years old – perhaps since the first convict fled across the sea from Botany Bay. But it is not seamless; labour markets never are. It may not be easy to transform oneself from on employer to another, or from one occupation to another, and certainly it is not easy to change regions even if the same employer and job is involved. Hence the public policy objective of removing artificial impediments to labour mobility across the Tasman.
To begin the analysis, let’s think about a worker moving from Christchurch to Wellington, say, and let’s largely ignore the family challenges of changing personal networks, of houses, of schools for the children, of medical care and so on. Perhaps we should not, because some of these changes are the subject of public policy. For instance, the national curriculum and schooling system makes the regional changes easier if there are children, and there is increasing compatibility of medical records. Moreover, there is a common legislation and systems for such things as house purchase and the changing over of one’s bank branch will be straight forward.
The Christchurch local authority will lose revenue – rates – as one leaves, and Wellington gains. Rates are partly user pays, so that demand for services goes down as somebody leaves. But that cannot be totally true since there are economies of scale and, in any case, some pay more relative to their burden and others less, and it is the over-payers who are more likely to leave. I guess we have some notion that the regional flows balance out; where it does not and there is a substantial imbalance, we tend to have a regional development support for the failing region (support, incidentally, which is rarely well designed).
One of the simplicities of the Christchurch to Wellington move is that a host of nation based entitlements are retained, including social security and health entitlements, Kiwisaver and, of course, the offset of income tax liability. As far as the central government is concerned it is broadly fiscally neutral to the shift of a person within the nation.
That does not apply when someone crosses the Tasman. The extent to which the nation-wide entitlements travel with them has to be negotiated between the governments. But the tax revenues from the individual switches from one central government to another. The international migrant from New Zealand diminishes the local tax base, just as does the national migrant from Christchurch. But this time it is the much larger national tax base, and not just that of the local authority.
Importantly, migrants are not a random sample of those living in a country. They tend to be the young and skilled, at the time of their life where they are net contributors to the government coffers. Those they leave behind tend to be at a stage in the life cycle when they are drawing on the government. Out migration weakens the government coffers.
From which it follows, that out migration weakens the origin economy. That is true even if we assume the strict economic assumption of people being paid their marginal product. If we used a more a more complex and dynamic assumption (associated with the economies of agglomeration, which are critical in the globalisation process), that one worker adds to others’ marginal product, the weakening of the origin economy is even stronger.
Conversely the destination economy is better off. As a general rule it is better off than the origin economy is worse off, so in a certain sense the two economies (the whole of Australasia) is better off. That is the case for freedom of migration within an economy. However the case does not apply for between economies, since one economy will be better off at the expense of the other.
If that is not obvious, suppose everybody under the age of 65 left Christchurch for Wellington, leaving just the retired behind. Especially if there was no New Zealand Superannuation, but in any case, Christchurch would be worse off. You will observe that what is critical here is differential migration, that some groups leave but others stay. Were the migration to be in proportion to the social groups in the community, Christchurch would be
smaller, but no worse off in the long run (if we ignore the economies of agglomeration and transition effects).
This conclusion is perfectly orthodox, and derives from the same models which justify free trade, but which add the extra dimension of location. Thus while you may (or may not) argue that free trade is a good thing, you cannot use the same logic to argue free migration is a good thing. Some other argument is needed – probably a non-economic one.
I am not sure where that leads us. It certainly suggests that harmonising the Trans-Tasman labour market is not about increasing the economic performance of New Zealand. I wonder what the purpose is?
Endnote:
My paper finished at the end of the previous paragraph. After the panel, some of the audience suggested it was incomplete because it did not answer the question it posed. That was deliberate, because I wanted to underline that the answer was not an economic one and should not be answered by an economist.
Pressed ,I put on one of my other hats, and suggested that there is an important principle superior to economics ones of the right of free movement of people – or at least to leave a country (assuming another will take them). It is a right we upheld in the case of the rugby players who wanted too go to Apartheid South Africa, and it contrasts with the those regimes east of the Iron Curtain which placed severe restrictions on their citizens leaving. Perhaps in the case of Australia (and elsewhere) we go a step further make sure that there is no government impediment on the New Zealand citizens migrating.
But there may be another explanation. It would help if someone articulated it.
However, having given this explanation, I have in a way undermined the paper. Too often Trans-Tasman practices are justified by so-called economic considerations which are not valid economic arguments. It remains my objective to challenge this lazy thinking.