Analysis: A new Reserve Bank of New Zealand discussion paper has landed in an election year when immigration is likely to be argued through one of its most emotionally powerful questions: if local workers are struggling, why bring in more migrants?

The paper’s answer complicates that political claim.

Using a model of New Zealand’s economy between 1992 and 2019, the authors find that what they call an “expansionary immigration shock” is associated with a fall in unemployment, not a rise.

In plain English, that means a sudden rise in migration above what the economy was otherwise expected to experience actually creates more jobs.

That finding cuts against a common political intuition. Immigration is often framed as a competition story. That more workers chasing the same number of jobs.

The paper treats migrants not only as workers looking for jobs, but also as people who spend money, rent homes, use services, borrow, study, travel and create demand across the economy.

That is why the result is not as simple as “more migrants means fewer jobs for locals”.

The discussion paper, 'Migration and the New Zealand economy: Evidence from sign-restricted SVARs', was written by Reserve Bank economists Naveed Javed, India Power and Adam Richardson.

The paper is externally refereed, but carries the standard caveat that its views are those of the authors and not necessarily those of the Reserve Bank.

Its central labour-market finding is politically striking.

When migration rises unexpectedly, the model finds unemployment falls significantly for around 18 months. More precisely, it finds that a 0.25 per cent migration increase is associated with unemployment falling by more than 0.20 percentage points in the medium term, defined as two to three years.

The paper’s explanation is straightforward. Migrants do not only enter the labour market; they also add demand to the economy.

New arrivals need housing, food, transport, healthcare, education, retail, hospitality and other services. That extra demand can lead firms to hire more workers.

In that reading, migrants do not simply fill jobs. They also help create the conditions for more jobs to exist.

The authors also point to another reason unemployment may fall. Migrant workers and local workers may not be doing exactly the same work.

Their skills may complement each other rather than simply compete. If a business can find workers with skills it lacks, it may be able to expand, creating more work overall.

The paper also says New Zealand’s points-based migration system supports the assumption that many migrants are work-ready and enter employment relatively quickly.

It cites recent work saying more than 60 per cent of foreign-born workers have some form of tertiary education, and that over half of adults in New Zealand with a tertiary diploma or higher-level qualification were born overseas.

The model is not built around migrants arriving and remaining outside work for long periods. It is closer to a picture of migrants being absorbed into the labour market relatively quickly, while also lifting demand for goods and services.

But there is a wage trade-off. The paper finds real wages fall temporarily after a sudden rise in migration.

It reports a negative immediate response in real wages of around 0.18 per cent, while the labour-force participation rate rises by around 0.10 per cent.

Real wages remain significantly negative for at least the first four months, although the paper says the longer-term effect is likely to be positive.

The wider economic effect is expansionary. Real GDP rises by around 0.4 per cent six months after the migration increase and remains significantly higher for about 18 months.

The authors say this may partly reflect stronger demand from a larger migrant population, along with migrants’ participation in the labour market and the way their skills may complement those of local workers.

But the paper does not say migration is cost-free. While it challenges the claim that migration automatically raises unemployment, it also finds pressure elsewhere.

House prices and household credit rise significantly after a sudden rise in migration. The authors say rapid population growth can strain housing supply, putting upward pressure on house prices and rents.

On inflation, the finding is mixed. The model does not find a significant movement in headline consumer prices. But it does find a significant rise in non-tradable prices after about a year.

Non-tradable prices are prices for things that are mostly bought and sold inside New Zealand, rather than traded internationally. They include many local services and housing-related costs.

The paper says one possible explanation is that migrants increase demand for these local goods and services. Another is the effect of rising house prices, because rent and home ownership costs have a large weight in the non-tradables price index.

The model also suggests migration is not a minor sideshow in New Zealand’s economy.

The authors find that a migration increase explains about 30 per cent of the variation in real GDP and 30 per cent of the variation in unemployment at the three-year horizon.

It also explains 25 per cent of the variation in labour-force participation and 20 per cent of the variation in house prices.

Age matters too. In a separate check, the authors split migrants into “younger” migrants aged 15 to 29 and “older” migrants aged 30 to 44. They find unemployment falls more clearly when younger migrants enter the labour market, while older migrants are associated with higher labour productivity.

For election politics, the difficult part is that voters may not experience the labour market as an aggregate economic model.

Even if migration is associated with lower unemployment overall, local workers may still feel under pressure in particular industries, towns, regions or wage bands.

The paper does not prove no worker loses out from migration. Nor does it settle arguments about housing, infrastructure, schools, hospitals or public services.

The authors also warn against applying the findings too broadly to the post-Covid period. Their data runs from the first quarter of 1992 to the final quarter of 2019.

They stop before Covid because the pandemic produced extreme observations that could affect the model, and because migration trends changed considerably in response to Covid public-health measures.

The election-year fight may still be about whether migrants take jobs from locals. But the RBNZ paper suggests the sharper economic question might be different.