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The Labour Market Adjustment of Immigrants in New Zealand Report

Introduction

Nearly a quarter of New Zealand's population is foreign-born and forty percent of migrants have arrived in the past ten years. Moreover, immigrants to New Zealand are more qualified than the New Zealand-born workforce, as a consequence of skill-focused immigrant selection policies. Despite the magnitude of these immigrant flows, limited research has examined the economic performance of immigrants in New Zealand.[1]

This study extends the existing New Zealand literature in a number of ways. Unlike previous studies, which have all used Census data, we use data from the 1997-2007 New Zealand Income Survey (NZIS). Because the NZIS is an annual survey and different cohorts of migrants are observed in successive years, weaker assumptions are needed to separately identify the impact of additional years in New Zealand on labour market outcomes from general macroeconomic and ageing effects.[2] Thus, we use a synthetic cohort approach to examine how employment rates, hourly wages, annual income and occupations for immigrants compare to those for the New Zealand-born. This is the first paper on immigrant performance in New Zealand to examine wage adaption, as wage rates are not measured in the Census.

Besides using this different data source, we extend the previous work in this area along a number of dimensions. First, we examine how outcomes for immigrants change with years spent in New Zealand in a semi-parametric manner that makes no assumptions about the time pattern of labour market outcomes as more host country experience is acquired. Importantly, this approach reveals that the assimilation profile is almost never quadratic, as is typically assumed in most studies in this literature. Next, using this same framework, we consider the role that occupational choice plays in explaining differences in outcomes between immigrants and the New Zealand-born. We examine occupational choice both as an outcome variable and as a possible explanation for differences in hourly wages and income between immigrants and the New Zealand-born. One small innovation that we make is that we classify occupations by the average wage earned by the New Zealand-born in each occupation over the entire sample period. This allows us to rank occupations in a continuous metric that has the same explicit ordering for immigrants and the New Zealand-born.

We also extend previous work by examining whether the relationship between qualifications and labour market outcomes differs for migrants and the New Zealand-born, and the role that this plays in explaining differences in outcomes between the two groups. This is a flexible way of allowing for the possibility that immigrants with the same qualifications as New Zealanders have less human capital either because their degrees were earned overseas or because they have lower local skills such as English language ability.

Along the same lines, we examine how the process of labour market assimilation varies for immigrants with different educational qualifications and those born in different regions. While one weakness of the NZIS for examining immigrant outcomes is that detailed country of birth information is unavailable, we are still able to classify migrants as being born in one of five regions from which there are large differences in immigrant characteristics and outcomes.


Footnotes

[1] Exceptions include Poot (1993), Winkelmann and Winkelmann (1998a; 1998b), MacPherson et al. (2000), Boyd (2006), New Zealand Immigration Service (2003), and Statistics New Zealand (2004). See section two for a further discussion.

[2] It is still necessary to assume some structure on cohort effects. As discussed further in section 5, we assume that immigrants that arrive in a ten-year period can be grouped together as the same cohort and that ageing effects are the same for both immigrants and the New Zealand-born, but given these two assumptions we can semi-parametrically identify both the impact of accumulating time in New Zealand (often called assimilation effects) and macroeconomic effects.