Auctions: The Answer to Our Immigration Problems?

Immigration is an important contributor to our economy. As a small growing nation there is no way we could possibly provide enough skilled labour from the current population stock to maintain the current rate of growth in the economy and in living standards. The NZ Powerhouse Institute is pro-immigration, however we don’t think the current system is a good approach.

The current system assigns to the Government responsibility for determining what occupations need immigrant labour the most. This it does through various visa programs and lists of in-demand occupations like the Long Term Skill Shortage List. This is NOT a good method of achieving allocative efficiency.  Treasury and Immigration officials, no matter how smart, do not have adequate information to make an informed decision on where immigrants would be most valuable to our economy. This is simply an argument against central planning, which has long been accepted in economics to be a flawed way of managing an economy.

Given its poor record in running economies, why should we believe central planning is a decent way of running an immigration system? Especially when it has resulted in absurdities like tour guides being our most-imported occupation (Productivity Poverty – Christopher Swasbrook and Bernard Hickey for Elevation Capital).  Surely some of the 50,000 20-25 year old New Zealanders not in education, employment or training could be trained for these roles. 

We need to rectify these absurdities and change the immigration system, without falling into the trap of blaming the immigrants themselves, because it is our fault for allowing the Government to maintain this bankrupt approach.

A better system in my opinion would be a auction-based system of immigration management. In her paper Should countries auction immigrant visas?, Madeline Zavodny presents this alternative system in which the Government conducts regular auctions of work visas, open to bidding by employers. Visas would then go to the highest bidders. This system has many advantages like:

1. It allocates visas to the areas of the economy in which they are most valuable
This system makes the price system applicable to immigration, with all its advantages, including the allocation of resources to those uses in which they are most valuable first, so as to prevent waste.

2. It functions as a de-facto tax on immigrant labour, encouraging the employment and further training of locals
This system disincentives the hiring of immigrants by making it cost. This makes employing and training locals much more attractive and neutralizes arguments about immigrants cannibalizing local jobs.

3. It shifts the negative external costs of immigration to those who benefit from it
Currently, the external costs of immigration, like increased pressure on our infrastructure, are borne by all taxpayers. With proper ring-fencing of the revenue from the auction, such revenue could be used to cover the costs to the national purse of immigration.

So what are your views? Is an auction-based system appropriate? Would it allow the economy to grow and be more efficient than the existing system?

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