How opening the border could make the labour shortage worse - economist

Employers hoping open borders will make it easier to find staff might find it actually makes it harder, a major bank has warned.

Wages are so low and the cost of living so high, people might be more likely to leave our shores than "stampede" into New Zealand, says ASB senior economist Mark Smith. 

With the borders shut for the foreseeable future, including to much of Australia, bosses are struggling to fill roles normally filled by migrants and travellers. Even white-collar firms have resorted to "poaching staff off each other" with potential recruits from abroad staying away, unable or unwilling to pay for 14 days of managed isolation. 

This has put Kiwi workers in a good bargaining position, able to demand higher wages - with ASB on Wednesday warning this could result in a wage-inflation spiral, calling for the official cash rate (OCR) to go up sooner rather than later to cool the economy by making it costlier to borrow. 

On Thursday, the bank expanded on this, warning the eventual opening of the borders could make things even more difficult for employers. Despite a rising minimum wage and increased bargaining power for Kiwi workers, our incomes still lag behind Australia's. 

"With net immigration slowing from a flood to a trickle, the supply of labour is constrained, and this is causing increasing headaches for firms," Smith says. 

"Open borders are a two-way street. The large carrot provided by higher wages across the ditch could see the trans-Tasman bubble further tighten the domestic labour market. Moreover, the relaxation in border restrictions that we envisage to occur from early 2022 is likely to be incremental and may not instantaneously trigger a stampede of workers to our shores. 

"The high cost of living, the scarce availability of housing, and pandemic-related restrictions limiting the movement of people between countries could act as deterrents to people settling in New Zealand." 

Statistics NZ figures show population growth in the year to March was just 0.7 percent, the lowest since the brain drain in the early 2010s. Growth in the working age population was even lower - just 0.3 percent. 

"With the border restrictions likely to be in place until 2022 and after then only being gradually relaxed, the New Zealand economy will likely continue to struggle to find sufficient workers," said Smith. 

Unemployment is at 4.7 percent, defying predictions it would skyrocket in the wake of COVID-19. ASB expects it to go even lower, close to 4 percent by the end of the year, as the country reaches "full employment". 

"The time for emergency monetary policy settings has passed," said Smith. "ASB expects the OCR to start moving up in November. The timing and magnitude of subsequent OCR hikes will hinge on a number of key demand, supply and pricing metrics that we are closely watching."