Migrants, Productivity, and the Construction Sector

Feb 28, 2018

With plans for building 100,000 new homes over the next ten years, construction is a sector at the heart of questions about New Zealand’s productivity.

New research from Motu Economic and Public Policy Research finds that the construction sector is very dynamic, with lots of staff changing firms and many firms entering and exiting the industry.

“Among those employed in the construction sector, fewer than 40 percent of people held the same job four years before a specific date and only around 40 percent held the same job four years after,” said Adam Jaffe, Senior Research Associate at Motu.

The research indicates that the high level of worker ‘churn’ is responsible for some differences in productivity between firms.

“Firms with new workers show higher productivity, especially if these workers come from high productivity construction firms,” said Dr Jaffe.

“Our study suggests that around 75 percent of the higher productivity is because good firms tend to hire good people and around 25 percent is due to an increase in knowledge,” said Dr Jaffe.

For the first time in 2017, New Zealand work visas were granted to more tradespeople than professionals, according to interim figures from Immigration New Zealand. In addition, the Ministry of Business, Innovation and Employment said in February that the country needs another 51,000 construction workers.

“Our research found that less productive firms tend to have more new migrant labour, but also that productivity doesn’t decrease when a given firm hires more migrants,” said Dr Jaffe. “I say this with a caveat that we can’t say for sure what hiring new migrants does. It does however, suggest that the origin of new workers, matters little to firm productivity, whether they come from overseas or from other industries.”

New firms are more productive on average, they grow faster, and their productivity continues to improve over time. The finding in Motu’s previous paper that the productivity advantage of entrants is largest in their first year appears to be an anomaly and we now find the productivity advantage of entrants is smaller in their first year, and the productivity performance of entrants then improves for at least a few years after entry.

Adam Jaffe and Nathan Chappell’s paper “Worker flows, entry, and productivity in New Zealand’s construction industry” is now available on the Motu website. This work was funded by BRANZ.

Summary haiku

Workers come and go.
Good for productivity.
Entry also helps