Immigration, skills and changing urban income inequality in New Zealand

Policies have been implemented in New Zealand since the early 1990s that encourage long-term immigration of skilled workers and greater temporary immigration of unskilled workers. This paper investigates the contribution of immigration to change in income inequality of New Zealand’s urban population and compares that with the contribution of the changing skill composition of the population. We apply sub-group and Shapley-value-regression decompositions of inequality to calculate contributions of eight population groups, defined by skill level and migration status, to inequality. We use microdata from six consecutive population censuses between 1986 and 2013. We find with both methodologies that: (1) more than 90 per cent of income inequality in each census can be attributed to within-group inequality; (2) the growth in the share of the population that is highly skilled and the growth in the share of foreign born in the population both had inequality-increasing effects; (3) the skill effect exceeded the migration effect. The findings suggest that changes to the level and skill composition of future immigration – triggered by the anticipated ‘reset’ of New Zealand immigration policies when the border re-opens after the subsiding of the COVID-19 pandemic – will impact on future income inequality. Hence our decomposition approaches ought to be revisited after the 2023 census data become available to measure early effects of any new policies.