New Zealand: Brain Drain or Brain Exchange?

The brain drain is a phenomenon most often associated with developing nations. Therefore, it might come as a surprise that New Zealand is also suffering from the emigration of skilled workers. However, in some ways, what’s happening in New Zealand is quite different from the phenomenon seen in developing countries; rather than a brain drain, what’s happening in New Zealand may be considered a “brain exchange.”

On the surface, it would appear as though the brain drain in New Zealand is worse than in any other developed nation; roughly 24.2% of people with tertiary educations born in the country now live overseas (Collins). The only two other developed nations that come anywhere close to this level of brain drain are Ireland and Luxembourg, whereas neighboring Australia only has about 2.5% of its highly educated workers living outside of the country (Collins).

According to a study conducted by the World Bank, New Zealand’s government loses approximately US$10,000 for every skilled worker that leaves through foregone taxes and expenses associated with such things as education and healthcare (O’Hare). However, it is also true that many of those that leave are replaced by immigrants that boost the economy, and many emigrants return to visit.

The main reason for New Zealand’s brain drain appears to be the higher salaries that skilled workers can earn in other countries. A portion of the 24.2% living outside of New Zealand are those lured elsewhere by the promise of greater incomes to help pay off student loans. Currently, these loans average over $14,000 per student – a strong incentive to go where the money is (Collins). Additionally, on average, highly-skilled New Zealand emigrants earn US$116,000, compared to the average salary in New Zealand of only US$65,000 (O’Hare).

However, the large figure also reflects New Zealand’s small size alongside a much larger neighboring state; about three quarters of New Zealand-born expatriates have gone to Australia (Collins). An agreement exists between Australia and New Zealand which allows for free travel between the two countries; this agreement has been around for about thirty years, and it is unlikely that either government will attempt to change it. Therefore, it is difficult for New Zealand’s government to control the outflow of skilled workers to Australia (“Government”).

According to Peter McDonald, the Director of the Demographic and Social Research Institute at the Australian National University, people are attracted to Australia because of the potential to earn higher wages. This incentive outweighs social benefits, such as the better health care system, in New Zealand. According to McDonald, “Most New Zealanders going to Australia are initially not thinking of going for life, they’re thinking of going and making some money and coming back. […] So those social differences won’t matter much, it’s the wage difference in the short term that’s going to matter” (qtd. in “Government”). McDonald predicts that the pattern of emigration of skilled workers from New Zealand to Australia is likely to continue as long as the Australian economy remains strong.

Whereas the brain drain effect is typically a negative when it occurs in the developing world, the same might not be the case for New Zealand. The concern over the brain drain has to do with the welfare of the country – the productivity of its workers, its human capital, and its living standards. Typically, if a country is losing large numbers of its skilled workers, the welfare of the remaining population will decrease. One might therefore be inclined to worry when they learn that New Zealand loses almost a quarter of its most skilled workers. However, by and large, emigrants from New Zealand are replaced by migrants to the country; the total net migration can be seen on the following graph:

It is therefore possible that what New Zealand is experiencing is better classified as a “brain exchange” than a “brain drain.” New Zealand’s Treasury explored this possibility in a paper published in December of 2001. According to this report, immigrants to the country appear to be more skilled than emigrants and the general population (Glass and Choy). The following chart shows the skill distribution of emigrants from and immigrants to New Zealand, compared to the general population:

As the graph shows, there are more high-skilled workers migrating to New Zealand than leaving it. This supports the hypothesis that the country is experiencing more of an exchange of skilled workers than a loss of them. The report thus makes the argument that a brain drain and a welfare gain are not mutually exclusive; brain drain can cause welfare gain if it stimulates the acquisition of human capital in the remaining population, or leads to higher-skilled return migration (Glass and Choy). Return migration occurs when citizens who have left a country later return; in New Zealand’s case, many return migrants come back with new, better-developed skills in their field of work. The main cause for concern, according to the Treasury report, would be if immigrants cannot get jobs to make use of their skills.

Whether one wishes to call what New Zealand is experiencing a brain drain or a brain exchange, there are things that the government can do in order to make the country more appealing to its own citizens and potential immigrants alike. Increasing investment in capital goods such as infrastructure, education, and technology can lead to increased productivity in the long-run. And, according to the Treasury report, if general productivity can be increased, then the country can afford to pay higher wages, thus attracting high-skilled workers. Additionally, encouraging the use of more high-skill technology could provide more opportunities within the country for those with skills to put them to use (Glass and Choy).

Works Cited

Collins, Simon. “Quarter of NZ’s brightest are gone.” The New Zealand Herald. APN Holdings NZ Limited, 12 Mar. 2005. Web. 19 Nov. 2011.

Glass, Hayden and Wai Kin Choy. “Brain Drain or Brain Exchange?” The Treasury. New Zealand Treasury, Dec. 2001. Web. 19 Nov. 2011.

“Government ‘powerless’ to stop brain drain.” TV NZ. Television New Zealand Limited, 15 Sep. 2011. Web. 19 Nov. 2011.

O’Hare, Sean. “New Zealand brain-drain worst in world.” The Telegraph. Telegraph Media Group Limited, 2 Sep. 2010. Web. 19 Nov. 2011.