Tuesday, November 13, 2012

Let Them Come

Adam Ozimek challenged econ-bloggers to spend more time writing about immigration.

I'd previously suggested a small move that New Zealand could make that would increase immigration at relatively low political cost: automatically grant permanent residence to international students completing a serious degree at one of our better universities. Adam argues for giving more international student visas for study in the U.S. It's already pretty easy to get a student visa to study here in New Zealand; our problem is that, as second or third country-of-choice behind the US for many international students, demand for our product seems pretty elastic to exchange rates.* One way of differentiating the New Zealand tertiary degree would be to bundle it with permanent residence.

International students graduating from tertiary institutions currently qualify for the Graduate Job Search Visa which gives them a year to find a job on graduation. On receiving a qualifying job offer in a field relevant to their qualification, the graduate can then apply for the Graduate Work Experience Visa, or try directly for immigration as a skilled migrant. Striking out as an entrepreneur would be tough to square with the immigration requirements. The working graduate can then move to residence. Each of those steps involves risk, and especially from the perspective of prospective students. Sure, NZ Immigration is likely to count your job offer in computer programming as relevant to your degree in engineering, but you can't really bank on it if you're weighing up your options from abroad. And the sure thing can be awfully attractive when you're already taking on a fair bit of risk by looking abroad in the first place.

On the downside, current University incentives to retain international students by chiselling on quality would have greater real-world effect; TEC would have to watch for the usual forms of gaming.

So:
  • Advantages:
  • Disadvantages:
    • NZ students would face more competition in the labour market after graduation. That's offset by benefits to employers;
    • Increased demand for housing to the extent that overall migration flows are substantially affected - we need to fix the supply side of housing anyway.
  • Red Herrings:
    • Eligibility for aid (DPB, unemployment benefit, sickness benefit) requires having been in New Zealand for two years after becoming a permanent resident; residence would only be granted on graduation. It's rather unlikely that anybody's grand scheme would be to slog through a university degree, hang around for two years, then live on the benefit;
    • The government can withdraw permanent residence from those convicted of serious offences within ten years of being granted their first residence permit - deportation remains a real option.
So, why not encourage more international students to choose New Zealand by bundling permanent residence with our degrees?

* There are creative ways around this that I've not yet seen anybody try. Foreign students pay more than their marginal cost - that's how the whole NZ tertiary system is able to stay afloat. But it means that slightly reducing the cost to foreign students isn't always the end of the world. I've wondered why no New Zealand university has yet tried the trick of taking on exchange rate risk on behalf of their international students. The larger body is the better bearer of that risk and can more efficiently lay it off with better access to competitive quotes on exchange options contracts. We have a pretty variable exchange rate: since I've been here, the New Zealand dollar rose from about $0.60 US to $0.75, back down to $0.60, up to $0.80, down to $0.50, up to $0.75, and now up in the $0.80-$0.85 range. We quote international students $NZ tuition fees that, over the course of a student's enrolment, could double or halve relative to the student's home currency.

There are a few ways of insulating foreign students against that currency risk. For an additional up-front fee, you could guarantee that tuition rates in the student's home currency would not appreciate by more than some manageable amount relative to changes in domestic tuition rates, then buy option contracts on the exchange markets to lay off that risk. You could allow students to pay up-front for future years' tuition to lock in current exchange rates if current exchange rates are favourable, with a discount for early payment of future years' tuition charges and subject to refund if the student drops out. You could even offer international tuition fees in the student's home currency, guaranteeing that enrolled students would see no increase in that tuition schedule relative to the increases enjoyed by domestic students, for the three or four years of their degree - again, laying off the risk in international markets.

4 comments:

  1. A good idea. But I would argue that university administrators are inept.
    We are more likely to witness their finance departments stuffing up a straightforward hedging transaction or being mis-sold complex derivative products they don't need than gain the benefit of removing currency risk from tuition prices.
    When Victoria University can barely plan the number of power plugs and wireless access points they need, how could they handle hedging currency risk for international student fees?

    ReplyDelete
  2. Do these Universities not have Finance departments?

    ReplyDelete
  3. Of course. But I doubt they would think to take advantage of knowledge they're already paying for. Unless my under-estimate of university administrators common sense is significantly off the mark?

    ReplyDelete
  4. "NZ students would face more competition in the labour market after graduation. That's offset by benefits to employers;"


    Not to mention the benefits to immigrants themselves.

    ReplyDelete

As I randomly delete anonymous comments, please use a handle. Comments on older posts go into moderation; sorry if there are delays in hoisting your comment from the moderation pool.