Does Migration Benefit the Economy?

Hello readers,

Welcome back to my blog. In this post I thought I would discuss a topical yet controversial issue: migration.

With the recent vote to leave the EU in the UK to the refugee crisis across the world from war torn areas in the Middle East, I thought I would discuss some of the economics behind migration and dispel some of the myths that many people have about this topic. I will evaluate whether international migration creates more opportunities than threats, in the context of the UK and will also consider the social, political and moral issues. If you have any questions or would like to share your own views please comment below.

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It is widely debated in today’s society as to whether the benefits of international migration actually outweigh the potential costs; and despite the fact that there have been many studies into this field, the nature of migration is extremely complex and thus the issue remains controversial. Many people across the world are attracted to this so-called “treasure island” due to a combination of factors ranging from higher salaries and existing migrant communities to increased quality of life and standard of living. This, coupled with an open visa policy and the recent rise of “Corbynism’ demonstrate how the UK is generally perceived as being more open/cosmopolitan compared to the USA, China or France. According to the ONS, the number of foreign-born people of working age in the UK increased from nearly 3 million in 1993 to 7 million in 2015. The recent outcome of the vote to leave the EU exemplified the growing tensions between different social groups and their negative views/perception on immigration with many stating that they wanted to get “our borders back” and “protect our jobs”. However one could argue that many people were myopic in the sense that they were not looking at the long-term viability of the UK economy or provision of services in light of the current crisis with the NHS and the growing problem of an ageing population/state pensions. Clearly these services are not sustainable and we need a stream of economic migrants to contribute to the tax base of the UK if we are to have a chance at tackling the increasing budget deficit. Many do not realise that migration may be the answer and with the possibility of a ‘Hard Brexit’ we may be headed in the wrong direction. That being said terrorism, which has been associated with increased migration, remains a topical and pressing issue.

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Let us first consider the economic opportunities that are actually gained via pro-immigration strategies. Firstly it has been estimated that a 1% increase in immigration on average leads to a 1.25% increase in GDP (i.e. there is value added). This means that despite the fact that migration is often associated with creating unemployment for local people or putting pressure on “our” services, it actually has a net benefit. Furthermore, the claim that immigration takes jobs could be argued to be incorrect as often migrants are able to fill specific skill shortages or they take jobs which locals are unwilling to take e.g. Fenland-agriculture. It has also been shown that many of these migrants are extremely determined/motivated often with the goal of sending remittances abroad to support their families. As a result they have a higher productivity that employers favour. In fact a report by The International Longevity Centre think-tank suggests that EU immigrants can actually help increase employment opportunities instead of taking people’s jobs. On average, areas with higher employment rates for immigrants also tended to have more of the white UK-born population in work. Furthermore they suggested that by 2064-65, the UK’s GDP would be 11.4% (£625bn) larger with high migration than it would with low migration. They argued that because EU migrants have a higher employment rate than the UK average and because migrants from the European Economic Area made net tax payments totaling £22.1 between 2001 and 2011, they could be an asset in supporting the UK’s ageing population. The idea that immigrants crowd native Britons out of the jobs market “is built on the false premise that there are a fixed number of jobs in the economy.” Moreover, people often forget that Migrants also buy goods and services – providing a boost to the economy and creating new jobs. Migrants may also bring useful skills that complement those of the indigenous workforce. It also suggests migrants could boost the sustainability of government finances in the long run; under a high net migration scenario by 2064-65 net public debt would be expected to reach about 70 per cent of GDP – compared to 104 per cent of GDP in a low migration situation. Migration could therefore help support a population where the number of pensioners is expected to double between 2000 and 2050 and the number of over-85s is thought to be on course to more than quadruple in the same period. By contrast a reduction in the level of migration may require unpopular changes to government policy in other areas such as increased national insurance contributions or higher levels of tax.

Economists from the Centre for Economic Performance at the London School of Economics say that when they look at the areas with the largest increase in EU immigration, these have not seen the sharpest falls in employment or wages, and the OBR suggests that the UK’s fiscal position would be significantly worse in 50 years if migration was to be lower.

Aside from the economic benefits, there are a number of social and cultural opportunities created. Perhaps the best example of this is China Town. Not only does this allow people to experience and enjoy a different culture to escape their homogenized routines, but also it allows existing communities to feel at home-voluntary segregation as opposed to forced. Other benefits include new flows of ideas, work ethics, hobbies, sports, and beliefs. In terms of political benefits, it could be argued that migrants may have new ideas about certain policies, which may have previously worked, in their home countries.

Despite the opportunities created by international migration we must also consider some of the potential economic, social and political threats. Another issue felt keenly in the UK, is the concept that we are already ‘overcrowded’. In this case, a rapid increase in the population due to migration could lead to falling living standards. For example, the UK faces an acute housing shortage, but also an unwillingness to build on increasingly scarce ‘green belt’ land. In many cities, it is difficult to build more roads because of limited space. Increased population could increase congestion and urban pollution. Therefore, the increase in real GDP has to be measured against these issues, which affect the quality of life. From one perspective an increase in the labour supply may push down wages. This is especially true if migrants are keen to accept lower wages (e.g. willing to bypass traditional union bargaining/equilibrium level). However, again, net migration doesn’t have to push down wages. The massive immigration into the US, during the twentieth century, was consistent with rising real wages. That being said a Bank of England report found that a rise in immigration had a small impact on overall wages – with a 10% increase in immigration – wages fall by 0.31%.

The most common argument against increased migration as a solution to the problems associated with an ageing population is that ultimately the migrants themselves will get old thus contributing to the dependency ratio. However these arguments assume that migrants will remain in the UK for the entirety of their working lives and into retirement and there is evidence that migrants often choose to go home before they get old.

Although migration seems to have a broadly positive impact on public service delivery, there can be important problems at grass roots level. High net migration has resulted in rapid population growth. The Office of National Statistics ‘high’ migration scenario, which assumes net migration of 265,000, projects that the UK population will now increase by around 500,000 a year – the equivalent to a new city the size of Liverpool every year. This is unsustainable. It would result in the population growing by nearly eight million over the next fifteen years bringing it to 73 million. England is twice as crowded as Germany and nearly four times as crowded as France. To cope with this population increase huge amounts will have to be spent on the expansion of school places, roads, rail, health and other infrastructure. This is at a time when the government is running a budget deficit and aims to reduce public spending over the long term.

Public opinion however is clear. A large majority (76%) of the public want to see immigration reduced. The greater the number of new arrivals, the harder it is for everyone to become fully integrated in British society and undoubtedly the flow of new ideas leads to a loss of “Britishness” and cultural erosion.

In 2013, 62% of Britons worried that an increase in the Muslim population would weaken Britain’s national identity. This coupled with recent Islamist extremism attacks has led to a number of political issues and perhaps was one of the driving forces behind the vote to leave the EU. In addition, the rise of ‘white flight’ in Britain is ‘self-segregating’ as white families flee urban areas for the countryside and outer suburbs. The trend is causing an ‘ethnic cliff’, in which the proportion of households from minority backgrounds is vastly different in areas just a few miles apart.

In conclusion, I believe that migration is a process rather than a problem and given the rise of globalization, and the fact that humans will always strive to seek the best life possible it is almost inevitable. From considering the data, the consequences of international migration seem to be offset by the benefits such as increased contributions to taxation thus helping to reduce the deficit, promoting further investment and allowing for the expansion of the economy. Although statistically it may seem that by increasing migration the number of terrorist attacks have increased, it is important to note that correlation does not imply causation and it may be argued that the increase in such attacks reflect modern day conflict and political issues with previous government interventions in Middle Eastern countries. Even though there is evidence against immigration which suggest that it can have negative impacts, the majority of evidence states otherwise and generally the net benefit, taking into consideration all of the factors points towards a better future. Moreover, if we look back at history-immigration that supplied the labour that aided the post war economic recovery was vital. In more recent times, many doctors and healthcare workers in the NHS are migrants. Without them such services would not be able to function. Finally from a moral high ground, surely we have a responsibility to help fellow human beings where possible? Before employing anti-immigration policies or campaigns we should consider the stark juxtaposition between the lives of migrants and our current lifestyles and think about what we would do if we were in their shoes. Therefore since migration helps to support growth and the sustainability of public finances as our society ages we need not fear it. Migration is an expression of the human aspiration for dignity, safety and a better future. It is part of the social fabric, part of our very make-up as a human family.

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