The economics of immigration
At the IEA’s sixth form economics conferences, Dr Steve Davies regularly delivers a lecture about what light economics can shine on the current immigration debate. Immigration issues have come to the forefront due to the problem of rapidly ageing populations, the refugee crisis and growing anti-immigration political rhetoric. The economic impact of migration has been intensively studied but is too often driven by ill-informed perceptions which, in turn, can lead to public antagonism towards migration. These negative views risk jeopardising efforts to adapt migration policies to the new economic and demographic challenges facing many countries. The main discussion points of any indigenous population when it comes to how immigration affects the economy are: job prospects and labour markets, wages, public services and welfare and housing and congestion.
The public tend to have the idea that there is a certain number of jobs in the economy and that everyone in the labour market is competing for those jobs. If it were true that an increase in the labour supply tended to raise unemployment in a dynamic economy, the entry of women into the labour market ought to have caused mass joblessness among men. Likewise, if a rising labour supply tended to depress wages, the entry into the workforce of the post-war baby boom generation, which added on average 4.24 million new babies to the population every year between 1946 and 1964, ought to have crushed wages. But, most economists argue that the belief that there is a fixed number of jobs (or fixed number of hours) is usually incorrect. People don’t just take jobs, they also create them. If a country experiences net migration, then the new arrivals will gain jobs in the economy thus adding to aggregate demand. They will spend their wages on goods and services, which creates additional demand and therefore additional jobs in the economy. More economic activity means more trade and more demand therefore more hours of paid work available. This also creates jobs in complementary lines of work; more builders, for example, entails a greater demand for architects and accountants, as well as for building supervisors and people selling building supplies. Not only do migrants tend to complement, not compete with, British workers, the economy tends to adjust rapidly to their arrival. Britain has a flexible and mobile labour market where people are continually arriving, leaving and changing jobs and a dynamic economy where businesses are continually investing and adapting their operations to changing circumstances.
In terms of the wages of the indigenous population, empirical evidence confirms what economic theory predicts. Studies typically find that immigration has a small positive effect on average wages. One study found that an increase in the number of migrants equivalent to 1 per cent of the UK-born working-age population boosted average wages by 0.2-0.3% (Dustmann, Frattini and Preston 2013). Increased migration boosted the median wage by 0.7%, while reducing the wages of the lowest paid 5% of workers by 0.6%. In practice, this meant hourly wages for the lowest-paid 10% rose by 18 pence per year instead of 18.7 pence (Legrain 2016).
During the Brexit campaign, migration into the UK was a big factor along the campaign trail and became a large influence into how people voted. A main point of argument was that EU migrants were supposedly a burden on the state because they claim welfare and put increased pressure on public services such as schools, universities and hospitals. Evidence, however, proves this perception to be false. EU migrants who have freely chosen to move to the UK have proved to be particularly beneficial. They are often highly educated: 43% have some form of Higher Education, compared with only 23% of UK born residents (Wadsworth et al. 2016). They are much more likely to be employed than British people: 78.2% of EU immigrants and 81.9% of A8 migrants are employed, compared with 72.5% of UK born residents. This defeats the claim that the majority of EU migrants simply scrounge off UK benefits and welfare.
Wadsworth (2013) also finds that immigrants don’t make greater use of doctors and hospitals than people born in Britain. A study by researchers at Oxford University found that NHS waiting times are actually lower in areas where there are more migrants (Giuntella et al.2015). Migrants are generally of working age and are therefore typically young and healthy, so make less use of the NHS than the typical Briton. Moreover, migrants disproportionately provide public service. The NHS is currently dependent on immigration to maintain staffing levels. More than a third of doctors, pharmacists and dentists in the UK are foreign-born, as are more than a fifth of nurses (WHO 2014).
The last point to be discussed is the idea that migration increases congestion, driving up the cost and reducing the availability of land and housing, depriving Britons of social housing and overcrowding the roads and public transport. This, however, is a weakness in the infrastructure that the government provides (or lack thereof). Three-quarters of the country is agricultural land; even in England only a tenth of the surface area is lived on (Evans and Hartwich 2007). Increased housing demand due to a higher population density would not be a problem if the housing market worked well; increased demand would lead to increased supply. Bans on building on some unused land severely restricts the supply of new housing, driving up prices instead. Similarly, a higher population density shouldn’t have to lead to increased congestion. Paris is more densely populated than London yet its Metro is less crowded than the Tube. The Netherlands is more densely populated than Britain yet its trains are less cramped. The issue is underinvestment in infrastructure and a poor planning system.
In economic terms, there is no difference between moving from Delhi to London and moving from Birmingham to London. The effects persist whether you go across a geopolitical border or not. In the words of Dr Steve Davies, what you may change is the ethnic/cultural composition of the country you move to.
Anjie Babalola is an IEA intern and starts studying Economics and International Relations at Lancaster University in October 2017.
As with all IEA publications, the views expressed are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff