Looking at the economic benefits of immigration

Immigration did not play as large a part as expected in the UK general election but it is an issue that is unlikely to go away, either in the UK or many other countries. It will figure hugely in the upcoming negotiations between David Cameron and his EU partners over changed terms of UK membership. One of those changes being sought is a limitation on the rights of free movement of workers within the EU. The UK Prime Minister is unlikely to get what he wants but may get some new restrictions on the entitlements of migrant workers to welfare benefits.

The economic debate about immigration tends to focus on wages. It is often claimed by politicians such as Nigel Farage or Marine Le Pen that new workers from overseas depress wages. It was widely reported that Mark Carney, governor of the Bank of England, shares at least some of those views – although what he actually said was much more nuanced than the headlines suggested. Mr Carney noted that lots of the jobs growth in the UK over the last couple of years has come from lower paid employment and that high levels of immigration might be a small part of the story.

Countless studies

Whether or not migrant workers act to push down wages has been the subject of countless studies. Most economists and statisticians conclude that the effect, if it is there at all, is minimal. When it appears in the data it tends not to last very long; there are studies that even say migration can boost wages from time to time.

Foreign workers probably have much more of an effect through international trade: the addition of a billions of workers to the global workforce in China and elsewhere over the last three decades, willing to work at fractions of developed country pay rates, has been much more important for wages than migration. The ripple effects of these new workers have been felt in most labour markets, even where some of the Western jobs are highly paid. And there may be more of this to come.

In the EU, because of that British referendum, focus will be on migration from Eastern European member states to countries like the UK and Ireland. Here the evidence is less nuanced. A recent study by the University College of London Centre for Research and Analysis of Migration (CReAM) concluded that since 2000, EU immigrants have coughed up more than £20 billion to the UK exchequer and saved the country £8.6 billion in education costs.

That point about education is important because it is rarely made. There is a kind of endowment effect whereby immigrants bring their education with them: that learning has, of course, been paid for elsewhere and typically is of a higher level than the average domestic UK worker. Some 62 per cent of EU migrants to the UK have a university degree. Since 1995, immigrants to the UK gifted the UK jobs market with “human capital” that would have cost the British £49 billion if they had had to do it themselves.Those same immigrants paid 64 per cent more in taxes than they received in benefits. Those who came specifically from accession countries contributed 12 per cent more than they received. All of this adds up, for once, to a very clear conclusion: as a group, EU migrants to the UK don’t move there for benefits, they go to work and when they do, they are more productive than the natives.

Positive impact

Elsewhere, there is lots of similar evidence, although not quite as positive for public finances as found in the UK. For the OECD as whole over the past half century, migrants are either fiscally neutral or add slightly by paying more in taxes than they receive in benefits. Similarly, there is a small but positive impact on GDP growth caused by immigration.

So, those politicians who lean on economic arguments to reduce immigration really should to be made to look elsewhere. This gets us on to difficult territory because the first thing that anti-immigrations types are keen to prove is that they are driven by reason, not racism. But that reasoning cannot include economics. Indeed, long term demographics suggest that countries with ageing populations need more, not less, imported workers. Somebody is going to have to pay income taxes to fund all those pension promises.