The left and the globalist right have both failed to put forward the positive case for immigration, and Brexit is arguably the result. This document is intended to equip you for making that case by giving you a quick overview of the economic effects of immigration, according to the best evidence we have, and by clearly articulating plausible reasons for the effects we see.
There are clearly classical liberal and social reasons to believe that immigration is good. I do not address those arguments here.
For a very brief overview of the economic case, try this four minute video by the National Institute of Economic and Social Research (NIESR): Changing the debate: video animation on the impact of immigration on the UK (sources).
In each of the following sections, I briefly describe what the best available evidence indicates is actually happening, then some simple economic theory for why it is happening.
Common claims:
- Immigrants are stealing jobs
- Immigrants depress wages
- Immigrants are benefit tourists or a putting too much pressure on our welfare system
Bonus sections:
- Immigration and growth - a focus on the positive economic effects of migration
- Immigration and the EU - how will Brexit change immigration?
Immigration and the number of jobs
Experimental results
Despite a continued rise in the migrant population, employment rates for UK citizens and migrants continue to rise and unemployment rates to fall. The national effect is that migration does not reduce the number of jobs available to natives.
There are two caveats:
- These are national statistics. The regional picture may vary significantly.
- During the two years after the financial crash, the unemployment rate of all groups except EEA migrants increased. The EEA group experienced a small drop in unemployment. The vast majority of job losses at this time would be due to the recession and the austerity cuts to public services, but some small number of people may have lost their jobs to EEA migrants. The unemployment drop could also be accounted for by other mechanisms.
Source: Impacts of migration on UK native employment: An analytical review of the evidence, Home Office, 2014.
Theory
Immigrants typically both take existing job opportunities and create more job opportunities. Two reasons this might happen:
- As population increases, demand for services and goods rises, creating jobs.
- Immigrants often bring skills that we don’t have enough of or a willingness to work jobs that other people don’t want to do. This allows companies to change and expand in ways they could not if they didn’t have e.g. more programmers, doctors, plumbers, or enough people willing to work long hours in food processing factories.
Further reading: The Lump of Labour fallacy
Immigration and wages
Empirical evidence shows that immigration has only a very small effect on wages and only really on semi/unskilled labour.
More details: Immigration exerts a very small negative pressure on wages in sectors that have high proportions of immigrant labour. The strongest effect is observed in the semi/unskilled services sector (waiters, care workers, etc) where a 10 percentage point increase in the share of immigrant labour in the sector is associated with a 2% fall in wages in the sector over 23 years.
For comparison, inflation tends to drop wages (and benefits, due to the benefits freeze) in real terms by ~2% per year, every year. An effect ten times more significant.
What the paper identifies as semi/unskilled labour (from SOC 2000 categories 61, 62, 71, 72, 92): Postmen, shelf fillers, car park attendants, cleaners road sweepers, bar staff, porters, waiters, Call centre staff, Sales assistants, check-out staff, Housekeepers, travel agents/assistants, caretakers, Child-minders, nursery nurses, animal care assistants.
For skilled trades and up, the effect of immigration on wages is unlikely to be noticeable.
Source: The impact of immigration on occupational wages: evidence from Britain, Bank of England 2015
Theory
Theory on this point is similar as for the previous point: that immigrants increase the amount of work available, so while supply of labour increases, so does demand.
Migrants may be willing to accept lower wages than natives because of a lower cost of living back home and so on, but this effect is limited by minimum wage legislation, unionisation, and the aforementioned supply and demand effect.
Soundbites
Immigration and benefits
Immigrants, like British citizens, receive services (e.g. health care, education, transport subsidies) and benefits from the state. These benefits and services are paid for by general taxation.
Some immigrants, like some British citizens will commit benefit fraud, but, per person, the difference between the amount of benefit received and tax paid is about the same as for British citizens.
Migrants from the EEA actually contribute more on average than British citizens to government finances, according to most studies. Cameron’s government repressed a report on this topic several years ago.
Source: How immigrants affect public finances, Fullfact 2017 (a review of several studies)
Soundbites
The main cost of citizens to a state are at the start of their life in education and at the end of their life in healthcare and pensions. Economic migrants from the EEA are educated abroad and a fair number of them return to the countries of origin for retirement, so they make us money by working here, but don’t cost us very much.
The average immigrant is younger and (for EEA migrants) more economically active than the average UK citizen. By coming here and working, they help us share the huge cost of supporting older people.
People who do choose to settle in the country cost about the same as natives, but they’re contributing to economic growth, making us all richer (see below).
Low paid workers can support much greater wealth creation than they are compensated for. Because migrants are willing to work for less in e.g. food packing plants, we all benefit through lower cost food, even if the lower paid workers might be receiving more in benefits than they pay in taxes.
Immigration and economic growth
If all you know about immigration is that it will only depress your wages a very small amount and that some migrants contribute a bit more to public finances than the average UK native, you might be left wondering why we bother. So, a positive economic case for migration.
- The average immigrant is younger and (for EEA migrants) more economically active than the average UK citizen. By coming here and working, they help us share the huge cost of supporting older people.
- Migration makes markets more efficient by allowing companies to pull on the skills and labour of a much wider group of people and by allowing workers to move to a much greater variety of different jobs if they don’t like their current one.
- Migration increases growth by sharing good ideas around the world, think of how Japanese car manufacturing ideas helped so many manufacturing companies get more efficient, or how all of our successful companies and universities are stuffed full of people from all over the world.
Source: Is migration good for the economy?, OECD 2014
Immigration and the EU
For a non-academic, but very informative, look at low paid immigration to the UK, try this episode of “Anywhere but Westminster”.
65% of migration to the UK is from outside the EU. We already have complete power over migration from outside the EU. Both Labour and Conservative governments have chosen not to.
Of the remainder that comes from the EU, the government could have restricted immigration from the A10 (poorer, more recent members of the EU) until May 2011 under transitional agreements. Both Conservative and Labour governments chose not to.
Cameron’s renegotiation showed that the EU were willing to make concessions on migrants access to benefits. This and the transitional agreements suggests that a time limited arrangement on migration would be available if we stay in the single market, but leave the EU (Norwegian model).
If we stayed in the EU, we can still legally prevent undercutting of wages and we can address the regional issues people have by, e.g. creating jobs in poorer communities through direct investment and by prioritising UK citizens for social housing or simply building enough social housing.