3.4.3.3  The Economic Impact of Immigration

(This is a current extract from the Patterns of Power Repository; it has been updated since Edition 2.  An archived copy of this page is held at http://www.patternsofpower.org/version02a/3433.htm)

Movements of people, to places where work is available, create problems.  Cities act as a magnet, attracting people to migrate from the countryside, but almost everywhere there are resulting infrastructure problems – and often social problems as well.  Migration of people from one country to another is an even more sensitive problem.

Immigrants are widely perceived to be a threat to people's jobs and wages.  British studies[1] show that new immigration from outside the EU had an adverse effect on employment when the economy was in a recession; lower-skilled workers were the most affected, particularly existing immigrants.  Immigrants also exerted a small downward pressure on wages for the same groups.  This is a benefit for employers and consumers, but is a threat to those who are competing for these jobs – although that threat is limited: 

·      The country can introduce a minimum wage (3.3.3.3).

·      If the extra labour is absorbed, as has broadly been the case in the UK,[2] no ‘jobs have been lost to immigrants’. 

Increases in population require additional infrastructure; schools, transport, housing and health facilities for example.  Some of this can be supplied by private enterprise, but there is also an associated increase in government spending, offset by increased tax receipts.

Immigrants add to the economic capacity of a country.  If the increase in population doesn’t lead to unemployment, the economy grows.  There are several economic arguments in favour of immigration:

·      Immigrants can fill skills shortages, especially if their qualifications are recognised; schemes such as the International Baccalaureate are helpful.

·      If they are working, they are contributing to economic growth by spending money and contributing to their employers’ profits.  

·      Studies show that recent immigrants pay taxes that exceed the cost of the public services that they consume and the benefits they receive (though some other studies dissent).[3] 

·      The process of migration is a means of levelling out the supply and demand of labour.  This can help to overcome national differences in economic performance and it is one reason why free movement of labour is mandatory in the EU single market.  In one example, London was famously grateful for the presence of Polish plumbers in the early 21st century.[4]  Their customers benefited from lower prices.[5]  Their trade rivals were not pleased, but the influx did not lead to any reported unemployment of plumbers at that time.

·      Immigration can bring innovation benefits by increasing diversity and creating new markets, particularly in big cities.[6]  Immigrants are wealth creators, consumers and taxpayers.  They create new demand for goods and services from existing suppliers and they can revitalise run-down urban areas by setting up new businesses, as with the influx of Mexicans into New Orleans after the 2006 floods.[7]  (Their impact on unemployment in that example was to slightly reduce it overall). 

·      Trade links can be more easily developed with other countries, by making use of the family networks of immigrants from those countries.[8]

·      Foreign students are potential immigrants with a ready-made path for integration into the destination country.  They accounted for over half of Australian highly-skilled immigration by the early 21st century, for example.[9] 

These points suggest that immigration is usually beneficial overall in economic terms.  It creates political challenges, though, particularly if there are large numbers involved (6.7.4.1).  The political problems, such as housing and education, need to be solved – but politicians who inveigh against immigration on economic grounds, for example by repeating the fallacy that ‘they are taking our jobs’, are not being completely honest; immigrants usually enable an economy to grow.

Conversely, arbitrary limits on immigration can damage the economy, equivalent to having a shortage of electricity or raw materials:

·      A failure to recruit necessary skills will limit a company's growth.  This reduces the government's tax receipts.

·      Paying more for labour would lead to an increase in an employer's costs which, if passed on as higher prices penalises the consumers, and may lead to fewer jobs being available.

Only if immigrants are not able to work for some reason, and claim benefits, do they become a drag on the economy.  Rules to limit immigration are implemented for political, not economic, reasons; the politicians concerned believe that the political benefits outweigh the economic costs.

© PatternsofPower.org, 2014



[1] A UK Government study of the period 2005-2010, Analysis of the Impact of Migration, found that “100 additional non-EU migrants may cautiously be estimated to be associated with a reduction in employment of 23 native workers. But those migrants who have been in the UK for over five years are not associated with displacement of UK born workers…. It would not be appropriate to assume the same impact in a time of strong economic growth.”  This study was available in May 2016 at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/257235/analysis-of-the-impacts.pdf.

Oxford University’s Migration Observatory offers a wider perspective, in a study entitled The Labour Market Effects of Immigration, which was available in May 2016 at http://www.migrationobservatory.ox.ac.uk/briefings/labour-market-effects-immigration. It concluded that “For both wages and employment, short run effects of immigration differ from long run effects: any declines in the wages and employment of UK-born workers in the short run can be offset by rising wages and employment in the long run.”

An LSE study, Immigration and the UK Labour Market, gives an overall portrait of immigration in the period 1995-2014; it was available in May 2016 at http://cep.lse.ac.uk/pubs/download/EA019.pdf.  It concludes that:

“There is still no evidence of an overall negative impact of immigration on jobs, wages, housing or the crowding out of public services. Any negative impacts on wages of less skilled groups are small. One of the largest impacts of immigration seems to be on public perceptions.”

The study, which, made reference to a number of other studies, which quantify the concerns, and reported that “existing migrants are closer substitutes for new migrants … [so] UK-born workers are, on average, cushioned from rises in supply caused by immigration”; “less skilled workers” are more likely to be affected but “these effects are small”; and “There is no evidence that EU migrants affect the labour market performance of native-born workers”. 

[2] The May 2016 report from the Office of National Statistics, available then at https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/may2016#unemployment, showed UK unemployment figures dating back to 1971.  From the late 1970s onwards, unemployment has fluctuated but has repeatedly returned to a figure of around 5% of the workforce.

[3] On 5 November 2013, the BBC published a report entitled Recent immigrants to UK 'make net contribution' which was available in May 2016 at http://www.bbc.co.uk/news/uk-24813467. It summarised the findings of a study by Dustmann and Frattini of University College London (UCL), which said “Immigrants to the UK since 2000 have made a "substantial" contribution to public finances”.

Oxford University's Migration Observatory quotes the UCL study, but also listed other studies which disagreed with it, in its March 2015 report, The Fiscal Impact of Immigration in the UK, which was available in May 2016 at http://www.migrationobservatory.ox.ac.uk/sites/files/migobs/briefing%20-%20Fiscal%20Impacts_0.pdf.

The economic benefits of immigration in the US were cited in, for example, an article An Economic Case for Immigration, published by the Library of Economics and Liberty and available in May 2016 at http://www.econlib.org/library/Columns/y2010/Powellimmigration.html.  This article also debunked some popular fallacies.

[4] The Observer published an article on Polish plumbers on 29 May 2005, which was available in April 2014 at http://www.guardian.co.uk/world/2005/may/29/france.immigration.

[5] A price of less than half of an alternative quotation was used as an illustration in April 2014 on the ’Polish Plumbers’ website at http://www.polish-plumbers.co.uk/.  The same website stated that the company was not registered to the British Corgi standard – but pointed out that most jobs don’t require Corgi-registered plumbers.

[6] An IPPR report in September 2008, entitled Your Place or Mine? stated (on page 5) that:

“In some places, mainly big cities, the net impact of migration is generally strongly positive. New arrivals and the resultant growth in diversity can help drive forward innovation, open up trade links and keep economies on high-value growth paths. In this scenario, migration is a net benefit to the local area, and also contributes to productivity at the national level.”

It said that outside the big cities the effects were less obviously beneficial, particularly if migrants were used as cheap labour, but:

“In this scenario, migration may play a part in keeping these local economies on a low-cost, low valued-added path, with wider benefits not being realised. But without migration, these areas could fall into economic decline.”

This report was available in April 2014 at http://www.forschungsnetzwerk.at/downloadpub/your_place_or_mine.pdf.

[7] The impact of Mexican immigration into New Orleans was described as revitalisation:

“the Latino immigrants in New Orleans are not merely doing construction. They're also opening stores and restaurants, breathing economic vitality into a city still badly in need of a boost.”

This was reported 28 August 2007 in the Wall Street Journal in an article entitled The New Latin Quarter, and was referenced on the Cafe Hayek blog, which was available in April 2014 at http://cafehayek.com/2007/08/grateful-for-im.html.

[8] On 19 November 2011, The Economist published a leader entitled The magic of diasporas which was available in April 2014 at http://www.economist.com/node/21538742.

[9] This statistic was quoted by Peter Sutherland, as the United Nations special representative for migration, in a lecture entitled The Age of Mobility at the LSE on 26 November 2008.  The podcast of this lecture was available in April 2014 at http://www2.lse.ac.uk/government/research/resgroups/MSU/sutherland261108.aspx.