3.4.3.3 The Economic Impact of Immigration

Movements of people, to places where work is available, create some problems but many economic benefits.

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.  Movements of economic migrants and refugees from one country to another are even more sensitive.

Immigrants are widely perceived to be a threat to people’s jobs and wages.  They are often prepared to accept lower pay than local people, and they can sometimes be shamefully exploited.  Trade unions might not support them either, as in the 2014 case of the treatment of cleaners at the University of London, who had to form their own union in order to obtain a living wage – as highlighted in Nick Cohen’s article: Why we prefer our immigrants to be invisible.

A FullFact.org report, How immigrants affect jobs and wages, showed little overall impact but some detailed variations:

“UK research suggests that immigration has a small impact on average wages of existing workers but more significant effects for certain groups: low-wage workers lose while medium and high-paid workers gain.

…Overall, immigrants have no impact on UK-born employment.

…non-EU immigration was associated with a reduction in the employment of UK-born workers during 1995-2010.

…the results of research always only apply to the time and place under consideration.”

The downward pressure on wages for lower-skilled workers is a benefit for employers and consumers, but harms those who are competing for these jobs – although the threat is limited by having a minimum wage (3.3.3.3).

Office of National Statistics figures since 1971 show that UK unemployment has returned to 5% or less after each recession, so no ‘jobs have been lost to immigrants’.

Employed immigrants lead to increased economic growth – and an economy cannot grow without a growing labour force.  The immigrants require additional infrastructure, such as schools, transport, housing and health facilities for example, but they generate the additional tax receipts to pay for them.  The BBC report, Recent immigrants to UK ‘make net contribution’, noted that “Immigrants to the UK since 2000 have made a “substantial” contribution to public finances”.

Immigrants add to the economic capacity of a country.  If the increase in population doesn’t lead to unemployment, the economy grows.  An IMF report, Impact of Migration on Income Levels in Advanced Economies, found that:

“immigration increases the GDP per capita of host economies, mostly by raising labor productivity.”

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

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.  As reported in an Observer article, The Polish plumber who fixed the vote, London was famously grateful for the presence of Polish plumbers in the early 21st century.  Their customers benefited from lower prices, as noted on the Polish Plumbers website.  Their trade rivals were not pleased, but the influx did not lead to any reported unemployment of plumbers at that time.

Immigrants 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 – as reported in the article, Grateful for Immigrants.  (Their impact on unemployment in that example was to slightly reduce it overall).

An Economist leader, The magic of diasporas, observed that trade links can be more easily developed by making use of the family networks of immigrants from other countries.

Foreign students are potential immigrants with a ready-made path for integration into the destination country.  According to an IIE report, Economic Impact of International Students, “International students contributed $45 billion to the U.S. economy in 2018, according to the U.S. Department of Commerce” and “often lead to longer-term business relationships and economic benefits”.

Immigration has few economic drawbacks (which are temporary) and many benefits.  It creates political challenges, though, if there are large numbers involved (6.7.8).  The political problems, such as housing and education, need to be solved – but it is dishonest to suggest that immigration harms the economy.

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 reduces overall demand.

Only if immigrants are not able to work for some reason, and claim benefits, do they become a drag on the economy – but most find work, which was why many of them came.

Politicians who limit immigration do so for political, not economic, reasons.  They rely on people not understanding economics (and some seek popularity by demonising immigrants).

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This is a current page, from the Patterns of Power Edition 3a book, © PatternsofPower.org, 2020.  An archived copy of it is held at https://www.patternsofpower.org/edition03/3433a.htm