Why Theresa May is Wrong About Immigration

By Christian Dustmann , Ian Preston

Centre for Research and Analysis of Migration (CReAM) at University College London

When Theresa May says that "at best the net economic and fiscal effect of high immigration is close to zero" and that "there is no case, in the national interest, for immigration of the scale we have experienced over the last decade," she is ignoring persuasive arguments that immigration may in many cases be economically beneficial.

Severe restrictions on migration of labor prevent businesses from looking widely for skills they need and prevent workers from moving where their labor is most valued. There is suggestive evidence that migration may promote growth through encouraging innovation, trade and entrepreneurship. While public concern over the scale of migration in recent years is undeniable, to minimize the economic benefits as May does distorts what we know about how the economy responds to immigration.

May argues that "for people in low-paid jobs, wages are forced down even further [by high immigration] while some people are forced out of work altogether." These are strong statements, not confirmed in the academic literature.

The labor market effect of immigration is in fact a subject that has been comprehensively studied in many countries over many years, and few studies have been able to pick up the sort of negative impacts that she speaks about. This is true as much in the U.K. as it is elsewhere. Evidence on newcomers to the U.K. shows that they are typically better-qualified than the British-born workforce, but nevertheless tend to work initially in less well-paid jobs, downgrading while they pick up skills specific to the new labor market.

Regional comparisons of what happens to wages at different points in the distribution suggest that it may well be in those lower parts of the wage distribution—where immigrants work in early years after arrival—that impacts on wage are felt. However, estimated effects are small and, since immigrants tend to move up the wage distribution as they stay longer in the country, these impacts are quite probably temporary. Moreover, there are counterbalancing wage gains higher up the wage distribution and the overall effect is, if anything, positive. As regards effects on employment, no convincingly robust evidence exists that employment of the British-born is harmed.

The other aspect concerns public finances and delivery of public services. Far from the effects here being "close to zero," the best evidence we have suggests that, in the decade from 2001 onwards, migrants contributed more to the public exchequer than they took out. This applies particularly to migrants from within the EU but also non-EU migrants, and this was at a time of overall fiscal deficit, when the average British-born person was contributing substantially negatively. Critics of migration often point to supposed 'welfare tourism,' but immigrants are actually less likely to claim benefits than British residents.

The Home Secretary also points to effects on specific services, claiming that "when immigration is too high, when the pace of change is too fast, it's impossible to build a cohesive society. It's difficult for schools and hospitals and core infrastructure like housing and transport to cope." The positive exchequer costs discussed above, comprehensively measured in the sense that they include estimates of burdens through use of public services, indicate that migrants' taxes more than cover the costs which they impose.

Moreover, evidence suggests that immigrants are no less healthy than the British-born and use the NHS no more frequently. Immigrants with work opportunities are not more likely to commit crime. The presence of non-English speaking children is not harmful to English-speaking children's education. Income from overseas university students is beneficial to higher education. Immigrants provide a disproportionate share of staff in much of the public sector.

There will, of course, be short-term costs of adjusting to cope with inflows of new people, but alarmism should not distract from fact that immigration is fiscally beneficial and not harmful to the public sector. In the end, politicians need to adjust public services to immigration-induced demographic change—in the case of the U.K., recent immigrants have contributed what is needed towards the cost of adjustments required.

Christian Dustmann and Ian Preston are professors of economics at University College London (UCL). Dustmann is the director of the Centre for Research and Analysis on Migration (CReAM) at UCL.

Acknowledgement: This piece was published first on Newsweek