Fact Check: is there zero economic benefit from high immigration?

By Ian Preston

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

The evidence – from the OECD, the House of Lords Economic Affairs Committee and many academics – shows that while there are benefits of selective and controlled immigration, at best the net economic and fiscal effect of high immigration is close to zero. So there is no case, in the national interest, for immigration of the scale we have experienced over the last decade.

Theresa May, home secretary, speaking at the Conservative Party Conference on October 6, 2015.

Evaluating the home secretary’s claim requires recognising that the economic effects of immigration have several dimensions. Although she says the overall impact is close to zero, she bases that on several specific claims.

The first point of concern is how immigration affects the labour market. It is easy to tell anecdotes about how immigration harms job prospects in receiving countries – but this can be misleading. Immigrants compete with similarly skilled workers but they also create demand for jobs by spending their income. Just like other forms of population growth, economies absorb immigration in many ways: importing capital, adjusting the composition of goods produced, adjusting training and technology.

The effect on wages has been heavily researched in many countries and evidence of large effects has indeed been difficult to find. There are exceptions, but the predominant conclusion is that immigration does not harm wages or employment.

Elsewhere in her speech, May contests this. She admits that migration can help “plug skills shortages” and bring talent in but makes specific negative claims about low wages and employment. She says that “we know that for people in low-paid jobs, wages are forced down even further while some people are forced out of work altogether”. More strongly, she argues that “there are thousands of people who have been forced out of the labour market, still unable to find a job.” Immigration control is needed: “For the sake of the people whose wages are cut, and whose job security is reduced, when immigration is too high.”

What happens to wages

What we do know about immigration to the UK is that immigrants are, on the whole, well-qualified but nevertheless tend to work initially in less well-paid jobs. There is some evidence from comparisons across regions that wage changes and immigration are most strongly associated in those jobs where immigrants work in the early years after arrival.

This could provide some justification for claims about wages – but it is subject to caveats. The effects are very small and immigrants move up to higher paying jobs the longer they stay so it is likely that such effects will disappear over time. Furthermore, there are counterbalancing wage gains in parts of the labour market where immigrants are not found and these more than compensate overall. On average, if wages gain from immigration then it ought to be possible to compensate those who lose and to benefit collectively.

As regards effects on employment, no convincing evidence exists to support the claim that immigration depresses it. Several studies have failed to find an effect. Work from within the government’s Migration Advisory Committee found evidence of association between one sort of migration in one period and changes in employment but the report in question is itself careful to point out that it is not very robust.

So overall, it’s possible to argue that the effect on the labour market of high immigration is small but not to support some of the other claims made about the labour market.

Positive effect on public finances

A second aspect of economic effect is the effect on the public sector. What we know here is that in the ten years since 2001 the best evidence, trying to account comprehensively for effects through all taxes and all components of public spending, is that migration impacted public finances positively, particularly migration from within the EU but also from outside. This was at a time of overall fiscal deficit when the average British-born person was contributing negatively, as the graph below shows.

Ratio of revenues to expenditures for natives and recent immigrants from inside and outside Europe, 2001-2011 Centre for Research and Analysis of Migration, UCL

Concerns about the prevalence of welfare tourism receive scant support from this source since immigrants are actually found to be less likely to claim than British residents.

Whether this effect is “close to zero” or not depends what it is being compared to. As a fraction of the overall deficit over the period it is small but on a per-immigrant basis it is more impressive. This is just the short term impact and a fuller assessment would need to look to the long-term when young, healthy, working immigrants will age, some possibly return to places of origin, and some bring up children whose taxes will contribute.

The home secretary also mentioned 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.

Even if immigrants are paying enough to cover the costs, it is still sensible to worry about effects on service provision which will matter economically to people using those services. Evidence suggests that immigrants are not less healthy than the British-born, use the NHS no more intensively and immigration may actually be associated with shorter waiting lists.

Immigrants, of course, provide a disproportionate share of certain NHS staff. Immigrants able to work are not more likely to commit crime. The presence of non-English speaking children is not deleterious to English-speaking children’s education. There are certain respects in which immigrants have a clearly positive contribution to education, for example through overseas university fees. Effects on housing and transport are less well-researched.

The home secretary finished her speech by concluding that “there is no case, in the national interest” for large scale immigration. A full evaluation of this claim would need to take account of other aspects to the economic impact about which evidence is thinner. The economic case is not based so much on the scale of migration as perhaps on limiting migration restrictions which prevent firms from searching widely for skills and workers moving to where there are jobs. There is some suggestive and plausible evidence, largely from outside the UK, that immigration promotes innovation, entrepreneurialism and trade in ways that will boosts growth.

Verdict

It is true that the labour market impacts of immigration on British-born workers are plausibly close to zero – but that contradicts claims made elsewhere in the home secretary’s speech. Fiscal effects, on the other hand, at least in the short term, are not close to zero but positive. A full assessment of economic arguments for immigration would have to go beyond these effects.

Acknowledgement: This piece was first published at The Conversation