Wednesday, January 03, 2007
The economic benefits of immigration
Posted by David Smith at 09:00 AM
Category: Thoughts and responses

Migrationwatch has achieved a blaze of publicity with its calculation that the benefit to the UK population of immigration amounts to a paltry 4p per head each week. It is true that simply raising the level of population does not mean that there is an overall gain in per capita GDP. But Migrationwatch's methodology does not look that convincing. Judge for yourself - this is a link to the press release and full report.


Actually, I'd say it is rather convincing. Obviously, massive immigration will increase overall GDP figures, but that's meaningless unless you're Gordon Brown trying to gloss over problems in the budget. Migrationwatch is correctly pointing out that the proper figure to be measuring is per capita GDP.

Posted by: RichB at January 3, 2007 10:37 AM

Migration Watch, given their general standpoint, were obviously looking to find a negative impact from immigration. The net finding is that immigration is weakly positive once any negatives they could find are included. So what's the problem?

Even the naysayers can't find that immigration is bad for the country.

Posted by: Paul Bivand at January 3, 2007 10:41 AM

I am sure they are not the first, but I can't remember anyone else producing figures for GDP per capita recently.

The impact of population growth on economic growth is instant and obvious. However, when the population growth is from immigration, it is not the contribution of the new people to the economy that is relevant, but the increase in the income and productivity of the original population.

Also, I do not know how these figures are calculated, but there must be some caution when what immigrants are producing has a monetary value (e.g. cheaper plumbing) but the negative impacts do not (e.g. overcrowding on the tube).

Posted by: Paul C at January 3, 2007 01:27 PM

Has the study accounted for the deflationary effects of immigration? And what about the immigration numbers supporting our multitrillion pound property market? Our property market seems to provide alot of fuel for our economy, surely the impact must be greater than 4p a head?

What about the issue of greater choice for our employers, who could potentially have a hard working chap from Poland rather than a local layabout chav bum?

I looked at the website, which strangely enough appears to have a anti-immigration stance, no suprises with the findings of the study then. I also note that they claim to be non-political, which appears to be complete poo poo. All they seem to do is publish fodder for the anti-immigration political arena. Sir Andrew Green was a professional diplomat for 35 years.

Conclusion? A biased study from a politically active group with a clear anti-immigration agenda. Not worth it's weight in dust.

Posted by: Werewolves at January 3, 2007 02:02 PM

If you look closer at the report, and specifically the numbers for GDP growth, the government is saying that GDP for non-migrants was boosted by 126 million pounds per year through immigration. Keep in mind, though, that this is just the increase to GDP, not necessarily a net benefit. The budget for the Immigration and Nationality Directorate responsible for administering immigration in the Home Office was 1.5 billion pounds in 2005. That alone swamps any GDP benefit, let alone the overcrowding in schools, prisons, transportation or the NHS caused by increasing immigration.

And as for the boost in housing prices, that just confuses inflation with an increase in value. For every home owner feeling flush from the increase in housing prices, there's a 30 year old facing the prospect of never being able to own a home.

Posted by: RichB at January 4, 2007 12:11 PM

No, that's wrong - the government is saying nothing of the sort. The problem with this kind of exercise is that it is what economists would call static, while the effects of immigration - and outward migration - are dynamic. The effects are many and varied, and accumulate over time. Some will be positive, some negative. It is hard, for example, to quantify the effects that an easing of wage pressures has had on monetary policy. Putting a precise number on it, as Migrationwatch has, is bad economics.

As for house-price inflation, there is a distributional impact, but it's obviously wrong to say that for every home-owner benefiting there's a frustrated 30 year-old. Owner-occupation, don't forget is 70%. Frustrated first-time buyers are a small minority. Sad but true.

Posted by: David Smith at January 4, 2007 12:42 PM

That's absurd to criticize Migrationwatch for "putting a number on it" while remaining silent about the original numbers (equally static snapshots) put forth by supporters of increased immigration. Putting a number on it is the bedrock of economics. If you aren't going to put out specific, quantifiable estimates where others can see and understand you're reasoning, then there's no subject for real analysis and discussion -- it's just opinions.

Posted by: RichB at January 4, 2007 08:47 PM

That's absurd to criticize Migrationwatch for "putting a number on it" while remaining silent about the original numbers (equally static snapshots) put forth by supporters of increased immigration. Putting a number on it is the bedrock of economics. If you aren't going to put out specific, quantifiable estimates where others can see and understand you're reasoning, then there's no subject for real analysis and discussion -- it's just opinions.

Posted by: RichB at January 4, 2007 08:48 PM

You don't understand the point. The Treasury has never put out a number for the overall economic benefits of immigration, although other ministers have sometimes produced a figure for whether Britain's migrant community - that's all migrants not just recent ones - contribute in net terms through taxation. The reason for the absence of an overall figure is that it is extremely difficult to do it. It certainly doesn't lend itself to back of the envelope calculations of this kind.

Posted by: David Smith at January 5, 2007 08:51 AM

So you're saying that Migrationwatch lied about the government producing figures in Parliament for the impact on GDP, not tax revenues:

In a recent parliamentary debate, a Home Office Minister gave an official estimate that "migration has increased output by at least 4 billion and (accounts for) 10-15% of economic trend growth" [5].

Whether it was the Treasury or the Home Office saying this is irrelevant -- immigration falls under the purview of the Home Office so why would the Treasury ever talk about it. It's still the same government.

(Sorry to be harping on about this on your blog, but I think immigration is a critical issue and that the economics community is not being as forthcoming about the distributional impact as they could or should be. And, sure, the Migrationwatch report is not as detailed as one would hope for, but it wasn't meant as an academic paper.)

Posted by: RichB at January 5, 2007 09:16 AM

No, I don't mind you raising it at all. But we should understand where we are coming from. So:

1. Nobody has done a comprehensive cost-benefit analysis on immigration. That includes the Treasury and it includes Migrationwatch. Maybe they should have done, but they haven't.

2. The figures quoted in the Commons were from a junior home office minister in the heat of a debate. I've never seen that 4 billion figure, and the Treasury denies knowledge of it. As for 10% to 15% of trend growth, that number has been around, but may not include the impact of recent immigration.

For interest, here's something the Treaury released under Freedom of Information, a mid-2004 assessment. Again, though, it is not the full picture:

"The decision to grant free movement of workers in the UK for the nationals of the new EU Member States was based on the economic benefits to the UK economy. In brief, free movement of labour in the EU works to increase wealth in a similar way to that of free movement of goods, services and capital, by allowing resources to flow to where they can be used most productively. It increases overall GDP by providing labour mobility and reducing mismatch unemployment. Such mobility is often considered a prerequisite for sustained growth under a single currency. There is also evidence to suggest that migrants increase the productivity of native workers, especially when they bring complementary skills. Recent Home Office research suggests that an increase in immigration of 1% of the non-migrant population leads to an increase of 2% in non-migrant wages. In addition, HMT studies suggest that around 15% of UK trend growth depends on inward migration, and that while foreign born migrants make up just 8 per cent of the population, they generate 10 per cent of GDP."

Posted by: David Smith at January 5, 2007 09:56 AM

I emailed the Treasury about the 4bn figure MigrationWatch used, and got a reply thet stated:

"The 4bn figure quoted by Ms Ryan MP during the Westminster Hall debate was an estimate of the direct economic contribution of A8 migrants since their accession in May 2004. It is not an estimate of the total economic contribution of all migrants, which will be significantly greater. The Migration Watch figures are therefore a underestimate of the increase in GDP per head."

So the whole MigrationWatch study was based on faulty data from the start.

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