Immigration has a long-term positive impact on GDP and the public finances. But more needs to be done in the short-term to prevent anti-immigrant sentiment rising
European elections have been taking place on the same day that the ONS has released its quarterly report on migration. These latest figures show that there was no statistically significant change in overall net migration, which amounted to 212,000 people in 2013. Net migration of EU citizens, however, increased to 124,000 – a statistically significant increase from 82,000 the year before, with the majority of this EU immigration coming from the EU15.
It’s well known that attitudes to immigration vary. For instance, the British Social Attitudes survey suggests that a solid majority of people with a degree think it ‘not too likely’ or ‘not likely at all’ that immigration results in people born in the UK losing their jobs, but over 85 per cent of those with no qualifications think it either somewhat or very likely. Is it just that educated people are more liberal?
In fact it may be that these different attitudes reflect different experiences. While studies tend to show that there has been no significant unemployment effect from immigration, there is evidence to suggest that, in the short term, higher paid workers benefit from immigration substantially more than the lower paid. The increased labour supply from immigration can create downward pressures on wages for lower paid jobs, particularly given the fact that immigrants tend to be better educated but apply for jobs that are lower paid than their qualifications would justify.
By contrast, more highly paid and highly skilled workers do not face competition from immigrants to the same extent, since immigrants tend to ‘downgrade’ to lower skilled jobs. They are also more likely to benefit from lower prices for services provided by lower skilled workers. From a short term distributional perspective, therefore, the greater likelihood of those with lower qualifications having negative attitudes towards immigration makes sense.
However, immigrants also have a fiscal impact, since they contribute on average more to the public purse than the UK born. The foreign born UK population was around 4.5 per cent less likely to claim government benefits than the UK born population. Amongst the ‘A8’ migrants – from the newer Eastern European accession countries – the likelihood was 13 per cent lower. The fiscal contribution of immigrants, according to the OECD, is nearly half a per cent of GDP – in other words, immigrants pay into the public purse around £7 billion more each year than they take out.
Immigrants also tend to be younger, and in the longer term lessen the effects of population ageing on public finances. Pensions are the single biggest part of the social security budget, and the proportion of retirees compared to people of working age will increase substantially in the coming years. Immigration can mitigate the effect of this on public finances.
Equally immigration tends to raise overall productivity, leading to higher average wages, particularly since immigrants are on average more highly skilled. The positive benefits can come through the complementarity of skills between immigrants and native workers, transmission of skills and knowledge to natives, and increased competition leading to greater incentives for native workers to improve their skills.
In the longer term, therefore, immigration has a positive impact on public finances, wages, and GDP but the short-term effect on those already in the UK who are on low pay and have low skills is real and the attitudes of these groups might reflect that impact.
Talking up the long term benefits of immigration for everyone would help to shift attitudes but it may also be that part of the fiscal contribution of immigrants should be used to increase the skills of those on the lowest incomes or with no qualifications.
A transparent mechanism that does exactly that could be worth exploring. Indeed, the previous government began to create something like this, a Migration Impacts Fund, built up from an extra £50 on visa fees. Ignoring the voices of the people already hardest hit by the recession simply plays into the hands of those who may oppose immigration for other reasons; dealing with the short-term impacts head on may be the better way.
Ben Richards is a researcher at the Social Market Foundation. This post first appeared on its website
