In the UK, immigration has become an increasingly sensitive issue, with many opposing the free movement of labour within the EU. Many people have negative opinions on immigration, however they do not see the positive effects immigrants have on the economy. Larger immigration flows have positive effects fiscally, on the labour market and on total factor productivity and growth, therefore skilled immigration should be encouraged by governments.
The Roy model shows how immigrants choose to migrate, shown in the figure. In the UK, there are high returns to skills so immigrants tend to be positively selected, for example on average immigrants have 1.1 more years of schooling than natives (Bell, 1997). Therefore, migrants from the EU on average are more highly skilled than UK natives, providing the basis for positive immigration effects.
One criticism of large numbers of immigrants is the negative effect on wages, however it has been convincingly shown that there are small effects on the relative wages of natives (Card, 2009). Similarly, following the Mariel boatlift natural experiment in 1980, despite a 7% increase in the local population (mostly unskilled), there was no effect on the wages or employment outcomes of natives and there was little effect on the outcomes for other immigrants since industries were able to absorb the migrants (Card, 1990). Therefore, this suggests the immigration surplus is small, however for skilled migrants this immigrant surplus is larger due to production complementarities between skilled labour and capital (Borjas, 1995). Therefore, although immigration may lower the wages of skilled workers, this is more beneficial to firms and may help to reduce inequality (Card, 2009). Further, Goldin suggests that immigrants are complementary to native workers, making notable contributions to innovations, increasing wages in the long term.
Moreover, the immigration surplus benefits consumers as a 10% increase in immigration reduces the cost of immigrant-intensive services such as gardening by 2% (Cortes, 2008). Further consumer benefits come as an increase in skilled labour from the Soviet Union was showed to reduce consumer prices since these workers have higher elasticities and lower search costs (Lach, 2007).
In Exceptional People, Goldin points out that people dislike sharing with people ‘unlike’ themselves, therefore they dislike immigrants benefit shopping. However, in the UK, immigration has been shown to be beneficial to the economy fiscally. Between 2000-11, migrants from EU-15 paid 64% more in taxes than they received in transfers and benefits. Those from the accession countries contributed around 12% more, this is while the government runs a deficit showing further the positive impact of migrants (Dustmann & Frattini, 2014). Therefore, opinions about migrants not paying their fair share are unconvincing.
However, since governments believe migrants are considered a socioeconomic underclass they do not always realise their potential, for example the UK government restricting EU migrants access to the welfare state for 4 years in a newly negotiated deal with the EU may deter some immigrants away. However, such policies such as the PBS introduced in 2008/10 ensures skilled non-EEA migrants are allowed entry. In a paper for the IEA, Gary Becker suggested making a market for migration through pricing visas in order to only allow entry to those who would gain the most from it and therefore add the most to the UK economy. Such a policy would be more efficient than immigration quotas and would also raise government revenue.
Additionally, improved productivity and growth from immigration shows further benefits. In a paper for the IEA, Portes showed that immigration brings different complementary skills to the country, benefitting long run productivity and growth. For example, innovation. Goldin states 25% of patent applications in the US are from immigrants (who make up just 12% of the population). In the UK, in a study for the National Institute for Economic and Social Research (NIESR), Max Nathan showed immigrants have similar innovative effects. Therefore, in the long term immigration has positive effects on growth through improvements in total factor productivity (Ortega & Peri, 2013).
In conclusion, the effects of immigration are largely positive and rather than aim to reduce immigration in the UK, the government should instead provide greater incentives for skilled workers immigrate.
Becker, G. (2011). The Challenge of Immigration: A Radical Solution.
Bell, B. D. (1997). The Performance of Immigrants in the United Kingdom: Evidence from the GHS. The Economic Journal.
Borjas, G. J. (1995). The Economic Benefits from Immigration.
Card, D. (1990). The Impact of the Mariel Boatlift on the Miami Labor Market.
Card, D. (2009). Immigration and Inequality.
Cortes, P. (2008). The Effect of Low-Skilled Immigration on U.S. Prices: Evidence from CPI Data.
Dustmann, C., & Frattini, T. (2014). The Fiscal Effects of Immigration to the UK.
Goldin, I. (2011). Exceptional People.
Lach, S. (2007). Immigration and Prices.
Ortega, F., & Peri, G. (2013). The Effect of Trade and Migration on Income.
Portes, J. (2016). The Economic Case for Migration .