I am going to do something very dangerous today. I am going to touch on one of the most controversial topics in current politics. I am going to write about immigration. To be clear, this post is not intended to upset anyone. I know there are many dimensions to this debate, most of which have nothing to do with economics, such as the impact of immigration on social cohesion and cultural identity. I am not going to say anything about that except that I agree these are valid concerns. All I am going to focus on today is the economic impact of immigration, knowing full well that this is only one part of the story.
When it comes to the economic dimension, there is the notion that immigrants tend to compete with domestic labour (particularly unskilled labour) for jobs. Thus, higher immigration should lead to higher unemployment and lower economic growth as more government resources are needed to support immigrants through the established social safety nets.
A team from the IMF has shed new light on these claims by looking at large waves of immigrants and refugees to developed countries. The interesting feature of their research is that they differentiate between regular immigration and refugee streams, and they focus only on instances of ‘large’ immigration waves where the annual inflow of migrants is larger than the median annual inflow of both the host country and the average inflow experienced by all OECD countries in the five years before to five years after the ‘shock’. On average, this analysis then looks at migrant flows where the annual inflow of migrants was larger than 1% of the population of the host country (or about 600k per year for the UK, 800k for Germany, and 3.5m for the US).
Going back to 1980, here is what happens on average in the five years after an immigration shock for regular migration (i.e. excluding refugee inflows).
Impact of immigration flow of 1% of total employment on host country economy
Source: Engler et al. (2023)
Crucially, these large immigration waves seem to have almost uniformly positive economic consequences. Immigration of 1% of total employment leads to a c. 1% increase in GDP five years after the shock. About two-thirds of this additional output is due to increasing labour productivity and one third is due to an increase in job creation and employment. This explains why countries with relatively strong migration flows over long periods like Australia, New Zealand, or Switzerland all tend to have more robust growth and experience fewer and shorter recessions.
However, much of the immigration shown above is geared toward skilled immigrants. What about the refugee waves that have dominated the political debate? Below is the same analysis for the five years after large refugee shocks.
Impact of refugee flow of 1% of total employment on host country economy
Source: Engler et al. (2023)
Here, the results are more mixed. The economic benefits to GDP are smaller than for regular immigration flows though marginally positive as well. After five years, a refugee flow of 1% of employment leads to a c. 0.5% increase in GDP. This increase in GDP is entirely driven by increasing employment and, crucially, the authors of the study find no evidence for refugees competing with or even crowding out native workers. As so many studies have found previously, immigrants are not competing with native workers but form a different class of job seekers. Yet, there is evidence in the data that where there is strong social support for refugees and refugees are integrated into society (and most importantly the job market) faster, the economic impact is larger.
Overall, the research points to a relatively benign economic impact of immigration. Skilled immigration is undoubtedly positive for the economy, employment, and productivity. Refugee waves are more ambivalent, but countries can make refugee shocks more of a success by developing policies that enable refugees to integrate into the local job market faster (e.g. through intensive language courses and the recognition of foreign professional certifications and degrees).
.....and sometimes these waves of industrious immigrants include people who publish economic data, articles etc. and thus increase the human capital of the population as a whole.
From the study 'We distinguish the impact of immigration shocks in OECD countries from that of refugee immigration in emerging and developing economies.'
The problem with this is that in Europe, where immigration has been moralized and for decades has been a crucial identifier of one's position on the political spectrum (and not seldomly discussed in terms of 'are you a decent person or not?') the difference between immigrants and asylum seekers is rather confused: a large share of asylum seekers are economic immigrants.
Second, in western European countries millions are not counted as unemployed since they are in some gov / local gov scheme which often is no more than a job scheme that keeps them busy and that flatters the official employment number.
The Ducth economy for instance, officially roaring, still has a mln plus 'inactives' who for some reason cannot be employed in the real economy but who are not part of the official unemployement statistic - which is extremely low. A (very) significant part of these inactives have a legal immigration background and most of them will simply be relatives of the 1960s and 70s immigrants. Most of whom were laid off in the late 70s / early 80s.
Another segment in the inactives number are the often also un(der)skilled 'refugees' who, since entry is supposed to be stringent, come in fleeing chaos. A large part of asylum seekers (typically young men) are middle class in their own country and basically function as the spearhead for a family. (For some reason the stream of refugees follows the path of US democracy promotion abroad...).
There is a clear difference in employment- and job levels when comparing north Africans (family-follow-up immigration / asylum) vs for instance Indians (official economic immigrants). But not just there: Ghanaians, like north Africans, often hold low wage jobs, but their unemployment numbers are lower than those of north Africans (just like their incarceration rates).
In the job market refugees/immigrants typically don't make a dent beyond low wage flexible jobs since in the ever growing service economy language- and social skills rule. Dependency on welfare is high. (And since Dutch welfare schemes keep up with wage growth in the real economy, the Dutch definition of 'poverty' is raised continuously as the country grows wealthier. These days, a single person making less than 1500 euros a months is officially 'poor'.
What is further 'remarkable' about the NL immigrant economy is that eastern European immigrants have crushed it compared to their north African and middle eastern compadres: almost all are employed...
Lance Roberts last week wrote an excellent deep dive into the effects of immigration, legal and illegal, on US economic growth, job creation, wage suppression, corporate profits and inflation.
A summary:
Millions of new jobs have been created the past few years, almost all of them part time and pre dominently filled by immigrants - legal and illegal - who work harder than locals, take less pay and benefits, are sick much less and hence are more productive and disinflationary.
Wage growth does not correspond with a growing economy & a 'tight' labor market (it's not that tight as typically thought in msm * ).
US full time employment has decreased the past decades with part time service jobs growing fast.
Since 2019, the cumulative employment change has favored foreign-born workers, who have gained almost 2.5 million jobs, while native-born workers have lost 1.3 million.
Most job growth is realized at healthcare (babyboomers retiring), leasure and hospitality, retail and the gov (i guess that's where young educated Americans hope to be employed so that they can pay off their student debt,,,).
Despite weakness in manufacturing and services, with many companies recently announcing layoffs, we have near-record-low jobless claims and employment.
But:
A 2023 survey from staffing agency Insight Global found that recently unemployed full-time workers had applied to an average of 30 jobs only to receive an average of four callbacks or responses.”
https://tinyurl.com/ms4pbphe
When the broader societal effects of immigration on the host nation are concerned, perhaps the most telling story never really told was Robert Putnam's study from 2007:
Bowling With Our Own
Robert Putnam’s sobering new diversity research scares its author.
'Robert Putnam, author of Bowling Alone, is very nervous about releasing his new research, and understandably so. His five-year study shows that immigration and ethnic diversity have a devastating short- and medium-term influence on the social capital, fabric of associations, trust, and neighborliness that create and sustain communities.'
https://tinyurl.com/4y4jxzrk
Putnam, a liberal and an immigration optimist and obviously sensing he was going to publish something that would go firmly against progressives' believes (and his) and that would reinforce conservatives' opinions, decided to not immediately publish his study but to do more research into how to combat the negative impacts. He didn't get beyond mostly the liberal abstractions that we know so well.
* Cullen roche 'You could even argue that metrics like full time employment, temporary help and the quit rate are consistent with a labor market that is loose.' https://tinyurl.com/3a97nz9e