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Making immigration a force for good

The problems with immigration are clear and pressing, but they should not blind us to the benefits as well. ...

Apart from the obvious and immediate challenge of the migrant crisis, European states have to deal with assimilating the children and grandchildren of immigrants who have become ghettoized, and natives’ fears about the economic costs of immigration. There is a growing sense that Europe cannot cope with more migrant flows from outside.

Against these are the benefits. More immigrants means a higher total GDP, which make national debt burdens more manageable. Many immigrants provide mall but non-trivial boosts to natives’ incomes and standards of living. Business is boosted by being able to hire and bring in talent from overseas, and entrepreneurial immigrants raise productivity and drive forward innovation. 

There are costs, yes. But there are benefits too, and we’d do well to remember them.

For the purposes of policy discussion, it’s useful to differentiate between three different kinds of immigrant: EU, non-EU skilled, and non-EU unskilled. Although of course EU immigration includes both skilled and unskilled migrants, the policy response cannot differentiate between them.

It seems likely that whatever deal Britain strikes with the EU, it will include some limits on freedom of movement. Conservatives and free marketeers in other EU states may wonder if Britain is better off, even if this means less access to the Single Market.

The evidence, at least, suggests that this is not the case. A summary of the research around the impact of EU immigration into Britain by researchers at the LSE found quite consistently that, for EU immigrants at least, there was no negative job impact by a large number of measures.

Most simply, there did not appear to be any correlation between EU immigration into the UK and UK-born unemployment. Broken down by local authority area, there was no correlation between immigrant share of the population and either job losses or wage cuts. The same was true for unskilled native British workers only – there did not appear to be any relationship between their outcomes and immigration rates to their area.

This isn’t terribly surprising, even if we take a fairly simplistic supply and demand view of things. Immigrants supply labour, yes, but they also demand labour – they spend their incomes on groceries and other things, creating about as many jobs as they’ve taken. That’s a very crude way of putting it, but it might help us to understand why the empirics look so benign.

In fiscal terms, EU migrants to the UK contributed about £15bn in the decade up to 2011 (ie £1.5bn/year). Though this seems small, when you consider that we had a hefty deficit for much of that period, so the average person in Britain was a net drain on the public finances, it is not insignificant.

Immigrants allow for more specialisation and a deeper division of labour, increasing the productivity of native Britons and hence their wages. 

However, the productivity boost differs greatly between different states: a 1 percentage point rise in immigrant share of the labour force in the US generates a 0.5 percentage point rise in native productivity, but only a 0.06 percentage point rise for native productivity in the UK. Across the OECD the relationship, fairly linearly, seems to be that freer labour markets make immigration more beneficial for worker productivity.

Immigrants are about twice as entrepreneurial as native Britons, with huge potential benefits for everyone – consider the jobs and innovation created by Sergey Brin, Google’s Russian-born co-founder. 

It is also widely accepted that large multinational firms give a heavy weighting to ease of moving skilled workers when deciding where to locate a branch – to attract (let alone to generate) the Googles and Facebooks of this world, EU states will need to allow them to bring in the personnel they want.

When it comes to non-EU immigration policy, all this militates in favour of an immigration system that supports would-be entrepreneurs and highly skilled immigrants. 

The case for unskilled immigration from outside the EU is weaker, particularly from countries where cultural differences may make integration and assimilation harder. Indeed these seem to be the main challenges of immigration that are not simply myths (as most economic objections are) and as such states may be tempted to have their cake and eat it too. 

However, unskilled immigration from developing countries is an excellent development tool – indeed it may be the best policy for promoting international development we know of, since it provides such an income boost to the migrants and they send so much money home in remittances (three times as much as is sent in governmental development aid, globally, every year).

To this end, states may wish to consider replacing parts of their international development aid expenditure with guest worker programmes, modelled on the United States’ diversity visa, which intentionally takes only a small number of people from any given country. This reduces problems of ghettoization, since new immigrants do not have a large support network of their fellow nationals and have to develop language skills and integrate socially. 

The presumption is also that workers on these visas will have to return home at some stage. Third-party liability insurance against the risk of overstaying and/or becoming a cost to the state (through dependency on the welfare system, for example) might also be a useful tool to mitigate the risks of taking in unskilled migrants.

Survey evidence shows that most people are not anti-immigration: they are anti-ghettoization, and worried that immigrants will hurt their incomes or job prospects. A responsible immigration policy will address these fears where they are real, and avoid throwing the baby out with the bathwater. Immigration comes with risks and costs, but immigration policy done right will address these and allow citizens of European states to reap the benefits too.