Impact of Immigration on UK Economy In the past two decades, the UK has experienced a steady flow of net migrants into the economy Net migration is a significant factor in the growth of the UK population But, does this net migration help or hinder the UK economy? Net long-term migration to the UK was estimated to be 260,000 in the year ending June 2014 This compares to net migration of 182,000 in the previous 12 months In the past five years, the UK population has been boosted by net migration of around 1,000,000 Inflows and Outflows • • In 2011, the top countries for source of migrants were India, China and Pakistan The top destinations for people emigrating from the UK was Australia, India and US Impact of Net Immigration on UK Economy Increase in Labour Force Migrants are more likely to be of working age – such as, students, and those looking for jobs They may bring dependants, but generally net immigration leads to an increase in the labour force and increases the potential output capacity of the economy Increase in aggregate demand and Real GDP Net inflows of people also lead to an increase in aggregate demand Migrants will increase the total spending within the economy As well as increasing the supply of labour, there will be an increase in the demand for labour – relating to the increased spending within the economy Ceteris paribus, net migration should lead to an increase in real GDP The impact on real GDP per capita is uncertain 3 Labour Market Flexibility • Net migration could create a more flexible labour market Migrants will be particularly attracted to move to the UK, if they feel that there are job vacancies in particular areas For example, during the mid 2000s, there was a large inflow of workers from Poland and other Eastern European economies – helping to meet the demand for semi-skilled jobs, such as builders and plumbers The government has also sought to attract migrants from various countries to meet shortfalls in job vacancies in key public sector jobs, such as nursing In theory, a period of higher unemployment might discourage migrants (this has occurred in the case of Ireland) However, the UK has seen continued net migration despite higher unemployment 2008-12 Positive impact on the dependency ratio With an ageing population, the UK has a forecast to see an increase in the dependency ratio However, net migration helps to reduce the dependency ratio Migrants are a source of working age people, and this helps to reduce the ratio of retired to working people This has benefits for the government’s budget If migrants are of working age, they will pay income tax, VAT – but will not be claiming benefits Impact on particular sectors An important target of net migration is higher education In 2010/11 there were 428,225 international students, studying in the UK These students may not show up in long-term migration trends But, the short term effects are quite important The Russell Group of leading universities suggest foreign students contribute £2.5bn a year in fees – helping to finance higher education for domestic students Re asons for migration UK – Nov 2014 ONS Migration Report, Table The latest ONS report suggests formal study is the biggest reason for net migration into the UK Social issues Another issue felt keenly in the UK, is the concept that we are already ‘overcrowded’ In this case a rapid increase in the population due to migration could lead to falling living standards For example, the UK faces an acute housing shortage, but also an unwillingness to build on increasingly scarce green belt land In many cities, it is difficult to build more roads because of limited space Increased population could increase congestion and urban pollution Therefore, the increase in real GDP has to be measured against these issues which affect quality of life Economies of Scale Others may argue that concepts of ‘overcrowding’ are misplaced In the nineteenth century, people were already worrying about overcrowding But higher population densities are in one sense more efficient and have a lower environmental impact Other countries like Belgium have an even greater population density than the UK Also, if migrants help to grow the economy, there will be more tax revenue to finance public infrastructure Welfare benefits A popular idea is that immigrants are more likely to receive welfare benefits and social housing The suggestion is that Britain’s generous welfare state provides an incentive for people to come from Eastern Europe and receive housing and welfare benefits Whilst, immigrants can end up receiving benefits and social housing A report by the University College of London, suggests that : EEA immigrants have made a positive fiscal contribution, even during periods when the UK was running budget deficits This positive contribution is particularly noticeable for more recent immigrants that arrived since 2000 in particular from EEA countries.” Net_immigration_ben efits Immigrants who arrived after 1999 were 45% less likely to receive state benefits or tax credits than UK natives in the period 2000-2011, according to the report by Prof Christian Dustmann and Dr Tommaso Frattini from UCL’s Centre for Research and Analysis of Migration • However, despite the positive figures in the decade since the millennium, the study found that between 1995 and 2011, immigrants from non-EEA countries claimed more in benefits than they paid in taxes, mainly because they tended to have more children than native Britons In recent years, claiming unemployment benefits in the UK is quite strict – the claimant count measure of unemployment is much less than the labour force survey People have to prove they are looking for work Also, the criteria to be given an immigration visa from non-EU countries is increasingly strict The migrant often have to show they have a degree of savings, and or offer of a good job The UCL report on immigration, suggested that immigrants tend to be more highly skilled than native workers • In 2011, 32% of recent EEA immigrants and 43% of non-EEA immigrants had university degrees, compared with 21% of the British adult population Evaluation • • • • • • • The impact of net immigration depends on: The skills and qualifications of migrants The UK is increasingly strict on allowing only skilled workers How easy migrant find it to assimilate in the destined country? E.g in 1950s and 1960s, migrants from the Indian sub-continent / Carribean may have found it more difficult to find employment due to poor English / racial discrimination It depends on the age profile of migrants If a high % are young workers, then this can help reduce the dependency ratio – a crucial issue for government budget It depends on the current economic climate In a recession, migrants will find it harder to gain employment It depends on the type and skills of migrants Migrants from Eastern Europe may be more flexible and return home, if the economic situation deteriorates Low skilled migrants are more likely to be structurally unemployed Migrants can be a source of foreign income, e.g tuition fees from foreign students However, migrants may also send a substantial portion of their earnings to relatives abroad – reducing wealth of UK Can the Economy absorb a greater population? For example, what is the impact on public services, levels of congestion, and housing?