Immigration and the economy.

Drinkwater, Stephen

Immigration has become one of the most discussed and controversial topics in recent public and political debates. This is true not just in the United Kingdom (UK), but also elsewhere in Europe, as well as in many other advanced economies, most notably the United States (US). For example, immigration became a major discussion point during the recent general election campaign in the UK, in spite of what appeared to have been an initial reluctance of some participants to engage in such debates. The importance of immigration is demonstrated by the strong attitudes that are displayed by the public. For instance, race and immigration has consistently been viewed as one of the most important issues facing Britain in recent years according to IPSOS/ Mori's monthly Issues Index. Typically, more than 30 per cent of those questioned since 2002 have considered race and immigration to be the most important issue. This peaked at over 40 per cent in late 2007 and early 2008, which corresponds with the time when migration from Central and Eastern Europe to the UK was at its highest. This made it the top ranked issue for the British public, since when it has been replaced by concerns over the economy. Attitudes have also been found to vary by skill group, with Scheve and Slaughter (2001) reporting a significantly greater preference for limiting immigrant flows to the US amongst less skilled workers. (1)

Negative views have tended to persist despite the argument that immigration can produce many positive economic benefits for the host country. Some of these result from an increase in national income, which can partly be created by what has become known as the 'immigration surplus' (Borjas, 1995). Immigration can also play a role in helping to fill skill shortages, which can in turn put downward pressure on prices, and in making a positive net contribution to public finances. Migrants themselves can also gain considerably by crossing national boundaries through receipt of higher incomes, some of which can filter back to source countries through investments or the sending of remittances. These and other issues will be examined in the papers that feature in this issue.

The strong public opinions are likely to be a function of the fact that immigration is such a pervasive and complex process, with the potential to influence a whole array of not just economic but also social outcomes. These include the provision of public services such as health, education and housing, as well as social cohesion, community relations and the introduction of goods and ideas from different cultures. Although much of the literature on the economic impact of immigration has tended to concentrate on the labour market consequences for the host economy--most notably on the wages and employment of natives--its impacts can be far more wide ranging than this. (2) For example, immigration can influence general economic outcomes such as growth, trade balances and inflation in both source and destination countries. These effects may be transitory, especially given changing patterns of international migration, which have become increasingly short-term and circular in nature. (3) Several of these aspects will be examined by the included papers since these focus not only on labour market issues, both with regards to the impact that immigration has on the host economy and on return migrants themselves, but also on the effect that it has on growth and productivity.

All of the papers that follow are set within a European context, but make use of a range of data sources and approaches. These include simulations based on calibrated theoretical models, pan-European regression analysis using harmonised data and specific labour market studies for the UK and Ireland. These two countries provide interesting case studies since both have a long tradition of migration and each experienced very large recent inflows of migrants from Central and Eastern Europe in the aftermath of EU enlargement in 2004. These movements followed the decision of the UK and Irish Governments to allow workers from these countries (the EUA8) more or less unrestricted access to their labour markets.

The impact of the decision not to introduce transitional arrangements with respect to migrants from EUA8 countries, as the majority of member states had done, can be seen for the UK in figure 1.

The figure highlights the rapid growth in new national insurance numbers (NINOs) allocated to EUA8 nationals immediately before and after EU enlargement. The number of EUA8 nationals receiving NINOs increased from under 17,000 in 2003 to almost 335,000 in 2007, before falling back to around a half of this amount in 2009. Migration from the EUA8 therefore seems to have been heavily influenced by the state of the economy since the employment situation remained healthy in the UK until early 2008 and the downturn is likely to have encouraged many migrants to return to their home countries. (4) Figure 1 also shows that migration to the UK from other countries has also risen fairly steadily since the early 2000s. Part of the increase in the latter part of the period was a result of the further expansion of the EU in 2007. Despite the transitional restrictions that were introduced by the UK Government following this enlargement, migration from Romania and Bulgaria has been quite considerable, with over 100,000 new NINOs issued to nationals from these two countries since 2007. Moreover, the UK has experienced fairly diverse migration inflows in recent years, with large numbers of migrants from many different parts of the globe settling in London and other major cities (Vertovec, 2007).

The first paper, by Young-Bae Kim, Paul Levine and Emanuela Lotti, picks up on the theme of migration in the context of EU enlargement by examining the macroeconomic impact of east-west movements under different scenarios using a general equilibrium model. After reviewing the volume and skill composition of recent migration flows to the UK and the EU, they set up a model in which migration can affect the economy through a range of transmission mechanisms. They argue that immigration produces winners and losers, but that this depends on the bias of the migration flow. If it is skilled, the winners are the migrants, the unskilled in the host country and the skilled in the sending country. If it is unskilled, winners are again the migrants, the skilled in the host country and the unskilled in the sending country. World growth also rises unless the bias is towards the unskilled and some of the negative effects for the sending country can be mitigated through the receipt of remittances.

[FIGURE 1 OMITTED]

The paper by Peter Huber, Michael Landesmann, Catherine Robinson and Robert Stehrer also analyses the impact that immigrants can have on output in the host cotintry by focusing on productivity. They begin by providing an overview of the ways in which migrants may be able to affect productivity, which include bringing new ideas, filling skill gaps and enhancing the adoption of new technology. They then contribute to the empirical literature on this topic, which has hitherto been quite limited, by estimating production functions on a dataset that has been constructed containing 13 EU countries using information taken from the EU Labour Force Survey (LFS) and the EUKLEMS database. Their findings are rather mixed, with no consistent patterns reported between immigration and productivity, especially when panel estimation techniques are used. However, a more robust positive impact of migration on total factor productivity (TFP) growth is found if the migration is related to more high skill-intensive sectors.

Jonathan Wadsworth makes a timely contribution to the fairly well established literature on immigrants and labour markets in host countries. The UK provides an interesting case study on which to undertake such an analysis because of the large rise in migration inflows seen in recent years, as shown in figure l. The paper focuses on several interesting aspects of recent migration flows to the UK. This is mainly achieved through an analysis of the socio-economic characteristics of immigrants, especially in terms of their age distribution, geographical and skills concentrations. The paper then goes on to investigate the impact of immigrants on the wages and employment of natives. It is argued that the impact on the labour market outcomes of natives is generally small, with the group that is most likely to be affected being the low skilled, who may be competing most directly with immigrants since, despite many recent migrants having relatively high levels of educational attainment, a large proportion tend to work in low-skilled jobs.

Finally, Alan Barrett and Jean Goggin investigate the possible labour market benefit received by migrants returning to their home countries. These may accrue because of the enhanced levels of human capital that migrants may have acquired whilst abroad. Using Irish data, they estimate the earnings premium enjoyed by return migrants using several econometric techniques, which have been applied in order to deal with possible statistical problems affecting the least squares results. They conclude that return migrants earn around 7 per cent more than similar workers who had not migrated and that the return is the same for males and females. Amongst their other main results, they report that return migrants with post-graduate degrees do relatively well and returns are highest for those who had moved outside the EU, especially to North America.

A theme that links all of the papers in this issue is skills, which are a key factor in determining the impact of immigration. For example, Kim et al. argue that the growth effects of immigration are larger for the host country if the inflows are skewed more heavily towards the highly skilled. Huber et al. find that the positive effect of immigration on TFP growth is greater in more highly-skilled sectors, whilst Wadsworth suggests that any negative consequences of immigration in the host labour market are most likely to be felt by unskilled natives. Finally, Barrett and Goggins' results indicate that the relative gains from returning to their home country are amongst the largest for migrants with postgraduate qualifications--although the differences are relatively small. These findings highlight the importance of skills in the context of migration, and help to explain the increasing trend amongst developed countries towards implementing policies that select migrants on the basis of their human capital levels. This includes the points-based system of migration that has recently been introduced in the UK. However, this policy only relates to non-EU migrants and so will not affect the volume or composition of flows to the UK from EU member states.

Data issues are also extremely pertinent in the context of analysing migration flows and their impact. In particular, the quality and accuracy of such statistics have been criticised, especially those collected in the UK. For example, the House of Lords Economic Affairs Committee recommended in 2008 that there was a clear need to improve data on both gross and net migration flows, as well as on the size and characteristics of the stock of immigrants in the UK. Kim et al. provide some statistics from the 'official' Total International Migration estimates, which are mainly based on a relatively small sample of respondents to the International Passenger Survey and also exclude short-term migrants. As a result, this source is thought to have significantly underestimated the extent of recent immigration to the UK. In contrast, the analysis undertaken by Wadsworth and Huber et al. is mainly undertaken using Labour Force Surveys, which tend to provide relatively accurate information on immigrant stocks in the UK and other European countries. (5) There have been some improvements in the data that are available on UK immigration in recent years. This includes the release of administrative data such as fairly detailed information on EUA8 migrants registering on the Worker Registration Scheme and an even more comprehensive record of first-time registrants from the database on NINOs allocated to overseas nationals, as shown in figure 1. Nevertheless, there is still considerable scope to make further improvements in this area, especially in the context of obtaining more accurate estimates not just of numbers entering the UK but also leaving the country. In particular, there is currently only limited information on immigrants returning to their countries of origin or on those returning to the UK, unlike for Ireland, as demonstrated by Barrett and Goggin in their paper. Such improvements will be of benefit not only in providing more accurate information on the number and type of immigrants living in different parts of the UK but also on their impact.

Immigration to the UK has fallen over the past couple of years, following the slowdown in new arrivals and many of those who came from the EUA8 have also subsequently returned to their home countries. This has been augmented by policy changes directed at migrants from outside the EU, which are likely to be further tightened by the new Government. (6) Despite this, immigration will continue to be a very important issue on the public policy agenda. The UK has become very multicultural, with migrants from many different parts of the world settling right across the country. However, there are concentrations of migrant groups in particular locations and this can lead to problems not only relating to social integration but also from congestion and can result in pressure being imposed on local infrastructure and on the delivery of public services. These issues, as well as how well individuals from different countries of origin and ethnic backgrounds fare in the labour market are likely to be areas where research will focus in the coming years.

doi: 10.1177/0027950110380319

REFERENCES

Borjas, G.J. (1994), 'The economics of immigration', Journal of Economic Literature, 32(4), pp. 1667-717.

--(1995), 'The economic benefits from immigration', Journal of Economic Perspectives, 9(2), pp. 3-22.

Mayda, A.M. (2006), 'Who is against immigration? A cross-country investigation of individual attitudes towards immigrants', Review of Economics and Statistics, 88(3), pp. 510-30.

Pollard, N., Latorre, M. and Sriskandarajah, D. (2008), Floodgates or Turnstiles? Post EU Enlargement Migration Flows to (and from) the UK, London, Institute for Public Policy Research.

Scheve, K.F. and Slaughter, M. (2001), "Labor market competition and individual preferences over immigration policy', Review of Economics and Statistics, 83(1), pp. 133-45.

Vertovec, S. (2007), 'Super-diversity and its implications', Ethnic and Racial Studies, 30(6), pp. 1024-54.

NOTES

(1) Mayda (2006) examines individual attitudes towards immigrants using cross-natonal data and finds some variations by country depending on the relative skill mix between natives and immigrants.

(2) Surveys such as Borjas (1994) focus almost exclusively on the labour market impact of immigration.

(3) These changes have partly been driven by increased globalisation, such as the expansion of free trading areas, and also by the decreasing time and cost of international travel.

(4) The economic downturn will almost certainly have accelerated the pattern of return migration amongst EUA8 workers identified in Pollard et al. (2007), however accurate estimates of return migration from the UK are not readily available.

(5) However, immigrants are thought to be under-sampled in comparison to natives in surveys such as the LFS, in spite of their aim to be nationally representative.

(7) It was announced in June 2010 that the amount of skilled migrants from outside the EU who could enter the UK would be limited to 24,100 up to April 2011. This may then be followed by the introduction of a permanent cap on non-EU migrants in April 2011.

Stephen Drinkwater, WISERD, School of Business and Economics, Swansea University; IZA, Bonn; CReAM, UCL. e-mail: [email protected].