Migration ins and outs

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Our understanding of the effects of immigration is often distorted by emotive political arguments. An economic analysis uncovers some interesting questions.

The views people hold on the economic effects of immigration seem to be entirely conditioned by their other social and political opinions. The left stresses the benefits, the right the costs. I have been looking for facts.

Is it better to be densely or sparsely populated? Rich Holland and poor Bangladesh are the most crowded countries in the world. Zaire and Australia cope very differently with rich mineral resources and low population densities.

Is it better to have a rising population or a falling one? Across the 20th century, population rose in Japan, fell in Germany and remained much the same in France. Good economic institutions cope with most external circumstances. Bad ones fail, however favourable the circumstances.

Population growth probably led to the invention of agriculture 10,000 years ago and made available the labour for Britain’s industrial revolution. But it may be best to have the resources and infrastructure of a large population shared by a few. The peasants who survived the Black Death did relatively well out of it; and imagine how pleasant London would be if only half as many people lived there.

But these conditions do not last long. Population grew again after the Black Death. A modern-day London with lower house prices and uncrowded journeys to work would attract new residents. Economic systems are self- adjusting.

The economic effects of immigration depend not on population growth or density but on the characteristics of the immigrants themselves. While every mouth brings a pair of hands, these hands sometimes make more than they eat and sometimes less. Most migrants are of working age. People of working age have children and grow old, so this is not an indefinite benefit – but immigration always yields potential short-term benefits if immigrants are immediately assimilated.

Take the young Australians, Irish and New Zealanders who seem to occupy all the temporary secretarial and accounting jobs in London. With no problems of language or cultural adaptation, they are immediately more productive than the average Briton.

But most immigrants are not so easily absorbed. They generally earn less than indigenous workers of similar age and education. This difference diminishes over time but does not necessarily disappear and may continue into a second generation. This may partly reflect racial discrimination but also hard economics: people are less productive in an unfamiliar environment.

Immigrants typically earn more than in their country of origin – that is why they migrate – but less than a native of the receiving country would earn with the same skills. This is the central economic fact about immigration. From that most social and economic consequences follow.

There is not much migration between rich countries. Germans working in the US have high earnings – but that is because they are senior executives in DaimlerChrysler or Deutsche Bank. Haitians working in the US have earnings well above average Haitian earnings but well below average American earnings.

Since there are billions of people who would be better off in the US or Western Europe than in their home countries, the problem is less to explain why there is so much attempted migration than why there is so little. But happiness depends less on absolute living standards than on the quality of life relative to expectations. That is why so many migrants come from failed states such as Afghanistan or Eastern Europe – or from minorities who, like Huguenots, Jews and east African Asians, are often persecuted because they are economically successful. The distinction between economic migrants and political refugees is fine indeed.

If immigrants are generally paid less than natives, what effect does this have on the earnings of the natives themselves? Studies of neighbourhoods that received substantial immigration – Cubans in Miami and Algerians in Provence – show that local wages did not fall. But this is not quite sufficient: if local wages had fallen, both immigrants and natives would have gone elsewhere. The rightwing allegation is less that immigrants bid down wages than that they take jobs. And that claim is hard to argue with. What we do not know definitively is whether jobs for other groups are eliminated or just displaced.

On balance, immigration usually produces economic benefits for the receiving country. Immigrants are more economically active than the native population; are paid less than natives with similar skills; are more energetic than natives; and more willing to take undesirable jobs, such as those with unsocial hours.

But these advantages come at a high price. Relatively liberal immigration policies, which allow substantial unskilled immigration, can create an underclass of people who are paid less than native workers, feel they are discriminated against and may in fact be discriminated against. From this resentment, familiar political problems grow.

Relatively strict immigration policies ensure that we import only highly skilled people. When they have been ejected, or come from countries whose political and economic chaos means their skills cannot be used effectively, this must be as good for the importing country as it is good for them. But when we recruit doctors, nurses and computer programmers from countries that are recipients of our foreign aid, we need to ask whether this is really a responsible policy.

It always comes back to politics.


A short reading list on the economics of immigration:

      George J. Borjas,

The economic benefits from immigration

      (National Bureau of Economic Research,Cambridge, Mass.1994)

George J. Borjas (ed.) Issues in the economics of immigration (University of Chicago Press,Chicago,2000)

Jonathan Coppel, Jean-Christophe Dumon and Ignazio Visco, Trends in immigration and economic consequences (OECD,Paris, 2001)

Ricardo Faini, Jaime de Melo and Klaus Zimmermann (eds.) Migration, the controversies and the evidence (Centre for Economic Policy Research, Cambridge,1999)

Timothy J. Hatton, Jeffrey G. Williamson, The age of mass migration: causes and economic impact(Oxford University Press,New York, Oxford,1998)

Mancur Olson,’Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor,’ Journal of Economic Perspectives, Spring 1996, pp. 3-21

Jeffrey G. Reitz Warmth of the welcome, the social causes of economic success for immigrants in different nations and cities (Westview Press, Boulder,Colorado, Oxford. 1998)

Julian L. Simon, The economic consequences of immigration(Basil Blackwell in association with the Cato Institute, Oxford, 1989)

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