Immigration has become highly significant to the UK economy: immigrants comprise 12% of the total workforce—and a much higher proportion in London. However, we have found no evidence for the argument, made by the Government, business and many others, that net immigration—immigration minus emigration—generates significant economic benefits for the existing UK population.
Overall GDP, which the Government has persistently emphasised, is an irrelevant and misleading criterion for assessing the economic impacts of immigration on the UK. The total size of an economy is not an index of prosperity. The focus of analysis should rather be on the effects of immigration on income per head of the resident population. Both theory and the available empirical evidence indicate that these effects are small, especially in the long run when the economy fully adjusts to the increased supply of labour. In the long run, the main economic effect of immigration is to enlarge the economy, with relatively small costs and benefits for the incomes of the resident population.
The economic impacts of immigration depend critically on the skills of immigrants. Different types of immigrant can have very different impacts on the economy. The issue is not whether immigration is needed but what level and type of immigration is desirable. In this context, net immigration from the EU—which we expect to remain positive—cannot be controlled. The question then is whether additional immigration from elsewhere carries benefits or disadvantages.
Many businesses and public services at present make use of the skills and hard work of immigrants. But this is not an argument for immigration on a scale which exceeds emigration and thus increases the population of the country. We do not support the general claims that net immigration is indispensable to fill labour and skills shortages. Such claims are analytically weak and provide insufficient reason for promoting net immigration. Vacancies are, to a certain extent, a sign of a healthy economy. Immigration increases the size of the economy and overall labour demand, thus creating new vacancies. As a result, immigration is unlikely to be an effective tool for reducing vacancies other than in the short term.
We also question the Government's claim that immigration has generated fiscal benefits. Estimates of the fiscal impacts are critically dependent on who counts as an immigrant (or as a descendant of an immigrant) and on what items to include under costs and benefits. The overall fiscal impact of immigration is likely to be small, though this masks significant variations across different immigrant groups.
Rising population density has potentially important economic consequences for the resident population, including impacts on housing, as well as wider welfare effects, especially in parts of England where immigrants are most concentrated. Although immigration is only one of a number of factors affecting the demand for housing, it does exert a significant impact on the housing market in particular areas. Some of the wider impacts from rising population are hard to measure and highly regional. Some, such as the impact of increasing population density on the cost and speed of implementation of public infrastructure projects, remain poorly understood.
Arguments in favour of high immigration to defuse the "pensions time bomb" do not stand up to scrutiny as they are based on the unreasonable assumption of a static retirement age as people live longer and ignore the fact that, in time, immigrants too will grow old and draw pensions. Increasing the retirement age, as the Government has done, is the only viable approach to resolving this issue.
There are significant unknowns and uncertainties in the existing data on immigration and immigrants in the UK. There are insufficient data about people leaving the UK and about short-term immigration to the UK. Existing data do not allow for accurate measurement of the stock of immigrants at national, regional and local levels. Inevitably, even less is known about the scale of illegal immigration and illegal employment of immigrants. The gaps in migration data create significant difficulties for the analysis and public debate of immigration, the conduct of monetary policy, the provision of public services and a wide range of other public policies.
Our overall conclusion is that the economic benefits to the resident population of net immigration are small, especially in the long run. Of course, many immigrants make a valuable contribution to the UK. But the real issue is how much net immigration is desirable. Here non-economic considerations such as impacts on cultural diversity and social cohesion will be important, but these are outside the scope of our inquiry.
Against this background, we have identified the following priorities for Government action. The Government should:
* improve radically the present entirely inadequate migration statistics;
* review its immigration policies and then explain, on the basis of firm evidence on the economic and other impacts, the reasons for and objectives of the policies, and how they relate to other policy objectives such as improving the skills of the domestic workforce;
* better enforce the minimum wage and other statutory employment conditions, with effective action taken against employers who illegally employ immigrants or who provide employment terms which do not meet minimum standards;
* clarify the objectives and implications of the new, partially points-based immigration system. It is far from clear that the new arrangements will in fact constitute the radical overhaul of the present system suggested by the Government;
* monitor immigration by publishing periodic Immigration Reports giving details of the numbers and characteristics of non-EEA nationals entering the UK under each Tier of the new system;
* give further consideration to which channels of immigration should lead to settlement and citizenship and which ones should be strictly temporary;
* review the implications of its projection that overall net immigration in future years will be around 190,000 people. The Government should have an explicit and reasoned indicative target range for net immigration and adjust its immigration policies in line with that broad objective.
Wednesday, April 9, 2008
Another report to read
House of Lords report on the economic impact of immigration;