Immigration crisis? What crisis?

Written on April 7th, 2015. Posted here on June 7th, 2017.

Michael Hatcher, University of Southampton.

Last week, UKIP leader Nigel Farage launched the party’s election campaign with five key election pledges. Amongst them were promises to “say no to the EU” and “control our borders.” Mr Farage went on to say that UKIP were the only party “offering a solution to the immigration crisis”. Since controlling immigration is tricky, it would be interesting to hear the details of this "solution". But we should first ask whether the problem exists. Should we really be concerned about immigration from the EU? What are the economic impacts of immigration across the different groups in society who are the voters in the upcoming election?

Thanks to economists and other social scientists, we now have a lot of hard evidence to answer these questions. In 2013, a widely publicised study by UCL's Centre for Research and Analysis of Migration (CReAM) found that from 2001 to 2011, immigrants from EEA countries contributed 34% more in taxes than they received in transfers. In other words, European immigration has reduced the fiscal burden on UK-born workers. This finding has been disputed by Migration Watch UK, but the conclusion of the CReAM study has been backed up by an OECD study which found a positive fiscal impact of immigration of 0.5% of GDP, while additional analysis by CReAM found that European immigrants contributed more than £20 billion to the UK’s public finances between 2001 and 2011.

As noted by the University of Oxford’s Migration Observatory, the long-term fiscal contribution of immigration could be much larger than this. The Office for Budget Responsibility (OBR) has made forecasts of the impact of immigration on UK government debt using projected inflows over the next 50 years. Its central projection is that the public sector net debt will rise from 75% of GDP in 2012 to around 100% in 2062. Under a high immigration scenario the public sector net debt would remain roughly stable at 75% of GDP. By contrast, under a zero net immigration scenario the public debt would double to almost 150% (see graph).

The bottom line is that policies which place strict controls on immigration would have to be accompanied by tax increases or cuts in public spending to avoid a large increase in government debt. This is because immigrants are more likely to be of working age than the general population and so would pay more in taxes whilst consuming fewer public services, such as health care, long-term care and social security. In addition, the OBR forecasts that immigration would raise per-capita income levels in the UK over the next 50 years.

The impact of immigration on the UK labour market has been neatly summarized by the Migration Observatory. In a major study it was found that while immigration has a small positive impact on the average wage of native workers, the impact varies somewhat across the wage distribution. Highly-skilled native workers received higher wages on average, but an increase in the share of immigrants of 1% of the UK-born working age population lowers the wages of workers at the bottom of the wage distribution by 0.6%. Hence, there is some evidence that immigration reduces the wages of low-skill workers, though the effects are not very large.

The overall impact of immigration on employment is small and inconclusive. For instance, a study by NIESR found no impact on the Claimant Count, while a report published by the Migration Advisory Committee found a modest negative impact on employment during the recent recession, though not as a result of EU immigration. Again, the average effect hides differential impacts by skill levels: according to a 2005 study in the Economic Journal, immigration had a negative impact on the employment prospects of UK-born workers with intermediate levels of education but improved employment prospects for those with high education levels.

In short, there are both winners and losers from immigration, but there is no “immigration crisis.” Far from it, the economic evidence suggests immigration has had an overall positive impact. If UKIP would instead focus more attention on real immigration problems – like trafficking of illegal immigrants – we might all be better off.

Michael Hatcher, University of Southampton