Immigration & GDP

With the BNP expecting to do well in the European elections, immigration will become more of an issue. Two recent papers should help us here.

First, this one (pdf) estimates, from a sample of 63 countries, that immigration actually raises GDP per head; a 10% rise in the stock of migrants raises it by 2.2%. This controls, as far as possible for the reverse causality - the tendency for rich countries to attract migrants - and for the correlation between openness to migrants and openness to trade.

There are two possible mechanisms generating this. One is simply that an increased supply of labour reduces inflationary pressures, and so allows real interest rates to stay lower for longer, which encourages economic activity*. The other is that migrant workers might be complements for native ones. If Polish builders cause more houses to get built, British plumbers and electricians can get more work done and earn more. If Latvians cause more fruit to be picked, British market stall holders can sell more. Or if you can see a doctor quicker because of migrant GPs, you can get back to work sooner.

This finding is entirely consistent with the notion that some unskilled native workers lose out from immigration. What it means, though, is that migration is a potential Pareto improvement, in the sense that winners from it can in theory compensate the losers with everyone becoming better off. This provides a justification for the Left’s response to fears about migration - that the way to protect unskilled native workers is not to restrict migration, but to have better redistributive mechanisms.

Our second paper (pdf), however,  is slightly more pessimistic. It estimates, from 14 OECD countries, that immigration simply increases raw GDP; native per capita GDP is unaffected by migrants.

This effect, though,  is the average of good times and bad times. In normal economic times (when GDP is within 1% of its trend level) immigration actually increases native employment. In recessions, however, it depresses it slightly; for every 10 immigrants, employment expands by only 9, implying that  either one immigrant is unemployed, or that he finds work at the expense of a native.

Whether this is an argument for restricting immigration in recessions, or for better counter-cyclical policies, is, however, questionable even in narrow economic terms.

In one important sense, though, both papers agree - that, on average, immigration does no harm to the native economy, although you could easily argue that 2.2% is a small gain.

The problem with the BNP, then, is not merely that they are vicious thugs. It’s that they are plain, factually, wrong.

* I suppose you could use this mechanism to argue that immigrants caused the banking crisis - but only in the same way that rope-makers cause people to hang themselves.

Comments

[Alderson Warm-Fork]

Another issue that's often neglected is that if our concern is with employment and wages in relatively low-paying jobs (which presumably is where the bulk of migrants will be employed), there's liable to be a difference in the economic effect of 'a migrant' and 'a migrant without legal status', because the latter, being 'outside the law', is weaker in various ways, and will often be employable at illegally low wages. This in turn might be imagined to have a greater impact on wage levels for others.

So basically, it's not just 'more migrants vs. fewer migrants', it's also 'more repressed migrants vs. less repressed migrants'.

[Alderson Warm-Fork]

Sorry, to clarify - my point is that if there is any negative effect of immigration on wages and employment (especially for low-waged workers, if not for the broader population) it might be ameliorated not just be (often ineffective) attempts to reduce the number of migrants, but by attempts to increase their legal status and hence bargaining power.

[Sam Langfield]

Thanks for this excellent post.

I wonder how we might explain the finding that immigrants pull employment slightly below the level it would have been at in the absence of immigrants during recessions. I suppose if immigrant and native workers are perfect complements, there will be a magnifying effect on un-/non-employment if either the immigrant or native worker finds himself out of work. In your simple example, a reduction in demand for housebuilding puts Polish housebuilders out of work, which in turn puts native electricians out of work.

[Bob B]

For reasons of balance, we should perhaps include this (rather pessimistic) paper on the consequences of immigation by Prof Rowthorn, professor of economics at Cambrdige, whose academic and leftist credentials are fairly impressive:

The Economic Impact of Immigration
http://www.civitas.org.uk/pdf/Rowthorn_Immigration.pdf

But see also the HoL Select Committee on Economics Affairs, 1st report of Session 2007-8:
The Economic Impact of Immigration Vol 1.
http://www.parliament.the-stationery-office.co.uk/pa/ld200708/ldselect/ldeconaf/82/82.pdf

[Sam Langfield]

Rowthorn's paper isn't an econometric analysis but a very selective and uncritical survey of a small subsection of the literature, so you can't really compare it to the papers which Chris cites. Don't place too much confidence in Rowthorn being an academic: believe it or not, even Cambridge professors can be bigoted bastards.

[Sean Tate]

How low we have set our sights when we use economic gain as the ultimate arbiter.

What if genocide raised GDP? What if AIDS raised GDP? Destroying forests and prostitution raises GDP. Can we sort out that constant abortion debate by seeing which side can raise GDP the most?

Why are you stuck on the locomotive of linear logic? Those migrants that move here, what happens to the GDP of the nation they leave, does that raise too? These migrants don't appear from nowhere, they leave the rest of the world behind. Does our GDP continue to rise as society fizzles away or tears itself apart under a complete lack of consensus? Your thinking is completely ridiculous.

Take your pathetic argument to its logical conclusion; that every nation on Earth should have its heritage destroyed and every single asset - cultural, environmental, racial or otherwise - reduced to monetary worth. After all, Beethoven doesn't shift CDs like Girls Aloud. What would you want to buy in such a dreary landscape?

No wonder most people think the economic elite are soulless bastards if this is how they rationalise every decision they take.

[Sam Langfield]

Another thought: Suppose that the immigrant's home economy is abundant in low-skilled labour, and so the price of low-skilled labour in that home economy is low relative to that available in other countries ("away") which are less abundant in low-skilled labour. In contrast, high-skilled labour is scarce in the home country and abundant away. Thus the immigration decision at the extensive margin is less pro-cyclical for low-skilled immigrants (for whom the wage available at home is substantially less than the wage available away) than for high-skilled workers (for whom the home-away wage ratio is less pronounced). If low-skilled immigrants have a higher propensity to unemployment away, then this effect will be reflected in Peri et al’s findings.

Another possible explanation, which might contradict the one above, is that immigrant workers are typically employed in cyclical sectors, such as construction and hospitality.

[chris]

@Sean - I don't think the economic argument is the decisive one in favour of immigration. The clincher is just that people have a right to live and work where they want.
The point of the economic evidence is merely to assess whether the exercise of this right materially harms others. And, on average, it doesn't.

[kardinal birkutzki]

I have a suggestion.
Go and do a real job in the real world for a while and then come back and tell me mass, uncontrolled immigration is a plus point.
One also gets the impression, reading between the lines of this post, that anyone not welcoming mass immigration is a vicious thug rushing into the arms of the BNP. You might well have a bit more empathy with your fellow man struggling at the bottom of the pile if you put away the pseudo-scientific acaddemic research and left the office a bit more.

[Tom]

"One also gets the impression, reading between the lines of this post, that anyone not welcoming mass immigration is a vicious thug rushing into the arms of the BNP. "

I don't. I get the impression the writer thinks the BNP are vicious thugs and demonstrably wrong. This is based on the narrow and shallow reading of *what he actually writes*. You're reading rather too much into it, I suspect, and I ask myself why.

[Another reason the BNP are stone wrong is that they'd have thrown out my maternal grandmother, who was a genuine asylum seeker fleeing Nazi persecution, on the basis that she was German and Jewish and therefore non-indigenous, but let in my father's parents, who were Irish and immigrating in search of better economic opportunity, on the basis that they were indigenous. Obviously if a purely economic analysis of immigration, or even a moral let's-only-let-in-the-deserving analysis was their arbiter, they'd take the opposite view.]

[john cramer]

If this immigration is so jim dandy why are there not more mixed marriages?
Racism?

[Nick]

Uhh... there are plenty of mixed marriages. You wouldn't expect people from totally different cultural backgrounds to hit it off instantaneously in the first couple of generations.

[georges]

Re: Mixed marriages

I believe in them wholeheartedly. Integration happens in the bedroom or not at all.

There is some evidence from Los Angeles that mixed race marriages between Whites and Asians actually declined as the total number of Asians rose. Originally there were too few Asians to form thoroughly Asian suburbs, so they mixed more with Whites. As their numbers increased, they concentrated in specific suburbs and became more segregated.

British Mirpuris have been settled in the UK since the 1960s. And yet many fathers still take their teenage daughters out of school to Pakistan to marry a first cousin - who probably doesn't speak English. I don't think this is good, really. It feels as if the girls aren't really flourishing under this system. I believe the Danish government has raised the age at which it will accept such first cousin passport marriages as a basis for Danish citizenship to 25.

[john cramer]

"there are plenty of mixed marriages" - so pray tell - how many?

As for 'thugs' - the label of the weak - why is there a need for hate laws with police to vigorously enforce them if this all is so popular?
Or does democracy not count?

[georges]

Chris - How much do you want economic equality? Relatively very equal societies measured by Gini tend to be very homogenous - such as Japan. This is one reason Japan has opposed mass immigration. Relatively very unequal societies tend to be very diverse - such as the US and Brazil.
This overlaps with the David Goodhart "discomfort of strangers" argument. Goodhart quotes Conservative politician David Willetts:
"The basis on which you can extract large sums of money in tax and pay it out in benefits is that most people think the recipients are people like themselves, facing difficulties that they themselves could face. If values become more diverse, if lifestyles become more differentiated, then it becomes more difficult to sustain the legitimacy of a universal risk-pooling welfare state. People ask: 'Why should I pay for them when they are doing things that I wouldn't do?' This is America versus Sweden. You can have a Swedish welfare state provided that you are a homogeneous society with intensely shared values. In the United States you have a very diverse, individualistic society where people feel fewer obligations to fellow citizens. Progressives want diversity, but they thereby undermine part of the moral consensus on which a large welfare state rests."

[Christina]

A very well researched article... I must have to agree with the conclusion at least..

[Mark Sturdy]

Chris deserves Sean's robust derision. His reply is no more convincing than the original article - why should people have the right to live and work where they like at whatever cost to others?

Mixed marriages/partnerships - are indeed an underemphasised index of integration - anecdotally I believe rates of mixed race partnerships to be relatively high in the UK - certainly most that I know (black/white) wouldn't travel to the US for fear of discomfort or worse.

[rolex]

And a lot of it reflects a switch from bank deposits to securities; foreigners “other investments” in the UK, http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html

[reverse cell]

So once again its about money? where is the accountability for law breaking time and time again?

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