Immigration is a topic that pops up every now and then in the news. For example London Metropolitian recently lost their ability to house foreign students (source) when it was found that they were not monitoring attendance and therefore it was left un-detected that most of the foreign students were actually working full-time jobs and not studying.
This blog will look at immigration from an economist’s point of view, in a theoretical way, which is important to note, as what happens in theory does not necessarily correlate to reality.
From an Breadeconomic’s point of view immigration is good for the UK economy.
Immigration’s Economic Effects
- Increases workforce: immigration is a great supply side policy that increases the workforce in an economy. When an economy is performing close to productive capacity (the maximum they can produce) increasing the number of people who work shifts Aggregate Supply to the right, increasing Income (Y) and decreases Prices (P, Inflation) ; this is shown in the graph below.
However this policy relies on the immigrants contributing to the UK economy by becoming employed, a large proportion of the immigrants might not find employment. Furthermore the increases in GDP and income might be offset by immigrants re-patriating their income back to their home countries and not spending it in the UK.
- Skills and Research: Over 100,000 immigrants come to the UK to study, they contribute to the wider economy by paying for their education and also by spending money at bars, shops and tourist locations – this all contributes to UK GDP (of which the New-Labour Government est. 10% of GDP is contributed by immigrants. Source)
Furthermore many large multi-national firms based in London, such as HSBC, rely on the ability to attract top academics and businessmen to their businesses, which help their company grow and sub-sequentially benefits the UK economy.
The benefits of this type of immigration can be debated, many immigrants study and then move back to their home countries; taking with them the knowledge and skills they learned over here; also by encouraging foreign brains to take the powerful jobs in business you are discouraging and preventing British natives to aspire to these jobs.
- Housing and Taxes: Immigration can be of benefit to everyone, even if it’s not direct. By coming over to the UK and demanding housing, immigrants push up house prices, which is hugely beneficial to home-owners. Not only this, but house-building also has the highest multiplier effect in the economy, where one house involves multiple supply chains and contributes quite significantly to the rest of the economy, this helps economic growth and keeps our economy ticking over.
Immigrants are also subject to the same tax laws as us, so as a result increases the tax receipts the government receives and allows them to spend more on health care and other positive externalities for the UK economy.
Policy in the UK
The Conservative party came into government with this policy on immigration: “We are restoring order to our immigration system to bring annual net migration down to the tens of thousands – rather than the hundreds of thousands we saw under Labour – by the end of this Parliament” (source)
From a politics point of view I understand why having hard policy on immigration is important; immigration is simply not popular with the British people.
Natives of a country tend to dislike immigration, it stems from an ‘instinctive’ fear of change (source) but also from the perception that Immigrants are taking all our jobs, houses, water, women, etc etc. Some of this is notable, as immigrants are more likely to work harder for less, pushing down wages and replacing ‘more expensive’ Brits; but this can be really beneficial to the British economy by providing us with cheaper products and higher business growth.
I believe it is wrong that immigration should be clamped down on, it’s important to economic growth and to our own cultural well being. Look at America, a country full of immigrants and the biggest economy in the world; and Australia, arguably the most healthy of the developed economies, also full of immigrants.
There is a fine line, between letting the whole world into the UK, and thus over-populating, but it is exceptionally important for the future growth of our economy that we encourage immigration. We should not put ‘populist’ politics in the way of sound economic policy.