Migration and the economy

November 2018

Migration and the economy

Economic Realities, Social Impacts & Political Choices

Former UN Secretary General Ban Ki-moon defined migration as “an expression of the human aspiration for dignity, safety and a better future. It is part of the social fabric, part of our very make-up as a human family”. In recent years, however, and especially in the aftermath of the global financial crisis, immigration has become a toxic issue in election campaigns and the political debate in many advanced economies, with politicians and other interested parties trading insults and soundbites but leaving a proper evaluation of the real impacts of migration on the economy and society often absent from the noise.

Delving in to the migration debate shows a growing disconnect between public perceptions and the actual trends the data establishes.

It is illustrated, for example, in the change in negative perceptions regarding immigration in different European countries, which suggests that there is almost no direct correlation between the number of migrants (and refugees) that a country accepts and the attitudes to migration.

We recognize, of course, that the implications for many other global regions, and not least developing countries as both the source and destination of migration, are also very significant, not least in terms of the implications of the so called ‘brain drain’ which suggests that the benefits migrants bring to the advanced economies may be at the cost of undermining development in their countries of origin. This need not be the case as migrants typically contribute materially to their destination country, while at the same time contributing to their dependents and countries of origin and advancing their own lives. The volume of remittances sent home by migrants to low and middle-income countries has grown rapidly in recent decades and in 2017 was estimated to exceed $466 billion, over three times foreign aid.

You can read our key findings below the Infographic.

Key Findings

  • The stock of migrants has grown materially worldwide since 1990 but still accounts for only around 3% of the global population.
  • Skilled migration is especially concentrated in certain countries and urban centers. Skilled migration is disproportionately focused within the OECD, which hosts two-thirds of high-skilled migrants despite containing only 20 percent of the global population. Within the OECD, however, skilled migrants are also heavily concentrated in four countries, with the United States, the United Kingdom, Canada and Australia constituting the destination for nearly 70 percent of all skilled migrants.
  • Making migrants a scapegoat in isolation misses vital context and other contributing factors. The core model for the impact of migration is, essentially, a basic supply and demand one: as the supply of migrants goes up, the price of labor (in the short term) comes down. Among certain types of labor we find evidence of this, with higher migrant supply driving lower wages and higher unemployment. But this is also offset by complementarities elsewhere and ultimately not evidenced on an aggregate scale.
  • Fiscal costs of migration – positive but with some short-term and localised negative variation. Taxpayers are understandably concerned about the potential fiscal costs of immigration. Overall, the evidence suggests the fiscal impact of migration is either positive or, to the extent that immigrants produce fiscal costs, these costs tend to be small, short-lived and localised. To the extent that they arise, short term costs are usually compensated for by the dynamic contributions of migrants over time, particularly in those countries which are rapidly aging. Moreover, in most cases we find that migrants consume fewer benefits and receive less from the public purse in comparison to natives in similar circumstances. In Canada, for example, non-refugee immigrants use less unemployment benefits, social security and housing support than domestic residents, despite the employment rate for migrants being lower. In Germany, Greece, Portugal, Spain, and the U.K., migrants are less or no more dependent on social services than native citizens.
  • In aggregate migration drives innovation but “brain-drain” consequences in sending countries need to be managed. Two reliable ways to generate ideas and innovation in an economy are to increase the number of highly-educated workers and to introduce diversity into the workplace. Both of these objectives are advanced through immigration. High-skilled emigration can come at a substantial financial and social cost for many sending countries and is seen as a principal risk of mobility for developing countries. While Europe and East Asia actually send the highest number of educated migrants, Africa, the Caribbean and Central America send the largest proportions of their educated population overseas – around 20 percent from sub-Saharan Africa and more than 50 percent from many Caribbean and Central American countries. For sub-Saharan African countries, this loss is particularly significant because only 4 percent of the population possess university degrees. In Asia, on the other hand, skilled migration rates are low enough and populations generally large enough that the impacts of human capital depletion are not as great. Organised or xenophobic attacks on particular groups have also played a role in the departure of skilled workers, as have acute concerns regarding crime and conflict. However, for originating countries brain drain can be transforming as is the case where network diasporas play a bridge role in connecting home countries with foreign expertise, finance, and contacts as well as through remittances, return of skills (e.g., India) and political support (e.g., Taiwan and Israel).
  • Migration supports the participation of native women in the economy. Among native populations, aggregate labor supply growth has often been driven by increasing female labor force participation. Migration has often substantially reduced the costs of care services that can otherwise inhibit female labor force entry. These effects have been especially extensive in cases where the supply of low-skilled native workers has been relatively small. The effect of this seems to be particularly extensive among highly-skilled women, increasing the overall economic impact. Female migrants, however, are often found disproportionately in lower value occupations in comparison to native women of similar education levels, even among those that are employed full time. From a policy perspective, this highlights the importance of targeting better labor market integration among this group.
  • Public attitudes to migration: the telling of the tale versus the tale told. Across the OECD, we have seen the deployment of increasingly restrictive immigration policies and, in multiple recent national elections, radical right wing parties have gained increasing vote shares on the back of strongly anti-immigration platforms (among other policies). Whatever the economic case, the political viability of openness to migration as a clear policy priority is under pressure. We argue that attitudes to migration can be distilled down to two interacting factors: solidarity and scarcity. Solidarity reflects cohesion in social values, including the degree to which individuals define themselves, and those with whom they identify, in a nationalist fashion. Scarcity reflects the degree to which individuals see resources such as jobs, or public services, as under pressure. Austerity may have also played a more specific, recent role in fueling an acute sense of scarcity in public service provision, driving anti-immigrant sentiments. The greater the nationalist outlook and the greater the belief that resources are limited, the more likely individuals are to oppose further migration even if, as we discuss throughout this report, migration is rarely a net economic drain. Resistance to migration is greatest when scarcity and exclusive nationalism coincide. This has been reflected over time in the rallying cries of traditional anti migrant parties, such as the now infamous French National Front’s slogan from 1978: “Two Million Unemployed is Two Million Immigrants Too Many!.”

    National governments have a particular responsibility to support local communities as the presence of migrants is in the national interest, even if this is not always evident at the community level. Rather than leaving a tacit (or otherwise) suspicion in the minds of voters that difficulties in worthwhile job creation or the provision of adequate public services can be blamed on migrants, mainstream political parties can employ a host of policies across tax and welfare systems, in education and through training that improve outcomes for those at actual risk from immigration independent of any connection with migration itself. For example, Denmark spends two per cent of GDP annually on active labor market policies that help transition unemployed workers. This, for example, is twenty times the level of spending (relative to GDP) in the United States. Alongside the risk that the fiscal debate around migration is skewed by other political agendas, an aging population and high public debt levels risk making fiscal missteps of scale costly. An intense global competition for talent also risks more extensive consequences of even small mistakes in migration policy. Balance and perspective needs to be returned to the debate.

You can read the full report here

Important Information:

This material is for general information purposes. Any advice is general advice only, it was prepared without taking into account the financial situation or needs of any readers. Please consider the advice in regard to your personal situation before acting on it. All opinions and estimates constitute Citi’s judgement as of the date of this article and are subject to change without notice. Citigroup Pty Limited ABN 88 004 325 080, AFSL No. 238098, Australian credit licence 238098.