On Monday, I did seven interviews on David Cameron’s immigration speech. Each time I’ve tried to get across one simple fact: that all the available evidence suggests that immigrants – and immigrants from the new EU member states, in particular – more than pay their way. That is, that they pay more in taxes than they cost in benefits and services; overall, from being a burden, they make it easier to finance our welfare state not harder.
It is that basic fact that all three party leaders should be explaining to their constituents. Instead, they seem to be engaged in a rather degrading contest to think up relatively minor and probably ineffective tweaks to eligibility for benefits or services, in turn designed to address what they all privately know full well to be relatively minor problems.
But in some sense discussing the short-term fiscal costs and benefits, where the basic facts are well known and fairly obvious (of course young immigrants who mostly have jobs pay in more than they get out) misses the point. For anyone who thinks of themselves as an economic “liberal”, whatever their political views, the economic benefits of migration, like free trade, are much greater than the short run impacts on taxes and benefits.
It is often argued that the economic impacts of migration — positive or negative — are likely to be small, with the main impact being to increase both population and GDP, but with little impact (over the medium- to long-run at least) on GDP per capita or unemployment and employment rates. However, this is a very static view of the world; it does not reflect how economies actually work, or where growth really comes from — at least if you believe in the dynamic potential of market economies. To see this, we merely need to observe that exactly the same is true of trade.
But, of course, most economists believe that the economic benefits of trade are quite considerable, and that these static estimates are not the whole story or even the main point; the benefits are dynamic and arise from competition and specialization rather than simple static comparative advantage. We do not gain from free trade in, say, cars with the EU because either we or the French or Germans have a fixed and static comparative advantage in different types of car, so we can produce one type of car better and they can produce another. Rather, we gain because trade increases competition between different producers, diversification of the supply chain across the EU, the incentive for technological innovation, and all sorts of other difficult-to-measure but important effects that increase productivity in the medium- to long-term.
The same is, in principle, likely to be true of immigration. Immigrants don’t just fill specific short-term gaps in the labour market. They can bring different skills and aptitudes, and transmit those to non-immigrant colleagues (and vice versa); they can increase competition in particular labour markets, increasing the incentive for natives to acquire certain skills. Immigrant entrepreneurs can increase competition in product markets. And workplace diversity — across a number of dimensions — can increase (or decrease) productivity and innovation.
Of course, not all of these impacts are necessarily positive: for example, it is well known that immigrants are substantially more likely to be entrepreneurs or self-employed. This could be because they are self-selected, so enterprising people are more likely to migrate; but exclusion or discrimination might also force some migrants into low-productivity self-employment.
So what does the evidence say? Well, in contrast to the well-established economic literature on the impact of migration on labour markets, we have much less research on these topics. But it does seem that immigration is associated with increased innovation. Meanwhile, NIESR research for the Migration Advisory Committee found that “rather than migrants substituting for home-grown talent, there is evidence of complementarities between skilled migrants and skilled resident workers.”
This research agenda is still in its infancy; we still do not know precisely the channels through which immigration impacts on growth. Nor will we ever be able to put precise numbers on it, any more than we can identify the contribution of Britain’s history as a trading nation to our current prosperity. But we do know enough to set a clear direction for policy.
So what should we do? It is simply not credible for the Prime Minister to claim that the UK is “open for business” and for the Chancellor to say that he is prepared to take the “difficult decisions” to boost growth, while at the same time making the primary objective of immigration policy the reduction of net migration.
So the first priority for politicians of all parties should be simply to make clear that immigration, like trade, is indeed central to making the UK open for business, and hence to our growth strategy. The next step would be then to examine each aspect of immigration policy – but in particular those relating to students, skilled workers, and settlement – with a view towards reorienting them towards growth. Sadly, that is not what any of the party leaders said in their recent speeches on this topic — quite the opposite.
There are many specific policy changes, major and minor, that are required. But in my view, more important is a change of attitude and mindset on the part of government and policymakers. If we want to be serious about growth, we will need to be positive about migration.
* Jonathan Portes is the Director of the National Institute of Economic and Social Research. Previously, he was Chief Economist at the Cabinet Office. He blogs at Not The Treasury Point of View.