Immigration has been deemed to be a very controversial topic of the past; however, its political debate is one that still divides the nation today. Therefore, this research project will evaluate such opinions observing immigration's detrimental impact on the economy. The benefits and drawbacks of immigration will be evaluated, as well as its subsequent impact on different aspects of the economy being assessed. Research has shown such aspects may include the labor force, wages, real GDP and aggregate demand, Fiscal impacts, and the Dependency Ratio. However, it must be acknowledged that the impact, whether negative or positive is one of debate amongst many individuals, therefore, both arguments will be considered, accounting for both the short-term and long-term impacts.
Immigration can be defined as the 'international movement of people to a destination country of which they are not natives' (Wikipedia, 2022). The key difference between migration and immigration is that immigrants go through a formal process to be lawfully accepted into the country. Over the past two decades, has experienced an increased level of net migration, with figures rising rapidly to a high of 248,000 in 2016, with a slight decrease being experienced from the period until 2020, as displayed in the diagram below. The reasons for such heightened levels of immigration are varied and may include, personal, social, economic, and familial reasons such as better employment, enhanced climate, better services etc, which are defined as 'pull factors'. However, migration to escape the persecution of religion, gender, race, etc is termed 'asylum' and we discard this as a separate argument associated with immigration. Although, asylums entering are still included in migration figures.
Does immigration cause unemployment? The impact of immigration on the labor force is broadly dependent upon the skills and expertise of immigrants as compared to those of residents. Immigration can be successful in creating a more flexible labor market in times when there are job vacancies and skill shortages. For instance, the economy has benefited massively from immigration during the COVID-19 pandemic when skilled nurses and doctors migrated to help meet the demand within the healthcare industry in treating sick patients. Therefore, immigration helps to fulfill unemployment in the economy, providing great economic benefits for all citizens and increasing the output capacity of the economy. It can be understood that unemployment is a short-term phenomenon when immigrants first arrive if they are unskilled. Studies show that unskilled jobs are filled by 24% of native citizens, 27% of foreign workers, and 44% of migrants, therefore, it would be expected that due to this surge in unskilled migrant workers, the wage of unskilled workers would be more in jeopardy than that of skilled workers within. (The Core Team, 2014) It is often falsely perceived that immigrants are guilty of 'stealing' citizens' jobs when in reality immigrant workers are likely to settle for any job in order to make a life for themselves in their new environment. For instance, some immigrants may settle for a lower wage (under the equilibrium) as an immediate form of employment, such as working in the black market. However, native citizens, their jobs, and wages will not be affected by this impact. Although, the issue may arise if the skill composition of immigrants exceeds that of natives. Native citizens will fear losing their job as skill competition increases, in turn increasing their cost of job loss. Therefore, existing workers will be worse off. However, firms will reap the benefits. Firms will now place downward pressure on wages and will be more profitable as a result and therefore, will expand production and invest in new machinery, taking advantage of extra profits from this cheap workforce. The diagram below illustrates this concept, whereby we see the labor force expand from 7.5 million to 8 million after immigrants enter and the wage-setting curve shifts downwards. This means that employers can now extract effort from workers at a lower wage, therefore, wages fall from A to B, £20 to £15, and employment remains at 6 million.
Although, in the long run, the increase in profits encourages firms to expand employment and hire more workers, thereby causing the real wage to restore to the equilibrium wage at C, £20 where employment is now 7 million. Provided immigration levels do not dramatically rise again, both native citizens and immigrants will be better off. Unemployment levels, in the long run, will decrease from U' to U'', hence this suggests that immigration may only be considered detrimental to the labor force in the short run, given in the long term the economy has time to adjust to the expansion in the labor force. It must also be noted that the fall in wages may not be felt by all citizens. For instance, some immigrants may be vulnerable and will settle for a lower wage (under the equilibrium) as an immediate form of employment, such as working in the black market. However, native citizens will not be affected by this impact.
Additionally, the falling value of the pound has made it much less attractive to come and work. For instance, say inflation levels were on the rise, making exports less competitive, leading to a devaluation of the pound, illustrated by a shift in the demand curve from D1 to D2, 1.70 to 1.50 in the diagram below. Workers are more incentivized to leave and therefore, the rising unemployment rate is reduced.
Arguably, this will have negative effects on real GDP levels and aggregate demand within the economy. Despite this, net migration will also have a positive effect on aggregate demand, as consumption spending will increase as immigrants invest their wages into the economy, creating more demand for goods and services. On top of this, as well as increasing the supply of labor within the economy, the demand for labor will be complementarily increased. By looking at both of these components together, as opposed to only supply increases on their own, it can be observed that employment and wages remain at a steady equilibrium. The diagram below illustrates this as labor increases alone cause the real wage to fall from W1 to W2, however, with the joint increase in demand the wage remains at the equilibrium rate, outlining how immigration's effect on wages isn't always negative.
Moreover, the fiscal impact of immigration is one of debate. It has been observed that immigrants contribute more to public finances than the local population, whereby the Immigration Minister declared, 'Our country and exchequer is better off with immigration than without it'. The fiscal impact felt by the economy from immigration is calculated by looking at the difference in the tax migrants pay and the cost of public services they consume. However, the validity of this impact is constrained by several factors, such as immigrants' earnings, age, eligibility for public benefits, etc. Moreover, it has been acknowledged that increased immigration creating increased demand has been putting pressure on public services like healthcare, congestion on roads, education, etc as claimed by 60% of the population in a study carried out by Migration Watch (2022). For example, hundreds of schools are already oversubscribed, with a forecast of 370,000 spaces being needed by 2024. Increasing immigration makes this dilemma practically impossible, especially from the increased pressures on pupils whose first language is not English. On the contrary, immigration positively impacts the supply side of public services. This is because immigrant workers make the delivery of public services less costly, and this would not be possible with no or low immigration. However, determining whether immigrants make a positive or negative fiscal contribution is primarily dependent on what costs and benefits are included in the calculations.
Furthermore, the positive implications of immigration can be felt in the dependency ratio. The dependency ratio measures the percentage of dependent people (children and pensioners) against the number of economically active individuals. The is forecasted to see an increase in the dependency ratio, which is damaging to the government's fiscal budget, although, with increasing levels of immigration the dependency ratio is likely to fall. This is because most immigrants are of working age, reducing the ratio to dependants and such immigrants will contribute to the workforce, and therefore, will pay more income tax, corporation tax, and VAT taxes, thereby claiming fewer benefits and helping with 's budget deficit. The figure below illustrates that has the lowest dependency ratio across the whole period, suggesting that the effects of immigration are very significant.
To conclude, it can be argued that the contributions of immigration to the economy can be observed as not 'detrimental' but widely positive. As we have acknowledged that immigration can cause short-term unemployment for unskilled workers, skilled immigrant workers contribute significantly to the real GDP and aggregate demand of the economy, enhancing economic capacity. Also, immigration is successful in reducing the cost of public services for the economy as immigrants settle for a lower wage than native citizens, making all individuals better off in the long run. The positive effect is further felt on the dependency ratio as it is decreased by more individuals of working age coming to enhance the labor force and helping with 's budget deficit as working individuals contribute income tax, corporation tax, etc. The government could encourage more immigrants of working age (20-30) to come to further decrease the dependency ratio, for example, through relaxation of some immigration laws. This would be very beneficial for the economy given the projected rise in the dependency ratio over the coming years.
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