The Economic Impact of Immigration

In recent times, the topic of immigration has sparked intense debates and generated diverse opinions on its potential economic impact. Scholars have conducted extensive research on the economic consequences of immigration over the years, but the findings have been mixed. While some studies suggest that immigration has a positive impact on the economy, others offer a contrasting view. The objective of this article is to provide a detailed analysis of the economic impact of immigration.

Global Migration and its Reasons

Global mobility in 2020 due to the COVID-19 pandemic was reduced, and it included both temporary and permanent migration. This decrease is just a small representation of the long-standing history of movement across international borders, which dates back to the creation of frontiers. Individuals have always moved in search of better opportunities for themselves and their families, or protection from conflict, persecution, or natural disasters. Unlike in the past, it is now more common and achievable to move for work or education, and advancements in technology have made it easier to maintain connections with loved ones, transfer funds, or participate in the political, economic, and cultural aspects of one’s country of origin (Nedelcu & Wyss, 2016).

Chart 1: Number of international migrants 1960-2020 (Migrationpolicy.org, 2022).

Consequently, global migration has undergone significant growth over the last several decades (see Chart 1). However, people move across international borders not just to pursue personal aspirations but also in response to events like public-health crises, armed conflicts, and economic downturns which greatly influence the number of individuals who move and their destinations. Recent migrant flows from Ukraine, Venezuela, and Syria, where millions of people fled due to ongoing wars (Ukraine and Syria) or major political, economic, and societal crises (Venezuela), illustrate this point (Batalova, 2022).

Positive Impact

Numerous studies have highlighted the potential positive impact of immigration on the economy. Immigrants bring new skills and knowledge to the workforce, which can lead to increased productivity and innovation, as well as fill labour shortages in various industries that have difficulty finding workers. Based on FWD.US’ most recent estimations, a minor upsurge in immigration beyond current levels would generate a rise in annual GDP per capita amounting to $1,300 in present-day currency by the year 2050. If immigration rates were augmented by 50% in the forthcoming decades, the projected GDP per capita in 2050 (see Chart 2) would be $2,500 (Connor, 2022).

Chart 2: Projected change in GDP per capita compared with recent immigration levels 2020-2050 (FWD.US, 2022).

Furthermore, immigrants can play a crucial role in boosting consumer spending and the housing market, which can create a ripple effect on the economy. A study conducted by Cadenas (2017) found that immigrants earn a total of more than $1.3 trillion nationwide, make a contribution of over $300 billion to taxes, and possess a purchasing power of $927 billion (Cadenas, 2017).

Moreover, several studies have demonstrated the positive impact of immigration on the wages and employment of US-born workers. A study by the National Bureau of Economic Research revealed that immigration has a positive effect on the wages and employment of US-born workers, particularly those with low levels of education (Borjas, 2003). The study also found that immigrants tend to work in different occupations than US-born workers, and therefore, they do not directly compete for jobs. A study by the Brookings Institution found that immigrants were more likely to start their businesses than US-born citizens, which can create jobs and boost economic growth (Cortes & Tessada, 2011).

According to projections, the migrants expected to arrive in Australia by 2050 will make a substantial contribution to the country’s economy, with an estimated total of $1.625 trillion added to its Gross Domestic Product. Besides, it is predicted that migration will increase the workforce participation rate by 15.7%, raise after-tax real wages for low-skilled workers by 21.9%, and contribute to a 5.9% increase in GDP per capita growth (Sherrell, 2015).

From an economic standpoint, immigration can be seen as a way to address labour shortages and skill gaps in the workforce, which can lead to increased productivity and economic growth. Moreover, immigration can help to stimulate consumer spending and create jobs, particularly through the entrepreneurship of immigrants. In addition, immigration can have a positive effect on the wages and employment of native-born workers, especially those with low levels of education. The potential benefits, particularly in terms of economic growth, cannot be overlooked.

Negative Impact

Although there are several potential benefits to immigration, there are also concerns about its impact on the economy. Some studies suggest that immigration can result in increased competition for jobs and reduced wages for native-born workers. For instance, a study by the Center for Immigration Studies found that between 2000 and 2014, all of the net job growth in the United States went to immigrants, while the number of native-born workers with jobs remained below the pre-recession level (Camarota, 2014). Also, a study by the National Academy of Sciences found that immigration has a small negative impact on the wages of native-born workers with less than a high school education (National Academy of Sciences, 2017).

There are also issues about the potential strain that immigration can place on public services and infrastructure, particularly in areas with high levels of immigration. For example, a study conducted by the Migration Observatory found that while immigration to the UK has contributed to the growth and diversity of the workforce, it has also led to increased demand for public services such as healthcare, education, and housing (Sumption & Walsh, 2022). Furthermore, the same study found that immigration has both increased demand for healthcare services and provided a supply of healthcare workers to the UK’s National Health Service.

Some studies suggest that immigration can result in increased competition for jobs and reduced wages for native workers. Additionally, there are concerns about the strain that migrants can place on public services and infrastructure, particularly in areas with high levels of immigration. From an economic standpoint, the potential negative effects on native-born workers’ wages and employment should not be ignored. However, it is important to note that these effects may vary depending on the skill level of the immigrant population and the type of jobs they are filling.

Figure 1: Charlotte Fu. Post-Work Migration (Newrepublic.com, 2021).

In general, immigrants tend to fill labour shortages and occupy jobs that natives do not want or are not qualified for, which can help to boost economic growth. Moreover, while immigration can put pressure on public services and infrastructure, it is also important to acknowledge that immigrants can contribute to these services as healthcare workers or educators. Besides, immigration can also stimulate demand for goods and services, leading to increased economic growth and tax revenues that can be used to support public services (Sumption & Walsh, 2022; Cortes & Tessada, 2011). Policymakers should seek to maximise the benefits of immigration while minimising its negative effects, through measures such as targeted education and training programs, social and cultural integration policies, and effective labour market regulation.

Policy Implications

Given the potential gains and drawbacks of immigration, policymakers should take a nuanced approach when formulating immigration policies. The presence of immigrant entrepreneurs in a host country’s economy is known to have a noteworthy positive impact. In comparison to their native counterparts, immigrants display a higher tendency towards business ownership which consequently leads to economic integration. Additionally, immigrants with high skill levels have made substantial contributions to the high-tech sector and innovation. Such contributions are quantitatively measured by growth in patenting and science and engineering fields (Lofstrom & Wang, 2019).

A recent analysis conducted by the National Foundation for American Policy has revealed that over 50% of the most valuable startups in the United States were established by immigrants (Anderson, 2022).

Chart 3: The top U.S. tech companies founded by immigrants (VOX, 2018).

At present, the market value of the corporations comprising Alphabet, Amazon, Apple, and Facebook amounts to $3.8 trillion (see Chart 3). This represents an increase of approximately $800 million since the companies were last assessed during the previous summer (Molla, 2018).

However, limiting the number of low-skilled immigrants entering a country is also a commonly suggested policy approach. A study by the Center for Immigration Studies found that low-skilled immigrants tend to have a negative impact on the wages and job prospects of native-born workers (Camarota, 2014). Additionally, a report by the National Bureau of Economic Research found that the influx of low-skilled immigrants into the United States has contributed to a decline in the employment rate and wages of native-born men without a high school diploma (Borjas, 2017).

The presence of immigrant entrepreneurs and highly skilled immigrants can have a significant positive impact on economic growth and innovation, as demonstrated by the high number of valuable startups established by immigrants. On the other hand, limiting the number of low-skilled immigrants entering a country is commonly suggested as a policy approach due to their potential negative impact on the wages and job prospects of native-born citizens. Ultimately, policymakers must consider the specific needs and circumstances of each country when formulating immigration policies. For example, countries with ageing populations may need to prioritise attracting immigrants who can fill labour shortages and support economic growth. It is also important to take into account the potential impact of immigration on public services and infrastructure and develop policies that can mitigate any negative impacts.

In summary, a well-designed immigration policy can have a positive impact on a country’s economy by attracting highly skilled immigrants and entrepreneurs, while also addressing potential negative impacts on native-born workers and public services. There is a necessity to develop a balanced approach that comprises the specific needs and circumstances of each country.

Conclusion

The economic impact of immigration has been a subject of intense debate and study for many years. A considerable body of evidence has indicated that immigration can have a positive impact on the economy, as immigrants bring new skills and knowledge to the workforce, help fill labour shortages, and boost consumer spending and the housing market, leading to a ripple effect on the economy. Immigrants have also been found to have a favourable impact on wages and employment, and they are more likely to start their businesses, creating jobs and fostering economic growth.

However, immigration also brings concerns about affecting native-born workers and public services. Studies have found that immigration can result in increased competition for jobs and reduced wages for some workers. Additionally, it can strain public services and infrastructure. Therefore, it is necessary to consider the potential benefits and pitfalls carefully and develop policies that can mitigate any negative aspects.

Finally, while the economic impact of immigration is a complex and nuanced issue, the latest studies suggest that it can have a positive impact on the economy. Policymakers need to take a measured approach when designing their policies to balance the potential advantages and disadvantages of immigration on the economy. While high-skilled migrants can make a significant positive contribution to the economy, low-skilled may affect the job prospects and wages of native-born workers. Consequently, lawmakers must develop immigration policies that tailor to the specific needs and circumstances of each country to ensure that they can maximise the benefits while minimising any negative impacts.

Bibliographical References

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Batalova, J. (2022, September 30). Top statistics on Global Migration and migrants. migrationpolicy.org. Retrieved April 21, 2023, from https://www.migrationpolicy.org/article/top-statistics-global-migration-migrants

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Cortés, P., & Tessada, J. (2011). Low-Skilled Immigration and the Labor Supply of Highly Skilled Women. Retrieved April 20, 2023, from https://www.jstor.org/stable/pdf/41288640.pdf

Connor, P. (2022, September 14). How are immigration and GDP growth connected? FWD.US. Retrieved April 21, 2023, from https://www.fwd.us/news/immigration-and-gdp-growth/

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Camarota, S. A., & Zeigler, K. (2014). All Employment Growth Since 2000 Went to Immigrants Number of U.S.-born not working grew by 17 million. Retrieved April 20, 2023, from https://cis.org/sites/default/files/camarota-employment_0.pdf

Lofstrom, M., & Wang, C. (2019, June 12). Immigrants and Entrepreneurship. IZA World of Labor. Retrieved April 20, 2023, from https://wol.iza.org/articles/immigrants-and-entrepreneurship/long

Molla, R. (2018, January 12). The top U.S. tech companies founded by immigrants are now worth nearly $4 trillion. Vox. Retrieved April 21, 2023, from https://www.vox.com/2018/1/12/16883260/trump-immigration-us-america-tech-companies-immigrants

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