8/12/2019 Migration and the UK Economy - A Level Economics

http://slidepdf.com/reader/full/migration-and-the-uk-economy-a-level-economics 1/4

 

Migration and the UK EconomyDuring the first eight years of the current decade, Britain experienced a significant level of net inwardmigration, where many more people were coming into the UK to live and work than were leaving.Many of these people have come to the UK from other EU countries especially the new memberstates of Eastern Europe.

Factors affecting the direction and scale of  migration 

Many economic and social factors affect the rate of migration. Some of them are summarised below.In general, the incentive to migrate is strongest when the expected increase in earnings exceedsthe cost of relocation.

1. Differences between countries in wages and salaries on offer for equivalent jobs

2. Access to the benefits system of host countries plus state education, housing and health care

3. Employment opportunities vary between nations, in particular for younger workers

4. A desire to travel, learn a new language, pick up new skills and qualifications

5. A desire to escape political repression and corruption in the country of origin

6. The impact of satellite television and the internet in changing people’s expectations 

7. The effects of cheaper trans-national phone calls and more affordable air travel and coachtravel for example within the European Union

8. The unwillingness of people within the domestic economy to take certain “drudge-filled” jobssuch as porters, cleaners and petrol attendants

The effects of labour  migration on the labour markets of richer nations inside the European Unionincluding the UK depend on where the main source of competitive advantage lies, according toresearch from Marques and Metcalf in a paper delivered to the Royal Economic Society. Theyargued that industries that source their competitive advantage from a large, skilled workforce willhave gained from an influx of younger, well-educated workers. Industries such as high-knowledgemanufacturing, transportation and financial services may well gain from an increase supply of skilledworkers from Eastern Europe.

In contrast industries that rely on low-educated labour-intensive workers will lose out becauseproduction will gravitate to countries where unit labour costs are lower. Examples of include textilesand clothing and leisure sectors where there has been a shift of production towards emerging marketcountries in the Far East.

The impact of migration on the UK economy

Have migrant workers provided a boost to the competitiveness and supply-side capacity of the UK

economy? The debate will rage on for many years and it is important to be aware that with this kindof controversial issue, many of those putting forward evidence will be using normative economics heavily laden with value judgements and will often use data selectively to push their own point ofview.

Supporters of unrestricted inward migration have argued that migration provides:

1. Fresh skills: Migrants can provide complementary skills to domestic workers, which can raisethe productivity of both (a Brazilian child minder provides good quality child care at anaffordable price which allows a highly paid female magazine editor to continue to work.)

2. Driver of  innovation and entrepreneurship: Inward migration can also be a driver oftechnological change and a fresh source of entrepreneurs. Much innovation comes from the

work of teams of people who have different perspectives and experiences.3. Pressure on government to reform: Labour migration can also put political pressure on

failing governments and regimes e.g. a mass exodus of productive workers from Zimbabwe.

8/12/2019 Migration and the UK Economy - A Level Economics

http://slidepdf.com/reader/full/migration-and-the-uk-economy-a-level-economics 2/4

 

4. Multiplier effects: New workers create new jobs, there is a multiplier effect if they find workand contribute to a nation’s GDP through a higher level of  aggregate demand. 

5. Reducing labour shortages: Migration can help to relieve labour shortages and help tocontrol wage inflation. This can reduce the non-accelerating inflation rate of unemployment(NAIRU.)

6. Income flows: Remittances sent home by migrants can add substantially to the GNP of thehome nations. And if these remittances boost spending in these countries, this creates a freshdemand for the exports of other nations. In April 2008 the World Bank reported that globalremittances from migrants were three times as large as the flows of official government aid todeveloping countries. Total global remittances in 2007 were estimated by the World Bank tobe $318bn of which $240bn went to people in developing countries.

7. Tax revenues: Legal immigrants in work pay direct and indirect taxes and are likely to be netcontributors to the government’s finances.

Supporters of allowing free movement of labour argue that labour mobility is a positive-sum game rather than a zero-sum game. On the other side there are several pressure groups campaigning fortighter restrictions on migrant workers. Some of the arguments include:

•  Welfare costs: Increasing cost of providing public services as migrants come into a country.

•  Worker displacement: Possible displacement effects of domestic workers

•  Wage cuts: Migrant workers may lower the wages of people in other jobs.

•  Social pressures: Social tensions arising from the problems of integrating hundreds ofthousands of extra workers into local areas and regions.

•  Pressure on property prices: Rising demand for housing which forces up prices and rents.

•  Benefit claims: Many immigrants find it hard to get work

•  Who really gains? The benefits of migration are focused mainly on employers, especially

those who take on illegal workers at low wages.

•  Poverty risk: Migration may have the effect of worsening the level of relative poverty in asociety. And many migrant workers have complained of exploitation by businesses that havemonopsony power in a local labour market.

Population churn in the UK labour market 

Population churn is a measure of the number of people entering and leaving a country in a givenyear. One feature of the UK economy is a high level of ‘population churn’, for example in 2007

1. 340,000 people emigrated from the UK

2. 577,000 people arrived to live in the UK

It is estimated that more than 1 million people moved to the UK between 2004 and 2007. Many of theinward migration has come from the "A8" countries that joined the EU in May 2004 – the CzechRepublic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. But during 2009 therewas growing evidence of a partial reversal of migrants’ flows because of the impact of recession onthe number of job opportunities and also the weak UK exchange rate which has made UK wages formigrant workers less attractive.

8/12/2019 Migration and the UK Economy - A Level Economics

http://slidepdf.com/reader/full/migration-and-the-uk-economy-a-level-economics 3/4

 

The benefits and costs of labour migration are hard to quantify and estimate. Much depends on

1. The types of people who choose to migrate from one country to another.

2. The ease with which they assimilate into a new country and whether they find regular jobs.

3. Whether a rise in labour migration stimulates capital spending by firms and by government.

4. Whether workers who come into a country decide to stay in the longer term or whether theyregard migration as essentially a temporary exercise (e.g. to gain qualifications, learn some

English) before moving back to their country of origin.UK Worker Registration Scheme and Immigration Points System

The UK Worker Registration Scheme was introduced in 2004 covering migrants from former EasternEuropean countries who were coming to the UK to live and work. Once someone has been workingin the United Kingdom legally for 12 months without a break in employment they can obtain aresidence permit confirming a right to live and work in the United Kingdom and a right to welfarebenefits.

In February 2008 the UK government introduced a new points-based system for migrants fromoutside the EU modelled closely on a system that has been in place in Australia for many years. Theaim of the system is to channel the most highly skilled workers through the immigration system but to

control inward migration of lower skilled workers into industries where the government believesexisting EU countries can supply enough migrants. Under the UK system, the most skilledprofessionals automatically have enough points to come to the UK without a job offer and seek workor set up a business. This tier includes entrepreneurs, top scientists and business people. A points

RealWageRate

Employment

Labour Supply

W2

E1

W1

LabourDemand

LabourSupplywithmigration

E2

Strong inflows of labour into the economy can have the effect of increasing the labour supply – thisputs downward pressure on real wages (for a given level of labour demand) e.g. through helping torelieve labour shortages in particular industries and occupations

If migration provides a boost to the labour supply and to average labour productivity, there is the

prospect of an outward shift in a country’s long run aggregate supply

 AD

LRAS1

P1

LRAS2

P2

Real NationalIncome (Y)

8/12/2019 Migration and the UK Economy - A Level Economics

http://slidepdf.com/reader/full/migration-and-the-uk-economy-a-level-economics 4/4

 

system is an alternative to unfettered migration on the one hand and a strict quota of workers on theother.

Impact on the economies of source countries

 An important evaluation point is that inward migration into the UK from Eastern European countrieshas affected not just the UK labour market but also the labour markets in the countries from which

these migrants have come. Many eastern European countries have suffered from a sustainedreduction in the size of their populations – migration is one factor behind this although not the onlyone.

There are many potential negative consequences among them the following:

•  A reduction in the size of the available labour supply

•  A possible reduction in the quality of the labour supply if skilled migrants leave

•  A fall in aggregate demand for goods and services

•  A worsening problem of labour shortages which could drive up wages, costs and prices

•

  A decline in the size of the tax-paying population which will hit government tax revenue andspending plans

•  Many eastern European cities will become less dynamic and existing infrastructure will beunder-utilized

Migration and Remittances

Remittances are transfers of money by foreign workers to their home countries and they areincreasingly being viewed as an important source of finance for development, especially at a timewhen flows of foreign capital investment across countries has fallen sharply. The World Bankestimates that there are over 250 million people living overseas who send some of their earnedincome back - remittances to all countries topped $305bn in 2008. The biggest single recipients of

remittances are India, Mexico and China but measured as a share of national income is probably abetter way of considering their relative importance. The World Bank calculated that in 2007,remittances, as a share of GDP was particularly high in these countries:

1. Tajikistan (45%)

2. Moldova (38%)

3. Tonga (35%)

4. Honduras (25%)

The world recession in 2009 will inevitably have a negative impact on the value of remittance flows.The World Bank expects payments from workers abroad to fall between 5 and 8 per cent this year.

Suggestions for further reading on the labour migration issue 

Europe’s changing borders (BBC special guide)

Healthy economy is impossible with closed borders (Observer, April 2008)

Labour market effects of immigration (LSE Centrepiece magazine, February 2008)

Skilled migrants are vital to economy, study says (Guardian, March 2008)

Contrasting views on EU migration (BBC news, April 2008)

Workforce fears as migrants leave (BBC news, July 2008)

Migrant workers under pressure (BBC news, December 2008)

East European worker curbs kept (BBC news, April 2009)Migrant workers hit by global downturn (BBC news, May 2009)