The Impact of Immigration on UK Economy - Case Study Example

The impact of immigration on UK economy Submitted by…………………………………….. Introduction This paper seeks to examine the figures for UK immigration forthe past 10 years and how such figure affected the country`s growth. In the paper, we address the predictions for future UK immigration. The paper also discusses the main arguments for and against immigration as far as its impact on economic growth is concerned. Most people have claimed that immigrant workers appear to be more dedicated and experienced while some people argue that the immigrants come to the UK and make money and return back to their respective countries. In the previous decades, UK has witnessed a steady influx of migrants. Net migration has been a noteworthy factor in the UK`s population growth. The figures on immigration have been on the rise and are still expected to increase even in the near future. However, a million dollar question is whether this net migration hinder or help the UK economy. Graph 1 below shows the UK`s immigrations statistics for the since 1991 to 2011, including the projected figures for 2012, 2013 and 2014. Graph 1. Net migration in UK since 1991, projected up to 2014 Source: OECD (2012) The net migration into UK was approximated to be 260,000 by the end of June, 2014. This estimation was compared with the net migration of the previous year and it was found to be a 70% increase. In the previous years, the UK`s population has been increased by the net migration of about 50,000 immigrants each year. During this ten-year period, the labour force increased considerably since most immigrants were of working age such as students and people looking for jobs. They might have brought dependents, but in general the net immigration caused the increase in UK labour force, which in turn caused the potential output of the economy to increase as well. According to Eade & Valkanova (2009), the net inflows of immigrants can cause the aggregate demand to increase. He argues that immigrants increase the aggregate spending in the economy. All factors held constant, net migration should make real GDP to increase. European immigrants who reached UK since 200 contributed over £20 billion to the UK public finances (OECD, 2012). Furthermore, they have awarded UK with creative human capital which would otherwise cost the country £6.8 billion in educating such human capital from within. According to the findings of OECD Economic Surveys (2008), since 2003 to 2012, European immigrants hailing from the EU-15 nations contributed 64 percent more in taxes compared to what they received as benefits. OECD (2013) found that immigrants originating from the East and Central European countries alone contributed 12 percent more compared to what they received. Eade & Valkanova (2009) argues that by offering labour market flexibility, UK immigrants help increase GDP growth. In theory, times of higher unemployment can discourage immigrants. However, this was not the case with UK since it saw a continued net migration regardless of higher unemployment rate in 2008 through to 2012. Recently, there has been a debate on the influence of immigration on UK wages, a debate that is probably going to get even extra airtime in the coming year since Bulgarians and Romanians acquired the right to labour in UK or across Europe. Discussing about immigration is just a tricky affair and so we must make clear whatever the empirical evidence says. Such evidences were the real focus in this discussion. As such, the concern of whether immigration reduces wages has not been widely explored. It is not appropriate to consider the impacts immigration on say UK wages using a simple demand and supply model. A flow of new immigrants may indeed have an influence on the UK labour market, but again this will depend on how many jobs that are being created (which may be furthered by the capacity of firms to produce extra commodities and by the immigrants spending their wages) if there are some drop-off in the work force among the current population (for example because of retirement); and if the immigrants can fill prevailing skills gaps. According to OECD (2008), there is some – frequently contested – proof in UK that the immigration, of the mid-2000s, from Eastern Europe have a small diminishing impact on the labour market. The real question might be why we emphasize so much on the immigration instead of the structure of UK economy and the creation of decent jobs. There have been enormous positive impacts of immigration on UK economy in terms of improving skill levels and encouraging diversity in work force but it is essential to also mention the distributional effects – for instance a business owner might have benefited more compared to an electrician, who has been experiencing various competitions for work. OECD (2008) also stresses that immigration may have an influence on local communities, particularly when there is prompt change. That is why we must manage immigration to alleviate any negative effects. Nonetheless, the effective way to ‘handle’ migration cannot be to totally shut the door, rousing up ill-feeling within the current population or make immigrants see themselves as imposters. Moreover, immigration has been existing since the start of humankind existence. It is unavoidable that persons will move out of and in the UK. With the ageing population on the rise, the UK must be worried about the increase in its dependency ratio. Nonetheless, net migration helps in lessening the worry emanating from the dependency ratio. Salzmann, Edmonston & Raymer (2010) argue that immigrants are the source that offset the gap in the work force created by the aging people. Such roles of immigrants has benefited the government’s budget: immigrants of working age pay income tax, including VAT though they do not claim the benefits. Salzmann, Edmonston & Raymer presented two ways of estimating the long-term influence of immigration on real GDP through its short-term influence on public finances: incorporating pension payments and contributions. However, few people argue that the first way is a misleading measure since the age profile of immigrants differs from the entire population. Moreover, there are time-lags in receiving pensions. As such, the critics argues that we can estimate the effect excluding pensions. Nonetheless, on both ways, OECD (2012) found that immigration has been making a positive influence on Britain’s public finances. The deficit in the government has been smaller than would have been the case without immigrants in UK. To be specific, the estimated contributions were 1.02% of GDP excluding pensions and 0.46 of Gross Domestic Product including pensions. That is a good chunk of change which the Government have found. And there are just three ways of raise money for the Government: impose taxes, cutting spending, or borrow from other governments. On that note and according to Salzmann, Edmonston & Raymer (2010), the Government spent nearly £720 billion on 2008 alone, of which around £120 billion emanate from external borrowing. Increasing the basic income tax rate by 1p is projected to bring in approximately £5 billion increase in nominal GDP each year. Goodhart (2013) claims that since UK is experiencing immigration in its borders, the British taxes are a bit lower and the government spending is higher while the deficit is a bit smaller. Arguments for and against the positive influence of immigration on economic growth Many people have claimed that immigrant workers appear to be more dedicated, experienced and so forth. Some people, however, argue that they come to UK and make money and return back to their respective countries. A few people are also against the idea of making the UK`s welfare system to support the immigrants. However, Great Britain (2008) reports that immigrants are not, by any means, a problem since they pay taxes and work hard. Few of the limited studies in this topic had concluded that there may be an inconsequential positive fiscal effect to immigration. Nevertheless, Great Britain (2008) found that the fiscal effect of immigration is very small compared to the impact of immigration on GDP. Though he cautioned that this difference cannot be used as a justification of large-scale immigration. Nonetheless, the assumption of the smaller fiscal merit has been lengthily overturned since then. This is according to Goodhart (2013) who found that the fiscal effect of immigrants in UK from 1995 to 2011 was estimated as £96 billion (net cost). Even this estimate was based on various questionable assumptions. A valuation by the Migration Watch UK proposed that the real cost might have been nearer to £148 billion. OECD (2013) that included ‘robustness checks’ also found that from 1995 to 2011 immigrants in Britain cost between £115 billion and 159 billion. As such, his findings are in line with the valuation by Migration Watch UK. Immigrants are not likely to claim social and political benefits. Goodhart (2013) shows that, in UK, it is hard for the immigrants to claim their out-of-work benefits. However, large sum of total benefits, by way of bills, are paid to the working population; to be specific, the housing benefits and tax credits. The research revealed that, compared to the general population, immigrants are much more restricted as far as claiming such key benefits is concerned. It is also possible to get a substantial economic advantage from migration. Goodhart (2013) writes that if immigrants return to their home countries after reaching their individual career peak, the fiscal system of UK will enjoy some additional relief.  In simple terms, if Britain adopted a similar system as used by most other nations in the globe and issued the immigrants with temporary work permits, then it would gain a great deal of benefit from such foreign labour. However, Eade & Valkanova (2009) argues that in the long-term immigration is simply adding people and “just adding people” might not appear to be a substantial factor in the economy. Though if immigration just increases the UK`s population it will be a direct way of making the country poorer. As opposed to the GDP and some other crude estimations of “national wealth”, personal or individual wealth in wealthy nations can be approximately measured by the quantity of space that individual occupies. A rich person will, in most cases, have a large house, a bigger garden and a huge car while a poor person resides in a bedsitter (a single room) and probably own a bike. Theoretically and according to Salzmann, Edmonston & Raymer (2010), this suggests that increasing a country`s population density beyond the desired level makes everybody individually poorer. UK, with less than one acre of land at least per head, including lakes, motorways, and mountains is far past the population density under which any increases in the population will make everyone poorer.  Conclusion This paper has explored the figures for UK immigration for the past 10 years and how such figure impacted the economic growth in UK. The paper has also given discussion on the main arguments for and against immigration as far as its impact on economic growth is concerned. Bibliography Eade, J., & Valkanova, Y. 2009. Accession and migration: Changing policy, society, and culture in an enlarged Europe. Farnham, England: Ashgate Pub. Goodhart, D. 2013. The British Dream: Successes and Failures of Post-war Immigration. London: Atlantic Books Ltd. Great Britain. 2008. The economic impact of immigration: 1st report of session 2007-08. London: The Stationery Office. Great Britain., & Great Britain. 2007. The economic and fiscal impact of immigration: A cross-Departmental submission to the House of Lords Select Committee on Economic Affairs. London: Stationery Office. Organisation for Economic Co-operation and Development. 2012. Free movement of workers and labour market adjustment: Recent experiences from OECD countries and the European Union. Paris: OECD. Organisation, . E. C.-D. 2008. OECD Economic Surveys - Netherlands: Volume 2008 Issue 1. Paris: Organisation for Economic Co-operation and Development. Publishing, O. E. C. D. 2013. OECD Economic Surveys. Paris: Organisation for Economic Co operation and Development. Salzmann, T., Edmonston, B., & Raymer, J. 2010. Demographic Aspects of Migration. Wiesbaden: VS Verlag für Sozialwissenschaften / GWV Fachverlage, Wiesbaden. Read More