Does Migration Help the UK Economy - Assignment Example

Does Migration Help the UK Economy? 1. Introduction In the study of the relation between migration and economy in the United States reveals that migrants contributed billions of dollars to the country’s economy. Economist considers immigration as beneficial to an economy as the overall effect of migration on the average standard of living to the people is positive. However, there are a lot to consider in determining the real effect of migration to the economy particularly the United Kingdom. Does migration really help the UK economy or just augment the population and makes no difference? Our research will focus on the effect of migration in the United States and United Kingdom’s economy. We will also find the difference in their immigration policies by comparing both countries’ views on immigration and actual status of foreign workers in respective countries. We also touch the global issues of migration and its effect to the global economy. 2. Migration and the Economy 2.1 Migration and the US Economy There is no doubt that migration raises the population, the labour force, and the economy. This means countries with open immigration policy are expected to have more people, more workers, and larger economies. In a survey for foreign-born residents and foreign-born workers in the United States between the between the years 1850 to 2000, 10% of U.S. residents were foreign born in 2000 while foreign-born workers is at 12%. In 1997, according to Cornelius et. al. (2004) a comprehensive study of the relation between economy and immigration in the U.S. reveals that immigrants added a net US$1 Billion to $10 billion per year to the U.S. GDP or gross domestic product. Moreover, GDP was estimated at $8 Trillion in 1996 and an increase of $200 billion a year was noted contributing to 2.5% of economic growth. These figures are based on the simple model of the economy that assumes that economic gains to “natives’ is one half of the share of the countries GDP (p.68). However, Cornelius et. al. (2004) added that critics are not comfortable with the report’s result, as they believe that immigration has only small and positive effect on the economy. They can only agree that immigration does not make the United States rich and the economic issues concerning immigration is distributional that can gain or lose in an unknown amount. They argued that the assessment assumed that the economy of the country has constant returns to scales or CRTS resulting to increase in the number of workers estimated and the amount of capital that consequently double the output calculation. Further, this means that immigration cannot increase the growth rate of wages for “native” American while the U.S. earn the advantage by the value of what the immigrant produce that is more than the wages they are receiving. Undoubtedly, the presence of immigrants made owners of capital and workers gains as they become more productive. Therefore, it is only fair to expect that U.S. worker affected by influx of immigrants will have lower wages and higher unemployment (p.69). However, there is no empirical evidence to prove this assumption but economic theory suggests that an increase in the supply of labour reduces wages or its growth (p.70). This theory is inline with the conclusion of the President’s Council of Economic Advisors in 1986 that even immigrant workers increase output, their addition to the supply of labour, “wage rates in the immediately affected market bid down” (Cornelius et. al. 2004:70). This means Native American workers may experience reduced earnings or employment when competing with less paid immigrants. Figure 1.0 (Source: Cornelius et. al. 2004) 2.2 Migration and the UK Economy It is important to know that the United Kingdom’s history, it is a country of emigration and not immigration. According to Rollason (2002), UK born workers normally seek work outside the Kingdom predominantly in the Commonwealth or on its colonies. Before World War II migration in UK in small number were principally driven by political or religious persecution. The first attempt to control immigration was in 1905 (The Alien Act) inline with Jewish immigration from Eastern Europe. At the end of World War II, migration in the United Kingdom changed and for the first time, the government is actively recruiting workers outside the country to fill it the wartime labour shortages. Since then economic migrants found easy employment in the UK and they were well accepted as partners in the struggle to win the war (p.327). The UK economy according to Bowen and Pallister (2000) was growing swiftly at the time as part of the post-war recuperation and employment was obtainable. The UK society was also quickly becoming a consumer society and there were great demands for labour in different industries (p.161). Dissimilar to the United States, the United Kingdom today has different policy on migration. Even before the 1981 British Nationality Act was introduced, the 1971 immigration Act regulates the entry of immigrants particularly those who are expelled from a dictatorship rule like Ugandan Asians. “Immigration in the UK is now strictly controlled” (Bowen and Pallister 2000:161). According to Raco (2007), the primary aim of these Acts is to prevent the entry of spouse of migrating workers since this would mean unnecessary immigration. However, despite of strict implementation, the significance of allowing selective type of labour migrants became encouraging thus during the 1980s and the 1990s highly skilled migrants are considered important to the economic modernization of the country. Consequently, new migration policy measures was sought to simultaneously restrict economic migrants and encourage selective migration of knowledge workers in particular. This is undoubtedly Raco (2007) added is ‘managed migration’ strategy for the interest of the country’s economy (p.202). The move is for the competitive advantage of the UK economy specifically those that need additional labour or seeking very different type or level of skills. The justification given by the government is based on the international research and good practice that highly skilled labour can bring enormous benefits to the economy (p.202). Furthermore, the Home Affairs Committee (2006) explains that a considerable number of people residing and working in Britain are not supposed to be here. In the study of Home Office in 2005, there were between 310,000 and 57,000 irregular migrants in the country excluding those people are working illegally (p.372) In theory based on Home Office (2007) on the economic and fiscal impact of immigration, it has a numerous effect on the labour market specifically for the natives. Moreover, depending on the skills of migrants, impacts will be visible in both employment and wages. However, given that there is a strong correlation between the size of the labour force and employment, there is no theoretical reason why immigration needs to depress native wages and increase unemployment. This is because according to the argument of the Home Office (2007), there is no “lump of labour” and it is not correct to assume that there is only limited job available in the country (p.15). Another is the recognition that unemployment is predominantly structural phenomenon when given effective macroeconomic management thus migration has no affects the job requirements of the local. Migration, the office added, do not increase labour market competition but to enhance production of the economy and therefore, there is not necessary effect on wages. In contrast, if native worker’s productivity will be enhancing by migration through complimentary skills, the wages will increase. This means the impact of migration in the native labour market in the UK’s open and flexible economy will be less or probably zero (Home Office 2007:15). “Surveys define immigration in different ways” (Economic and Social Affairs 2007:7) thus using right statistics is vital for various type of discussion. Here, we are going to consider migrants as those people born outside the United Kingdom who are now residing and working here. In 2005, data from the Trade Union’s migration facts reveals that there were 1.505 million foreign migrants working in the UK. This means 5.4% of all employees in the UK. Moreover, 600,000 have been added to the migrant workforce during the last decade and it is growing steadily in all Western European countries. In Southeast of England, nearly two thirds are migrant workers and 45.3% are living in London. More recently, with the Home Office (2007) report, experience with the accession of eight new European Union Member States in 2004, the impact of the labour market was tested. There was a considerable inflow of migrants to the UK labour market in a very short time. These migrants were concentrated in certain occupations and in particular part of UK. Conspicuously, the occupational distribution of those born outside the member states is similar to that of the UK-born while the locals of these states are concentrated in lower skill jobs. Moreover, these member states born workers have also gone to parts of the country that is not usually link with migration (Home Office 2007:16). Migration according to the Home Office (2007) report is “one source of labour market growth but it is not the only one” (p.14). They explain that there are older people, single parents, and disabled people in work. Moreover, there are more returning to work and more people staying in jobs for longer. In relation to foreign-born labour force, the increase is due to the decision of the European Union in 2004 to allow the free movement of workers from the new member states. Consequently, there is an available and movable workforce contributing to the growing economy that is filling the labour requirements of employers. However, although the United Kingdom is benefiting from this new source of labour, it is important to see migration in the UK’s totality. For instance, recruitment should start first at home then expand to EU member states before hiring migrants outside EU (Home Affairs Committee 206:371). The labour market impact of immigration can be seen over the last decade where it has performed strongly delivering both high employment and low employment. About 2.7 million has been added to the number of people in work that reflects both the decrease in unemployment and progress in the economic activity. Moreover, the ILO unemployment has been reported cut downed by 1.8 points to 5.4% and the claimant unemployment rate by 1.9 points to 2.6% (Home Office 2007:14). According to the Home Affairs Committee (2006), the primary strength of the UK economy is its openness that is bringing the benefits of competition. For instance, UK is an attraction to foreign investors as it has a favourable environment. Secondly, enterprising people find it as an attractive place to work because it is comparatively easy to get jobs. Consequently, various industries many of which are foreign-owned and employing large number of highly paid migrant workers including those in the catering and hospitality industry rely predominantly on foreign labour. The reason cited by the employer is migrant’s general attitude and work ethic as they are appear more enthused, dependable, and dedicated than local-born workers. In addition, some employers believed that migrant worker’s favourable working attitude influences local-workers to work harder. These migrants also widened the horizon of local-workers by letting them understand their culture. Their motivation results in greater commitment as they want to send money home and wanting to learn English. From this perspective, many employers believe that migrant labour contributes to the economic growth and overall rise in job vacancies. There is a general agreement that the United Kingdom is indeed relies significantly in numerous skilled migrant workers. On the other hand, employers are also relying on low skilled migrants and they did not openly seeking migrant workers. They only consider recruiting if the domestic workers are not available and those with experience and highly qualified (p.371). Rollason (2002) explains that since 1973 when the Immigration Act came into force, economic migration in the United Kingdom predominantly remained the same. As part of the review for a competitive future, the UK government drives the public debate on immigration. The assumption that knowledge plays a vital role in economic growth and the required skills to ensure economic success received enormous followings. In contrast, arguments about the benefits of economic migration and maximising its economic benefits received no positive reaction. However, the current government apparently agrees that migrants help the economy particularly when there are labour shortages in certain key skills. For this reason, the use of overseas workers to bring the skills and knowledge was encouraged to drive activity and growth (p.371). Further developments in economic migrants were driven by global structural changes and particular local circumstances, most especially the continuing integration of the world economy and the impact of knowledge flows and aspiration. More importantly, the EU open up a cross-border labour market for millions of workers (Spencer 2003:59). As an overall picture, Spencer (2003) added, the economic impacts of migration can be found on the employment rate and wages of native workers and immigrants. It is also apparent in the economy’s growth rate, productivity, fiscal balance of government, and the entrepreneurialism and innovation (p.60). Globally, migration for most economists brings economic gains, as the overall effect of migration on the average standard of living to the people is positive. The most obvious reason is that migrants that are less productive in his place travel to another place where he is more productive. Consequently, increase in production results in better standard of living of the people as well as the migrants. Economic gains may be much higher if for instance migrant workers are ‘complements’ instead of ‘substitutes’ for the current workforce. This is because the complementary nature of the migrant workers and not their skills contributes to economic growth of the destination country. Immigrants can only influence economic growth rates if they are different from the existing labour force particularly if their skills mix is not similar. The reason is that immigrants that just like the existing workforce will just augment the population and do not make any difference. The point is augmenting the population does not necessarily mean a change in the growth rate of income per capita (Spencer 2003:60). 2.3 Immigration and Declining Wages In the US, research shows that since the 1980s, immigration has intensified the supply of unskilled workers by 15% in relation to the number of skilled workers. This according to Spencer (2003) probably lowered the wages of these workers by roughly 5% which is just under half of the fall in wages for this group between 1980 and 1994. However, let us not forget that this group represented less than 10% of the US workforce by 1995. Apparently, immigration plays some role in relation to declining wages of least skilled workers in this country but there is no sufficient evidence to prove that it is in some way contributes to the wage inequality for other native workers. Although it may be quite true that unskilled migrants take jobs that natives do not want to work with, there is still some doubt why natives do not want these jobs. The reason perhaps is the awful wages by local standards. In the United Kingdom, jobs in hotel, cleaning, catering etc. are carried out by international immigrants particularly in London and the south are performed by local people else where in the United Kingdom (p.63). The key difference between the United Kingdom and the United States is the level of internal mobility. For instance, the United Kingdom and other European countries are characterised by low mobility while the US is a known to be a very mobile society with flexible labour markets. For this reason, the local effect of immigration will be satisfied as workers and firms fine-tune their activities to consider it. The effect of the increasing supply of unskilled workers is not just locally but scattered throughout the entire regional labour market. Therefore, any increase in immigration of unskilled workers into a local labour marker will certainly result in an increase net outflow of native unskilled labour. This people are those seeking jobs elsewhere as they cannot compete with immigrants (Spencer 2003:63). In the United Kingdom, those less skilled workers are far more rigid in relation to the housing and labour markets. This means that an increase in immigration of less skilled workers will greatly affect the current low-skilled workforce; as they cannot shift on to find better jobs elsewhere. More importantly, the economics of migration in the UK is far lesser than the United States but the Home Office report on the impact on native workers in local labour markets reveals that there is no clear evidence to prove that immigration can affect the wages. In contrast, immigrant’s earnings exceeded those of natives of the same cultural background. For instance, Mexican immigrants’ progress more slowly than European immigrants but over time did better than equivalent Mexican Americans (Spence 2003:66). The distance between foreign-born and native workers has expanded as the 1970 data shows that migrants were moving ahead gradually than earlier group. Today’s immigrants do not catch up with, let alone surpass, their native-born counterparts. The economic integration of migrants will affect social integration and community cohesion. In the UK and elsewhere, the labour markets are currently characterised by increasing inequality in contrast with the increasing equality in economic terms during the post-war period. The UK is seen as moving in the direction taken by the United States where real wages with less skilled labours fell sharply thus low-skilled immigrants are determined to make it in a labour market that is oversupplied with inadequately educated workers and in which the terms of compensation have changed harshly against the less skilled (Spencer 2003:67). 2.4 The UK Policy for Skilled Immigrants The UK migration policy particularly the Highly Skilled Migrant Programme that started 6 years ago was designed to attract scientist, doctors, and business and finance professionals to work in the country. It also enables the access to labour market for postgraduate students. Since it is generally accepted that there is a need for short-term casual labour, the government started loosening the rules on the migration of less-skilled workers. Surprisingly, the reaction to these new measures is restrained and it received positive response to two main political opposition parties. The most probable reason is perhaps the reality that immigrants can fill the gap in the labour market. Almost parties accepted the fact that low-skilled migrants are useful particularly in doing jobs that indigenous people are not interested. Recruitment of highly skilled workers such as engineers or medical staff is easier to substantiate to the public because they can fill critical gaps in public services or encourage the new economy. According to the Confederation of British Industry as stated by Boswell (2003), immigrants in the UK particularly those with high skills and working as complementary to native workers brought an estimated 2.5 billion pounds to the economy (p.39). In relation to skilled migration, the government also changed some provisions for low-skilled migrants and introduced the quota-based scheme to enable hotels and restaurants to hire temporary migrant workers in areas where workers are unavailable. Finally, in December of 2002, the Home Office conclude, “migrants bring a diversity of skills to the United Kingdom’s labour market and providing skills and expertise, which complement the existing workforce. They do not increase unemployment among the domestic population, and may even increase wage levels” (Boswell 2003:39). The change in contemporary society resulting from increased migration is occurring all over the world. For instance, the number of international migrants increased from 75 to 120 million from 1965 to 1990. This number further increased by the year 2000 to 168 million. This movement gives the UK its continuing strong economy as the number of people coming to the United Kingdom yearly has considerably increased from 50 million in 1990 to 90 million in year 2000. These trends Smith and Henry (2007) added will continue and probably increase. The global population is expected to grow by two billion in the next two decades and 98% of this population is in the developing countries thus the net inward migration is fast becoming the “single largest factor in population growth in the UK” (p.229). This is because global changes tend to make previously domestic issues international and when people and knowledge cross borders, internal policies change. The Joint Committee on Human Rights (2006) also reported that there is a persistent demand for a new labour force and people from countries with unstable economies, high unemployment, lack of job opportunities, and poverty have the opportunity to seek employment overseas. In UK, as we mentioned earlier, the strict policy and practices in terms of migration seems do not match the fact that it needs migrant labour to sustain its economy thus the new policy encouraging economic migration is to recognise the fact that in order to sustain the British way of life, the country must recruit labour overseas. Moreover, locals are becoming higher skilled and women are fast becoming members of the professionalized workforce and therefore there is an increasing demand for low-skilled workers including domestic services (p.130). 2.5 Migration Advantages and Disadvantages “Migration is a very emotive subject” (Kew and Stredwick 2005:118). There are sets of reason for encouraging migration and another set for discouraging it. In general, a country is in need of migration because we are now living in a global economy and therefore we need to make the best use of all talents from whatever source. Economic migrants by nature have the enthusiasm to succeed as they are mostly coming from countries with unstable economies and therefore determined to work hard. More importantly, as we mentioned earlier, they can fill the gap for low skill jobs that are now hard to fill. It is more beneficial for the UK economy for migrants to carry out work inside the country instead of outsourcing it from the migrant’s home country. However, the disadvantage is the UK is very densely populated thus the inflow of immigrants results in housing and jobs issues. The availability of a large source of low-skilled labour tends to discourage employer to be more innovative by automating production or enhance services. Too much migration encourages black economy thus reduction of tax revenue is expected due to crime. Finally, migrants can create social problems as they can be socially marginalise and cannot effectively integrate (Kew and Stredwick 2005:119). The inflows of migrants in UK continue to rise and have reached an annual rate of about 0.3% of the UK population a year. The UK had the fifth biggest inflow compared to the US, Germany, Japan and Canada. The economic theory gave various reasons on why immigration is considered beneficial to an economy. For instance, those people who can leave their home countries and capable of being away with their love ones for work are those who expect the greatest benefits for themselves. Therefore, they are most dynamic and dedicated workforce and they need to contribute to their host economies. They are willing to work on jobs that native-born workers dislike and they tend to accept even lower wages. 3. Conclusion Migration is no doubt augmenting the population but its contribution to the economy is indisputable. In the United States alone, migration helps the economy grow adding billions of dollars to the country’s GDP. In UK, the government is very much convinced that migration can fill the gap in the labour market. They already accepted the fact that even low-skilled migrants are useful predominantly for jobs that natives do not want to do. As a complementary worker to the existing workforce, migrants help brought in billions of pounds to the UK economy. This is because migrants bring a diversity of skills in the kingdom’s labour market benefiting the employer and economy. They certainly do not increase unemployment and may even increase wage levels. The global movement of workers gave the United Kingdom its continuing economic growth as the large number of people coming to the country increase production and therefore results in better standard of living for the people and for the migrants themselves. 4. 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