Tuesday, January 31, 2023

Immigrants Bring Economic Benefits to Advanced Economies

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Beyond the controversy that it provokes at the political level, migration makes sense in economic terms. A new IMF study shows that, in the longer term, both skilled and low-skilled workers who migrate bring benefits to host countries, increasing income per person and improving living standards. Skilled immigration contributes talent and knowledge, while low-skilled immigrants fill essential occupations where native labor is in short supply, allowing the nation’s population to fill jobs that require more skills. In addition, these benefits are widely distributed among the entire population. Therefore, it may well be worth bearing the short-term costs of integrating these new workers.

Migration Is Nothing New

Opinions around immigration have taken on a more negative tone in recent years. But migration is not a new phenomenon. Although the recent surge in refugees has brought it to the fore, advanced economies already have large and growing immigrant populations (figure 1). They constitute between 15 and 20% of the working-age population in many advanced economies, and around 30% in some Anglo-Saxon countries such as Australia and New Zealand. Between 1990 and 2015, half of the growth in the working-age population of advanced economies occurred thanks to immigration, which will play an essential role in most advanced economies, whose working-age populations will otherwise shrink over the next decade.

Although the migration of low-skilled workers has been the largest (and has remained more or less constant as a percentage of the adult population over time), skilled labor is increasingly migrating. Anglo-Saxon countries tend to have a higher proportion of skilled migrants than continental European and Nordic countries.

Since on average immigrants tend to be younger than the local population, they contribute to increasing the working-age population, the best-known channel through which they improve income per person. But as this new study shows, it’s far from the most important.

Migration Can Be a Big Help

According to the findings of the study, the most important channel through which immigration influences income per person is the increase in labor productivity.

Immigration Increases GDP Per Person and Productivity

A 1 percentage point increase in the percentage of immigrants in the adult population raises GDP per person in advanced economies by up to 2% over time. This improvement is mainly attributable to an increase in labor productivity, not an increase in the labor force/population ratio.

Both Skilled and Low-Skilled Migrants Improve Productivity

The benefits of immigration are not limited to the contributions of highly-skilled workers, with their specialized knowledge and diversity of skills. Low-skilled immigrants also have a significant impact on overall productivity, as they complement the skills of the population:

  • Low-skilled immigrants perform essential occupations for which the local population is scarce and thus contribute to a more efficient functioning of the economy.
  • When low-skilled immigrants turn to more manual routine tasks, the native population tends to move towards more complex occupations that require language skills and communication skills in which they have a comparative advantage.
  • In a prominent example of complementarity, low-skilled immigrants take care of homes and children (the “nanny effect”), which allows women in the host country to re-enter the labor force or work longer hours . In fact, in countries with a larger presence of low-skilled immigrants, there are more skilled women in the labor force.

Prosperity Goes Mainstream

An increase in the share of immigrants drives up the average income per person of the bottom 90% of the population and the top 10% of earners, even though more skilled immigrants benefit more than the median income of the population. better paid population. Furthermore, the presence of immigrants does not seem to aggravate the inequality of the 90% of the population with the lowest salaries.

There’s Work to Be Done

Immigration can bring substantial benefits to advanced economies, in terms of higher GDP per capita and higher living standards. These benefits are more or less distributed among the entire population. But the key to reaping them lies in addressing the challenges posed by migration in the short term and, in particular, in ensuring that immigrants integrate into the labor market.

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To achieve this, it is necessary to promote language learning, support the search for jobs, better recognize the training and work experience of immigrants and facilitate entrepreneurship. Although the integration of immigrants may increase the pressure on the fiscal cost in the short term, these policies allow them to find and keep a job at a level commensurate with their skills and contribute increasingly to public finances.

At the same time, the native population also needs help to adapt; among other things, acquiring new skills. The authorities must be careful not to overload public services such as health care and education so that they do not escalate social tensions.

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