How migration a ects growth
David C. Stevenson explores the complex relationship between immigration, growth and productivity
We can have two but not three of the following: a dynamic economy, a dynamic (open) labour market and low migration. That, at least, is the conclusion of Hein de Haas, professor of sociology at the University of Amsterdam.
De Haas previously taught at Oxford University, where he co-founded and co-directed the International Migration Institute (IMI). He is the lead author of The
Age of Migration, a seminal textbook in the field of migration studies. He also wrote the recent bestseller, How Migration Really Works.
We tend to look at immigration as something affected by factors such as war, climate change, inequality, the rise of social media or, perhaps, global transport links. But researchers in the field of migration studies tell us that one factor above all stands out: most migrants come in search of work to economies where there is robust demand for workers.
That demand for work is a product of flexible local labour markets, which have been extensively deregulated to improve productivity and boost growth. We deregulated these labour markets to ensure the economy was flexible enough to soak up under- and unemployed workers during times of economic stress. And here’s the last link: a workforce with low unemployment and high employment is likely, all other things being equal, to be a more productive workforce, boosting GDP for all of us.
Back to De Haas: “I say… half-jokingly that the best way to stop migration is to wreck your economy, but there’s a certain truth. We’ve made it much easier to recruit people from abroad on temporary contracts. So, you create a kind of economy and labour market that has an intrinsically high demand for labour. If you’re not going to accommodate that legally, it may partly resolve itself illegally”.
Seeking work
Scrub away all the propaganda and anguished debate about immigration and we end up with a brutal truth: most migration is for work opportunities in reasonably successful, wealthy economies that have high employment levels. This is far from what the left argues – migration is a question of desperate people, arriving on our borders, requiring help – or the right’s focus on refugees.
Rates of migration are, according to virtually every academic who studies the subject, tightly linked to the business cycle. If the economy is doing well, lots of migrants come. When it’s doing badly, not many migrants come, and many of those who are already here go back.
But surely, you might think, there are countries with dynamic economies, open labour markets and low migration? Annoyingly for migration hawks, experts such as De Haas disagree. Not one major developed world economy with higher growth rates and open labour markets boasts low levels of immigration.
In fact, plenty of economies we might aspire to such as Switzerland (think prosperous, solid growth, stable) in fact have higher levels of migration. People point to Japan and South Korea as possible counter-examples.
“The best way to stop migration is to wreck your economy”
Migration rates have indeed been low in these countries over the past few decades. Yet even here more recent data shows that both are now experiencing rapid upticks in migration rates owing to worsening labour shortages accentuated by rapid ageing. Furthermore, it would be hard to argue that Japan is a perfect example of an economy with high growth rates and a very flexible labour market.
But the debates around migration and growth go deeper than the connection between migration and labour markets. It is often said that we can counteract the impact of an ageing economy by using immigration to keep it working; or we can encourage economic dynamism, the idea being that a more multi-racial, mixed society is possibly more entrepreneurial. According to De Haas, neither of these arguments stack up.
On the ageing point, demand for workers in, say, the care sector, will inevitably result in more migrants, as is currently the case. But De Haas suggests that using migration to counter the ageing trend is not a solution because the numbers required to correct the trend would be huge. “Demographers are quite clear on that, because the ageing trends are so deep and migrants also age. It’s a temporary thing. It’s not going to be a longterm fix.”
Cause or effect?
But what about the idea that more immigration might help kickstart more creative destruction and more entrepreneurialism, and thus improve our economic growth prospects? According to De Haas, “Britain was a net-emigration country until the late 1980s. So, it was only when the British economy started to recover… and became dynamic and interesting again, that it started to attract migrants.”
“So the tricky thing is the main causality runs the other way around. What I think I can say is that if you have a dynamic economy and migrants have this idea that [they] can make their dreams come true, [you] will indeed attract migrants who have good reasons to think they can be rewarded for their efforts.”
What’s clear in the work of De Haas and other migration academics is that there are choices
governments can make about migration and the economy. We could, for instance, tighten up how private-sector employment agencies recruit foreign workers. We could toughen up workplace inspections and make sure employers don’t employ foreign workers when they shouldn’t.
We could allow refugees to work while their claims are being scrutinised. We could make people work longer hours and years and increase the retirement age to boost the labour force. De Haas also suggests that the many jobs currently filled with migrant labour could be made more attractive to local workers; we should also help improve the skills of local workers.
But all these choices involve policy trade-offs and it is not obvious that any will increase our national productivity or make us wealthier. And as all societies face a fertility crunch and our ageing process intensifies, we might want to make our country more attractive to immigrants.
What if they go elsewhere?
“There seems to be this assumption that there’s this quasi-inexhaustible source of labour out there,” argues De Haas. But we should bear in mind that many of the countries currently supplying us with migrants are ageing themselves.
“So what will happen if there are lots of middleincome countries that are becoming destination countries in themselves, like Mexico or Turkey? These may attract migrants in their own right. So can we bet on the idea we will always be able to attract migrants?”
The key point here is that we need to stop seeing migration as something independent from bigger growth challenges alongside the demographic changes in our society. There are of course political choices we can all make depending on your point of view, but the upshot is that what drives most (though by no means all) migration is demand for workers.
Boost that demand, especially for younger workers, and you boost productivity and growth, but you also boost migration. If we want migration levels below, say 100,000 a year, the only surefire way of guaranteeing that is to blow up the economy, kill demand for labour, increase unemployment, lower productivity growth and put up walls on the border.
Or as De Haas argues: “You cannot think of immigration separately from labour market dynamics. You can’t have your cake and eat it [when it comes to] migration and growth, which is something we don’t want to hear. There are some real trade-offs there”.
“You can’t have your cake and eat it when it comneds to migration and growth”