There is a sound economic case for accepting higher levels of immigrationby George Magnus / September 7, 2015 / Leave a comment
On Wednesday this week, Jean-Claude Juncker, the President of the EU Commission, is scheduled to unveil the EU’s latest proposals to address the migration crisis. Previous initiatives have not been up to the task, and as recent developments have shown, the urgency and scale of the challenge are rising all the time. Juncker’s task is to “Europeanise” a problem for which national, rather than European, institutions bear responsibility, and to which some countries, especially in Eastern Europe, have shown resistance, and others have demonstrated a less-than-generous spirit. He may make some progress but is unlikely to “crack the code” for effective action.
The EU response and that of most member states have been put in the shade by Germany’s welcoming and compassionate approach. Today it was reported that the German government will provide up to €6bn to help accommodate up to 800,000 asylum-seekers which it expects to register this year. “In a crisis where Europe has little to be proud of, Mrs. Merkel’s leadership is a shining exception,” The Economist said this week. Indeed it is, confounding some of the more mindless criticism of the country earlier this year that it was hell-bent on the destruction of Europe.
Merkel’s leadership qualities need to be broadened because we are facing probably one of the largest displacements of people ever recorded. The biggest migration in recent history has been the 160m or so people leaving China’s rural areas for the cities since the late 1970s. The largest cross-border migrations included the more than 50m Europeans who moved to the Americas between 1820-1914, about 16m Germans who fled to the West at the end of the Second World War, and nearly as many who fled India for Pakistan and vice versa in the Partition of 1947. According to the UN High Commission for Refugees (UNHCR) then, the roughly 59.5m who were forcibly displaced at the end of 2014 amounted to the largest ever recorded. It represented an increase of 17m since 2011, before which the number had been relatively stable for about six years. The war in Syria has been the biggest contributor to the rise, along with 14 other conflicts mostly in Africa, but also elsewhere in the Middle East, parts of Asia, and Ukraine.
Strong political views abound about the acceptability of refugees and other migrants into European societies, reminiscent of previous waves of immigration both before and after the Second World War. But we should be clear about one thing at least; there is a sound economic case for accepting higher levels of immigration.
If we judged net immigration (numbers per 1000 of population) by the standards of Canada (6.7) and Australia (8.9), then most EU countries are also-rans. Sweden has the highest rate (5.7), followed by Finland and Belgium (4-5). The UK (2.8) is lower than Germany and Austria (3-3.5), while other EU countries lag further behind, and some, such as Italy and Greece actually have negative net immigration, that is, a higher level of people emigrating at least until last year. Even if we all allowed a temporary increase in net migration rates, the overall population structure would not alter substantially.
There is little question, moreover, that immigration is a net positive for the economy. Opponents of higher immigration and anti-immigration lobby groups may rail against this, but they do so for political and other reasons only. In fact, immigration has historically been regarded as economically constructive and culturally enriching.
The median age of EU citizens is about 42 years, spanning 39 in northern Europe to over 43 elsewhere, whereas the median age of immigrants in 2014 was 28. The influx of younger people adds directly to the size and dynamic of the working age population (WAP), skill formation, human capital development and business start-ups. These are assets that would normally be prized, but especially so in ageing societies, whose unique trademark is the rise in the old age dependency ratio. This is the direct result of the combination of weak fertility, a stagnating or falling WAP, and the sharp increase in the cohorts of older people. It follows, therefore, that anything that increases the size and or growth of the WAP is a net positive for economic growth and enhances the coping mechanisms we need to deploy to manage the ageing society phenomenon.
Some people express or spread fears about the impact of immigration on the state of public finance. But in my book, The Age of Ageing, I showed—and others have done subsequently—that the tax-to-benefit trade-off is hard to measure, and even harder to prove. Nevertheless, most credible estimates of the fiscal costs and benefits produce estimates that lie in a band plus/minus 0.5 per cent of GDP over time. In other words positive effects in early years are perhaps offset over time as immigrants themselves age and become dependents.
In the face of emotional and sometimes shocking images of displaced people seeking new lives in Europe, the economic argument seems not a little peripheral. It is nevertheless important not to be distracted by those who raise it as a barrier.