Economic Impacts, Labour Market Dynamics and Social Integration
Introduction:
Why are countries tightening immigration laws?
Amidst the current global landscape, countries like the UK, Australia, Canada, and France have implemented various immigration policies, from tightening visa rules to controlling the influx of temporary workers. These changes have sparked timely debates about managing diverse populations and addressing demographic trends. Understanding labour flows across markets is crucial for achieving market equilibrium, as these flows contribute to a more efficient allocation of resources.
This article aims to comprehensively analyze the multifaceted nature of immigration policy debates. It delves into the intricate balance between economic imperatives, workforce dynamics, and societal cohesion, aiming to shed light on the often complex and misunderstood topic of immigration.
LABOUR MARKET DYNAMICS
In recent years, a growing consensus among economists has acknowledged that immigrant workers complement the native labour workforce by bringing in diverse skill sets and demographic profiles. These contributions enhance and broaden the economy’s overall productivity and development. An example of this emerging economic consensus on the nature of the immigrant workforce is substantiated by a study published by the IMF in 1998. The study “Immigration Flows and Regional Labour Market Dynamics” concentrated on two powerful points: growing immigration rates increase unemployment in the short run; however, unemployment is permanently lowered eventually, implying that immigrants create more jobs than they occupy in the long run. More specifically, the total impact of new immigrants on native unemployment is determined by the relative size of the demand and the adverse effect on the search efficiency of native workers.
According to economic theory, if immigrants possess the same skills and compete for the same jobs, an influx of workers shifts the labour supply curve to the right, making immigrants substitute for native workers. Alternatively, an increase in the immigrant labour force can increase the demand for native workers. The labour demand curve shifts to the right, increasing the total employment of native workers in the long run. This phenomenon can surprisingly increase the productivity of native workers when they enter the labour market as complements.
In economics, higher average skills put downward pressure on wages in the short run. Therefore, the immediate impact of immigrant attributes on unemployment is strengthened by the indirect influence of wage-setting mechanisms. Short-term fluctuations in immigration rates correlate positively with changes in the unemployment rate. An often overlooked aspect of immigration is its impact on job creation. Despite their active participation in the job market, empirical evidence substantiates the argument that immigrants stimulate job growth by consuming goods and services, benefiting local workers in the medium run.
KEY DEBATES AND CONTROVERSIES:
While some argue that the initial perceptions of immigration’s impact on native-born workers are straightforward, others suggest that the long-term effects are more nuanced. For instance, from 1995 to 2006, Spain experienced a peculiar phenomenon: the flattening of the country’s Phillips curve. This flattening has been attributed to various factors, with a notable class of explanations centring around immigration. Easier entry and exit conditions, stemming from lower explicit barriers to migration for workers and reduced implicit barriers, may have contributed to creating a ‘reserve pool of workers’ or a more elastic labour supply.
Countries experiencing below-average unemployment tend to attract workers. In a booming economy with growing employment, an influx of immigrants may expand the labour pool instead of causing upward pressure on wages as firms compete for workers. Unemployment becomes less sensitive to variations in economic activity. This mechanism tends to flatten the Phillips curve via the actual flow of migrants.
Although natives incur initial costs for providing public services to immigrants and their families, evidence indicates a net positive return on this investment in the long term. Recent work on the fiscal impact of migration for some European countries, Australia, Canada, and the United States, has provided new and internationally comparative evidence emphasising that immigrants are neither a burden to the public purse nor a singular solution to fiscal challenges. OECD reports mandate that in most countries, except those with a significant proportion of elderly migrants, immigrants contribute more through taxes and social contributions than they receive in individual benefits.
SOCIAL INTEGRATION:
Immigration has a demographic impact, increasing the size of the population and changing the age pyramid of receiving countries. Migrants tend to be more concentrated in younger and economically active age groups than natives. Therefore, migrants contribute to reducing dependency ratios, as supported by empirical evidence in numerous research papers, while supplementing the stock of human capital in the host country. More specifically, evidence from the United States supports the notion that skilled immigrants boost research, innovation, and technological progress. Thus, free movement migration eventually helps address labour market imbalances.
The institutional structure of labour markets and welfare arrangements also influences the effects of immigration. Consider the relationship among qualifications, wages, and the social safety net as a triangle. In countries with ambitious distributional goals, a generous social safety net sets boundaries on wage levels through explicit minimum wages or the compensation provided by the safety net itself. Consequently, the workforce’s qualifications must be sufficiently high to align with these characteristics and maintain high employment rates. On the other hand, in countries with less ambitious distributional objectives, the social safety net establishes a lower wage-setting threshold, which impacts the required qualification levels for ensuring high employment rates. Immigrants from low-income nations may face higher unemployment risks in the former scenario.
Conclusion:
An alternative viewpoint on immigration policy posits that optimising the labour market entails decreasing immigration flow rates while simultaneously augmenting the average skill level of immigrant workers. However, long-term analysis shows that immigration and unemployment rates are negatively correlated. Immigration can intensify competition for existing jobs within specific occupational sectors and generate new employment opportunities. Therefore, reducing admissions is not conducive to long-term benefits. Typically, workers in low-skilled occupations are anticipated to encounter heightened competition from migrants because of the relatively more straightforward and less specialised skills required for such roles, but such effects are minor.
BIBLIOGRAPHY
(1) Bentolila, S., Dolado, J. J., & Jimeno, J. F. (2008b). Does immigration affect the Phillips curve? Some evidence for Spain. European Economic Review, 52(8), 1398–1423. https://doi.org/10.1016/j.euroecorev.2008.07.001
(2) Immigration crackdowns are good politics but bad economics. (n.d.). Financial Times. https://www.ft.com/content/c975fc2c-e6b9-402d-baa6-d87f036fc1d3
(3) Borjas, G. J. (n.d.). Chapter 28 The economic analysis of immigration. Handbook of Labor Economics, Part A. (O. et al., Eds.; Vol. 3)
(4). OECD. (2014). Migration policy debates. Retrieved from https://www.oecd.org/migration/OECD%20Migration%20Policy%20Debates%20Numero%202.pdf
(5) Gross, D. M. (1997). Immigration Flows and Regional Labour Market Dynamics. Vancouver Centre of Excellence.
(6) Sun, M. (2022). Labour markets. Macroeconomic Analysis for Economic Growth, 93.
(7) Borjas, G. J. (2001). Does immigration grease the wheels of the labour market? Brookings papers on economic activity, 2001(1), 69-133.
Author:
Saumya
B.A. (Hons.) Economics
Lady Shri Ram College for Women, University of Delhi
Editors:
Aidamon Talang
Editor-in-chief, GAEE India
Vaani
Associate Editor, GAEE India
Recent Comments