Voters Reject Migration as Businesses Crave Cheap Labour
The West's growing distaste for immigrants collides with industries' dependence on low-skilled, low-paid foreign workers, creating a complex economic dilemma.
The Facts
The world is experiencing a significant shift in migration patterns, with rich countries becoming increasingly unwelcoming towards immigrants. Over the past few years, there has been a surge in anti-immigrant sentiment, with more than half of Americans favoring the deportation of all illegal immigrants, up from a third in 2016. Similarly, in Australia, only 10% of the population wants more immigration, a sharp decline from a few years ago.
Migration to rich countries like the US, Canada, UK, and Australia has reached unprecedented levels, with net migration in these countries being 2-4 times higher than pre-COVID levels. In the past three years, 15 million people have moved to rich countries, the largest surge in modern history. Last year, more than 3 million people migrated to the United States, 1.3 million to Canada, and 700,000 to Britain. These arrivals come from all over the world, including hundreds of thousands of Ukrainians fleeing war and millions from India and sub-Saharan Africa.
This shift in attitude is not just limited to words; several countries are actively cracking down on immigration. Australia, Britain, and Canada are targeting "degree mill" universities that offer courses as a way for people to work in these countries. Canada aims to cut the number of study permits by a third this year. Other countries, such as the United States, France, and Germany, are making it harder for migrants to bring their families or are speeding up deportations.
However, the impact of immigration on inflation and living standards is debated, with some arguing that it helps contain price rises by relieving labor shortages, while others point to the inflationary impact, particularly on rental housing. The composition of immigrants has shifted, with more low-skilled and low-paid workers arriving, which has contributed to a decline in GDP per capita in countries like Australia, Britain, Canada, Germany, Iceland, and New Zealand. According to a review by America's National Academies of Sciences, Engineering and Medicine in 2016, "an immigrant with less than a high-school education, at all levels of government and excluding public goods like national defence, was a negative $115,000 in 2012 dollars."
There are signs that this migration boom may be ending. Net migration to Canada has fallen by almost half from its recent peak, and in New Zealand, it is dropping sharply. The rich world has fewer job vacancies than before, giving potential migrants less reason to move. The flood of refugees from Ukraine has also slowed to a trickle. New anti-migrant measures are starting to play a role, with the number of third-country nationals returned to their home countries in the EU rising by 50% over the past two years, and "enforced returns" from Britain increasing by 50% year-on-year in the first quarter of 2024.
Some economists believe that industries are becoming too dependent on foreign labor, which could stifle productivity growth and delay the search for more sustainable solutions to labor shortages. These economists suggest that policymakers should consider whether it makes sense for certain industries to rely so heavily on imported labor, and that businesses should be encouraged to invest more in automation or undergo necessary restructuring. Immigration is often the easiest option for countries facing demographic challenges and shrinking working-age populations, but this can lead to weaker productivity growth. Finding the right balance between allowing some migration and avoiding overdependence on foreign labor is difficult, as eliminating migrant workers could lead to higher prices and leave people in poorer countries with fewer opportunities.
In the long run, ageing populations in rich countries will require more young workers, so anti-immigration policies may become unsustainable over time. The working-age population is shrinking across advanced economies, with the European Union's working-age population expected to shrink by one-fifth by 2050. Many business owners say bringing in low-skilled foreign workers is essential due to aging local populations and shrinking labor forces. Immigrants often work in essential but low-paid industries like construction and healthcare, where they help fill labor shortages. Restricting immigration risks re-emerging labor shortages.
The View:
The shift in migration patterns and the growing anti-immigrant sentiment are likely to have significant economic consequences. While some may argue that large-scale deportations can be implemented without much impact, the evidence suggests otherwise. Past experiences, such as the Ugandan government's expulsion of people of Asian descent in 1972, have shown that such measures can have devastating effects on the economy, with entire industries struggling to find replacement workers.
The fiscal impact of low-skilled immigrants is complex, as they may not require public schooling but could become a fiscal drain in the long run, particularly when they retire and claim government pensions and healthcare. This nuanced understanding of the economic effects of low-skilled immigration is crucial in formulating effective policies.
High-skilled migration can be beneficial for productivity and local workers, but the impact of low-skilled migration is more debated. Governments often find it easier to increase immigration than to pursue reforms that boost productivity and allow weaker firms to fail. Some countries may have taken the "easy way out" by relying too heavily on imported labor instead of investing in automation and technological advancements. Excessive dependence on cheap foreign labor can create a detrimental cycle that discourages innovation and allows unompetitive businesses to survive.
There is weak evidence that immigration is helping to contain price rises by relieving labor shortages. In fact, the influx of new arrivals, especially low-skilled workers, may be contributing to inflationary pressures. This suggests that the impact of immigration on the overall economy is more complex than simple labor shortages, and policymakers must carefully consider the potential inflationary effects.
The recent wave of immigration is characterized by a larger proportion of low-skilled and low-paid workers, which may put downward pressure on wages and incomes. This dynamic requires a more nuanced understanding of the distributional effects of immigration, as the benefits and costs may be unevenly shared within the host country.
While cracking down on immigration may be politically popular in the short term, economic logic suggests this is not a viable long-term solution. Immigrants, particularly those in low-skilled but vital industries like construction and healthcare, play a crucial role in supporting the workforce in rich countries with aging populations. Reducing immigration could lead to labor shortages, hampering economic growth and efficiency. Even more moderate anti-immigration policies are likely to be economically damaging, reducing the labor supply and potentially leading to higher inflation and slower economic growth.
TLDR:
Significant shift in migration patterns, with rich countries becoming increasingly unwelcoming towards immigrants
Anti-immigrant sentiment on the rise, with more than half of Americans favoring the deportation of all illegal immigrants
Migration to rich countries like the US, Canada, UK, and Australia has reached unprecedented levels, with net migration 2-4 times higher than pre-COVID levels.
Several countries are actively cracking down on immigration, targeting "degree mill" universities and making it harder for migrants to bring their families or speeding up deportations.
The impact of immigration on inflation and living standards is debated, with some arguing it helps contain price rises by relieving labor shortages, while others point to the inflationary impact, particularly on rental housing
The composition of immigrants has shifted, with more low-skilled and low-paid workers arriving, which has contributed to a decline in GDP per capita in some countries.
There are signs that this migration boom may be ending, with net migration to Canada and New Zealand falling sharply, and the number of third-country nationals returned to their home countries in the EU rising.
Some economists believe that industries are becoming too dependent on foreign labor, which could stifle productivity growth and delay the search for more sustainable solutions to labor shortages.
In the long run, aging populations in rich countries will require more young workers, so anti-immigration policies may become unsustainable over time.
Know More:
Why Anti-Migrant Pushback Laws are On the Rise in Europe
What Broke The U.S. Immigration System?
Insights From:
The rich world revolts against sky-high immigration - Economist
Rich Countries Are Becoming Addicted to Cheap Labor - Wall Street Journal