Economic Effects of Migration: What do we know? David Bell Stirling Management School University of Stirling

Evidence on labour market effects of migration Economists’ approach to migration Human capital theory Short-term costs of migrating Long-term gain at destination relative to origin Migration decisions made in the presence of risk and uncertainty

Evidence on labour market effects of migration Predictions from this theory Young more likely to migrate than the old Changes in the relative economic/social costs or gains at origin/destination will affect migration flows Migration decreases with “distance” between origin and destination (cultural/geographic/social) Migration may not be a one-off event This approach does not predict what the labour market effects of migration are, since its focus is on the gains or losses to the individual Nor does it account for social and public sector costs

Evidence on labour market effects. Key Question 1 Is migrant labour a substitute for, or a compliment to native labour? Self-employed immigrants have a positive effect on jobs growth. Innovative immigrants contribute to increased employment. Immigrants can occupy "hard to fill" vacancies Immigrants raise the general level of demand, which expands employment Low skilled emigrants can spawn natives to increase their productivity through investment in human capital But … Competition between natives and low skilled immigrants may occur in the short run, but no significant effects have been found Use of low skilled immigrant labour may impede the adoption of new technologies Countries that depend on low skilled immigrant labour may be vulnerable should that supply dry up Source: Amelie Constant, George Washington University

Evidence on labour market effects. Key Question 2 Is migration permanent or temporary? Migrants play an important role in filling labour shortages where it is hard to find native workers, which is often where work is seasonal Remittances may make an important economic contribution to the sending country. Cutting these off is unlikely to improve international relations. Circular or "return" migration is good for both origin and destination countries because it increases transfer of skills But Restricting this form of migration is likely to lead to increased illegal immigration and visa over stays Circular migrants may be more exposed to exploitation, abuse and discrimination Source: Klaus Zimmerman, Harvard University

Evidence on labour market effects. Key Question 3 Is migration driven by a desire to access other countries welfare systems? The idea that welfare systems attract immigrants has no strong support Immigration can largely be explained by differences in unemployment and wages between the origin and destination countries, by distance, and social links Although immigrants often face a higher poverty risk than natives, they tend to make less use of welfare programs Source: Corrada Giuletti, IZA There are also significant public misconceptions in the UK about the structure and dynamics of the benefit system

Evidence on labour market effects. Key Question 5 Do migrants depress the wages of native workers? From a survey of 27 empirical studies, there is no strong evidence that immigration has a negative effect on the average wage of native workers There is little evidence of immigration reducing the wages of less educated native workers In many countries the share of graduates among immigrants is higher than that of native workers But New immigrants may have a negative effect on the wages of earlier immigrants Wage effects are less positive in rigid labour markets Source: Giovanni Peri, University of California

Evidence on labour market effects. Key Question 6 Does migration contribute to economic growth by driving up educational standards? It has been argued that "the London effect" - the rapid improvement in London's school performance relative to the rest of England - can be explained by the ethnic composition of the pupils The evidence on this is mixed: others argue that the disbandment of the Inner London Education Authority and the "London challenge" also played a role in improved standards Source: Corrada Giuletti, IZA

Evidence on goods market effects. Key Question 1 What effects does migration have on trade?? Immigration increases trade due to: Transaction cost effects Immigrant preference effects - demand from immigrants for country of origin products 10% increase in the stock of immigrants can boost trade by an estimated 1.5% on average Almost no studies have found a negative effect Source: Murat Genç, University of Otago

What does this evidence and the potential reduction in net migration mean for Scotland? Potentially damaging effects on key industries Hospitality Agriculture Food processing Education/Technology Lower population Changing migration trends?

Historically Scotland has experienced net emigration Source: Michael Anderson, Registrar General’s Annual Review of Demographic Trends

If UK migration reduced to “tens of thousands”, Scotland’s would be approximately zero? What would be the implications for Scotland’s population in the longer run?

Conclusion Restrictions on migration pose significant downside risks for the Scottish economy These risks are not distributed evenly – either geographically or sectorally Congestion costs likely to be much lower than in England Risks to labour market from higher immigration limited Risks to product market from lower immigration considerable – supply constraints/access to foreign markets/technology transfer