Tuesday, 7 June 2016

Everything You Always Wanted To Know About Immigration (But Were Afraid To Ask)

You’ve probably heard of Schrodinger’s immigrant – the person who migrates to Britain to simultaneously steal your job and cause a drain on the economy by being a benefit claimant. Although in reality few people actually believe in the existence of Schrodinger’s immigrant (for obvious reasons), there is an awful lot of nonsense spoken about immigration. It’s quite easy to see why. Unless you think about immigration by considering the whole picture, your analysis will be partial, and skewed in an unhelpful way. Let me try to help.

First, are immigrants a net gain on our society? It's tempting to say yes, as many people do, because, so the narrative goes, most immigrants work, and therefore bring gains to our economy. True, but that's not the best way to look at the net contribution question. Over a lifetime some UK citizens will pay more in tax than they get out of the system in terms of public services, and some will pay less. Long term welfare claimants tend be net beneficiaries, lower earners will tend to be a mixture, but most are not net beneficiaries, and higher earners will all tend to be net contributors. When you consider that the poorest 50% of the population pay only 5% of the total tax collected, it's clear that most people do not get much more out of the system than they put in.

Further, given that most immigrants tend to be among the poorest 50% of the population, then on those figures alone (stress 'alone') technically immigration may not constitute much of a net gain on our society, but it is a gain nonetheless. The graph below shows the fiscal impact of migration on countries in Europe – and as you can see, migrants in the UK are net contributors.

But that's only one corner of the picture, because we have to also factor in the people who gain most from immigration - the immigrants themselves. I think it’s a shame that whenever the subject of immigration comes up (recent Middle East crisis excepted) most people seem to primarily think of the matter in terms of how it affects ‘our country’ by which they usually seem to mean the people already here, by which they usually mean Brits. It’s rare that they think of the effects of immigration from the perspective of the individual immigrants themselves, not the immigrants already here. But, still, there are plenty of people around that are able to think beyond how immigration affects Brits to how it affects immigrants (of which more in a moment). 

What you hardly ever find, however, or at least find too infrequently, is a Brit thinking of the effects of immigration from the perspective of the people left in the immigrants’ country of origin. Given that in most cases when it comes to the poorest countries it is often the poorest people that cannot leave, how much of a negative impact does it have on them when they lose many of their brightest people with the most potential to countries already much more advanced and developed than them (this is what they call the ‘brain drain’)?  

It's quite easy to see why immigrants gain so much from immigration by seeing the situation in reverse - when investment is made in their countries. Developing countries don't have much material prosperity compared to wealthy countries like ours, but they do often have resources and labour to sell. Depending on the nature of their government and the internal civil set-up, what most people in developing nations have as their only genuine chance of working their way to prosperity is their opportunity to sell labour. Because those countries are usually rich in labour (and often in natural resources) but poor in capital they often only get the chance to increase their prosperity with outside investment from large corporations. 

That is why it is important to see that corporate investors are about as attractive to impoverished nations as impoverished nations are to corporate investors, as long as the nation is question has the requisite stability, basic human rights and rule of law to facilitate economic growth. So, far from being the capitalist bogeys that lefties love to excoriate, foreign investors are actually the main drivers of increased capital in developing countries, as well as, along the line, higher wages and increased human rights. In calling for less foreign investment by corporations lefties are also calling for fewer opportunities for many of their citizens by holding down their earning potential. 

The situation works in reverse regarding the subject of immigration, where instead of capital-rich investors coming into labour-rich countries, we have labour-rich immigrants coming into capital-rich countries like ours. Increased immigration to the UK increases the ratio of labour to capital. This would bring almost endless benefits both to the UK and to migrants themselves, but those benefits are reduced slightly by the fact that as our nation has a limited infrastructure (land, housing, schools and hospitals) immigrants also decrease some of the ratio of these things to labour and capital.

This usually would have a knock on effect of decreasing the marginal value of labour and increasing the marginal value of land, housing, schools and hospitals. Given that numerous government regulations impede the natural process of supply and demand curves being in equilibrium, it is obvious that the full benefits of immigration are not being enjoyed.

Take the most obvious example of those four - land, which is obviously also tied in with housing as houses are built on land. A country that has political and special interest group restriction on the supply of land being closely matched to demand naturally is a country in which the benefits of the relationship between labour-rich immigration and capital-rich employers are not being fully realised.

Immigrants aren't a threat to my job, but they might be a threat to some jobs. That's not an argument for reducing immigration, it is simply a point to understand how things work in a competitive market economy. Generally immigrants make the country better off, but more so for highly skilled people, and less so for low-skilled people who are competing for the same jobs. Skills are a resource just as a chocolate cheesecake is a resource. If chocolate cheesecakes are a scarce resource, I'll be paid well for a slice of it in my patisserie, and if skills are a scarce resource then people that have them will be paid well (assuming a demand for those skills).

In other words, if the nation is short of consultants and overflowing with factory labourers then wages for consultants will rise to attract more consultants and wages for factory labourers will be kept low. New people entering the labour market with assets that are in short supply are good for the market, whereas new people entering the labour market with assets in abundant supply are bad for it, but particularly bad for others with similar skills. That's why, in actual fact, the people who are worst affected by immigration in the UK are other immigrants already here, as well as indigenous people who are low-skilled or un-skilled.

For balance, the gains for immigrants have to be measured against the losses felt by their countries of provenance, because if the most skilled people from Africa, Europe and Asia are flocking to more prosperous countries, then our gain is their countries' loss. Given the intrinsic gains by those going to better themselves, all the inward investment in their countries of origin by entrepreneurs, and the benefit of experience they can offer their country by benefiting their own lives (called the 'reverse brain drain'), it's probable that the overall the economic gains outweigh the losses, particularly when you consider that according to the World Bank, migrants will send back well over $400 billion in remittances to developing countries this year, which is triple what the developed world gives in development aid and, because it goes straight to immigrants’ families, avoids some of the corruption problems that bedevil aid money.

Nigeria, Kenya, and Ethiopia are thought to be three of the countries worst affected an exodus of skills and intelligence through human capital flight, which has been very damaging to their nations. But on the other hand, China and India have recently topped the list of those nations experiencing the biggest exodus of human talent, yet not only are they two of the world's fastest growing economies, they are two of Africa's biggest investors too, so to the largest extent it probably plays out that when skills and intelligence leave a country to become more prosperous, some of that prosperity finds its way back into those nations still ripe for overseas investment.

Besides, even if we could enumerate all the cases in which the human capital flight has drained a developing country of important skills and talent, we really just have to take that as a given that humans are naturally primed to look after themselves and their family first, and that the drive to better their situation will always come first. It's not as though we'd ever want any restrictions on people's ability to move upwards on the economic ladder.

Returning to the economic benefits of immigration to a place like the UK, on top of all the intrinsic benefits we've talked about, there is also the additional benefits immigrants bring in terms of job creation. As we’ve seen, in terms of the economy immigrants bring net benefits to the UK, but a lot of people don’t seem to understand why. This lack of understanding is down to something called ‘the lump of labour fallacy’, which is the mistaken belief that allowing immigrants in to work reduces the availability of work for native born workers. But, of course, this isn’t the case.

Not only do immigrants brings many skills not available in the indigenous workforce, not to mention a work ethic, they also bring with them additional job-creation and also consumer needs too, as well as a rich diversity of culture to enrich indigenous folk. In other words, when immigrants work they create jobs for other people, both in the people they employ directly, but also in the consumer demands they bring with their wants and needs (clothes, groceries, cuisine, mobile phone contacts, haircuts, books).

The lump of labour fallacy mistakenly asserts that jobs are zero sum, in that there is a fixed amount of work to be done and once the right quotient of people have those jobs there are no more to go round. But a simple look at the history of the UK would tell anyone that this isn’t so, so quite why they fall for it with the immigration issue is beyond me. If you think about it carefully, then by the same logic all school leavers who get work must be stealing jobs – but of course we know that isn’t true.  In reality, of course, the opposite happens – when school-leavers get jobs they make the economy larger and the nation more prosperous.

An even further benefit can be seen by looking at the chart below. 
This chart shows the projected UK government debt over the next fifty years under high, low and no net migration projections. Because Britons are getting older and living longer, immigration is probably going to carry on being a vital vehicle to generate the tax to pay for all those pensions and healthcare bills.

One final point and then I'm done. The economic analysis may well look at all those benefits for the UK – the jobs, the taxes, the consumer goods, the diversity and the cultural enrichment - but you may argue that what it doesn't do is factor in the negative effects on the home nation, namely the two biggies: increased security threat and increased friction with locals when integration is a problem. I have to say in response that I don't have much sympathy with these views because usually (although not always) the problem is with the people having those views.

On the issue of increased security threat, well yes, immigration may ever so slightly increase threats, but by a similar measure going out in your car increases the risk of car accidents, but no one seriously thinks we should stop driving our cars (while we await driverless cars, that is). Even if we ignore the fact that a lot of the atrocities committed on British soil were not perpetrated by immigrants, it is ludicrous to claim increased security threat as a problem with immigration, because it's not as though a government can stop would-be terrorists in a way that they are not already trying to do.

And on the issue of friction with locals and lack of integration - it may have escaped your notice, or perhaps not, that those indigenous folk that complain about immigrants not assimilating and integrating are almost always the least accepting and most unwelcoming toads in the land. When did they ever extend out a hand to welcome people from a different culture into our own culture of acceptance? When was the last time someone who has issues with immigrants 'not integrating' actually went out of their way to make them feel welcomed and accepted, or perish the thought, stopped and talked to a family from another community and found out about them in a bid to develop a friendship?

I'm not saying the problem is all one-way - far from it - but what I do know is this: the people I know as being the most tolerant, kind and accepting of human beings generally (irrespective of ethnicity), of which I hope I'm one, are never the people bemoaning the lack of integration and assimilation. They are usually the ones who are far and away the least xenophobic, the ones with the most diverse range of friends from a multitude of cultures, ethnicities and nationalities, and the ones doing the most to ensure immigrants get all the help they need in integrating and feeling welcome in our tremendously tolerant nation. 

Note: Regarding what politicians could do to help the situation; a good start would be lessening some of the restrictive measures that affect planning and building. Britain has a lot more capacity for people, jobs, transport, education and increasing city sizes, but the recipe for its fruition needs to be better in place. Clearly open borders that allow any number in, is problematical, because there's the danger that immigration moves too fast for the more-slowly changing infrastructure. More market forces would improve the balance of supply and demand, but with anything on this scale there are trade offs.
As far as the majority of the general public is concerned, the narrative we have with immigration is the irresistible force of not curbing people's freedom of movement coming smack bang up against the immovable object of not overfilling the UK at the expense of all its countryside and of the infrastructure - and something has got to give. As my blog on big cities argues, places like London are wonderful social and economic metropolises, and there is plenty of scope for many more cities like London, as long as market forces and state governance can see this happening at the optimum rate. You may not know this, but cities currently only cover 2% of the entire planet's land.

Providing options are not retarded, people will still be able to choose the urban or rural settings commensurate with their preferences, even when the UK has hundreds of millions of people. Immigration is currently so high here because so many jobs are being created. What would help the rest of Europe (and us) would be if they enjoyed a similar success - but for that to happen there'd need to be a serous reduction in legislation and interferences in the market.

* In 2011 Michael Clemens looked at the economic estimates https://www.aeaweb.org/articles.php?doi=10.1257/jep.25.3.83 of the global GDP growth that would come if every country in the world abolished restrictions on the movement of goods, capital and labour across national borders. According to the papers Clemens looked at, removing all barriers to trade would increase global GDP by between 0.3% and 4.1%; removing all barriers to capital flows by between 0.1% and 1.7%. Those are big gains that would make the world a substantially richer place. Clemens also found that similar estimates suggest that removing all barriers to international migration would increase global GDP by between 67% and 147%.