In the past two decades, the UK has experienced a steady flow of net migrants into the economy. The 2016 Brexit vote has led to a sharp fall in net EU migration, but has been offset by a rise in non-EU migration. This net migration has had a wide-ranging impact on the UK population, wages, productivity, economic growth and tax revenue. Does net migration benefit the UK economy?
- Net Migration peaked in late 2023 at over 900,000.
- Since then net migration has started to fall.
History of Migration
Until 1990, the UK usually had met emigration. This was often emigration to countries like Australia, New Zealand, US and Canada. In the late nineteenth century it was often emigration to the Empire. Note in the 1950s and 60s, there were high levels of immigration (from West Indies, Pakistan and India), but this was offset by even high levels of emigration (people leaving)
Inflows and Outflows
We have seen a rise in both immigration and emigration. But, since 2023, we are starting to see a big fall in net migration.
EU migration
Until the Brexit vote in 2016, net migration was driven by EU migration – in particularly Eastern European countries like Poland, Czech, Romania and Hungary. But, now there are greater outflows of EU migrants than inflows. The migration surge of 2022/23 was driven by non-EU migrants taking advantage of the post-Brexit visa rules.
Traditionally non-EU immigrants are more likely to come for family reasons, whilst EU migration has been focused on work.
Impact of Net Immigration on UK Economy
1. Increase in Labour Force
Migrants are more likely to be of working age. The majority of migrants come for work or study (students) They may bring dependents, but generally net immigration leads to an increase in the labour force, a decline in the dependency ratio and increases the potential output capacity of the economy.
2. Increase in aggregate demand and Real GDP
Net inflows of people also lead to an increase in aggregate demand. Migrants will increase the total spending within the economy. As well as increasing the supply of labour, there will be an increase in the demand for labour – relating to the increased spending within the economy. Ceteris paribus, net migration should lead to an increase in real GDP. The impact on real GDP per capita is less certain.
In fact, net migration can make economic growth look stronger than it is. In the period 2005-2025, UK real GDP has increased significantly faster than GDP per head. See GDP per capita for more info.
3. Labour Market Flexibility
Net migration could create a more flexible labour market. Migrants will be particularly attracted to move to the UK if they feel that there are job vacancies in particular areas. For example, during the mid-2000s, there was a large inflow of workers from Poland and other Eastern European economies – helping to meet the demand for semi-skilled jobs, such as builders and plumbers. The government has also sought to attract migrants from various countries to meet shortfalls in job vacancies in key public sector jobs, such as nursing.
- In theory, a period of higher unemployment might discourage migrants (this has occurred in the case of Ireland). However, the UK aw continued net migration despite higher unemployment 2008-12. Since 2012, unemployment has fallen considerably and migration has remained fairly constant.
4. Positive impact on the dependency ratio
With an ageing population, the UK is forecast to see an increase in the dependency ratio. However, net migration helps to reduce the dependency ratio. Migrants are more likely to be a source of working-age people, and this helps to reduce the ratio of retired to working people. The Migration Observatory reports, that in 2019, 70% of the foreign born were aged 26-64, compared to 48% of the UK born (link). This younger population has benefits for the government’s budget. If migrants are of working age, they will pay income tax, VAT – but will not be claiming benefits.
5. Impact on particular sectors
An important reason for net migration is higher education. In 2019/20, according to Higher Education Statistics Agency (HESA) there were 556,625 international students (link), studying in the UK. These students may not show up in long-term migration trends. But, the short-term effects are quite important. The London Economic analysis estimate that students of 2018-19 contributed a net £25.9 billion to the UK economy (link – pdf). A very significant contribution. These payments also help to finance higher education for domestic students.
The latest ONS report suggests formal study is the biggest reason for net migration into the UK. See also: reasons for net migration into the UK
6. Social issues
Another issue felt keenly in the UK, is the concept that we are already ‘overcrowded’ In this case, a rapid increase in the population due to migration could lead to falling living standards. For example, the UK faces an acute housing shortage, but also an unwillingness to build on increasingly scarce green belt land. In many cities, it is difficult to build more roads because of limited space. The increased population could increase congestion and urban pollution. Therefore, the increase in real GDP has to be measured against these issues which affect the quality of life.
Rents increased significantly during years of high net migration7. Economies of scale
Others may argue that concepts of ‘overcrowding’ are misplaced. In the nineteenth century, people were already worried about overcrowding. But higher population densities are in one sense more efficient and have a lower environmental impact. Other countries like Belgium have an even greater population density than the UK. Also, if migrants help to grow the economy, there will be more tax revenue to finance public infrastructure.
8. Welfare benefits
A popular idea is that immigrants are more likely to receive welfare benefits and social housing. The suggestion is that Britain’s generous welfare state provides an incentive for people to come from Eastern Europe and receive housing and welfare benefits. While immigrants can end up receiving benefits and social housing. A report by the University College of London, suggests that :
- However, despite the positive figures in the decade since the millennium, the study found that between 1995 and 2011, immigrants from non-EEA countries claimed more in benefits than they paid in taxes, mainly because they tended to have more children than native Britons.
In recent years, claiming unemployment benefits in the UK is quite strict – the claimant count measure of unemployment is much less than the Labour Force Survey (see: Unemployment stats). People have to prove they are looking for work. Also, the criteria to be given an immigration visa from non-EU countries is increasingly strict. The migrant often have to show they have a degree of savings or an offer of a good job. The UCL report on immigration suggested that immigrants tend to be more highly skilled than native workers.
- In 2011, 32% of recent EEA immigrants and 43% of non-EEA immigrants had university degrees, compared with 21% of the British adult population.
Does Immigration Cause Unemployment?
There is no clear link between migration and unemployment. Net migration occurred with falling unemployment 1991-2005, but rising unemployment from 2008-12. The fall in unemployment since 2012 may have attracted more migrants coming to work.
A common question people often ask – is whether immigration causes unemployment? Migrants have often been blamed for ‘taking our jobs’ – especially in periods of high unemployment, and in local areas of above-average unemployment.
Firstly, net migration is compatible with low unemployment. Net migration helped the US population to increase drastically around the turn of the century, but this didn’t cause unemployment. Migrants bring both an increased supply of labour and higher demand for labour. In the 1990s, net migration was consistent with falling unemployment in the UK.
However, in periods of high unemployment, it may be much more difficult for migrants to find work. This may be exacerbated if the migrants have poor English, low skills and or suffer racial discrimination. In this case, net migration could add to the unemployment problem. However, the underlying cause of unemployment is not net migration, but the recession.
Qualifications of Migrants
Another factor that determines the impact on unemployment is the skills and qualifications of immigrants. If migrants have low skills, they are more likely to experience structural unemployment. In the 1950s, immigration into the UK from the Caribbean was encouraged for manual labour (driving buses e.t.c.) to fill job vacancies. However, when the period of full employment ends, migrants may be more liable to be unemployed if they lack the skills to find new work.
The impact on unemployment in the current crisis depends on the type and skills of workers who are migrating into the UK.
Source: Centre for Economic Performance, LSE
This shows that the unemployment rate for immigrants tends to be higher than for UK born workers. This gap is especially true during recessions. One reason put forward is that immigrants tend to be more likely to be working on short-term contracts, and so in a downturn are more likely to be laid off.
Source: Employment studies
This shows that the fall in unemployment corresponded with rise in EU net migration 2012-2015
Does Immigration Push Down Wages?
This shows that higher levels of net migration did correspond to lower growth in real income. Though innumerable factors affect wage growth other than migration. Since 2008, it was an era of low productivity growth.
Theoretical explanation
From one perspective an increase in the labour supply may push down wages. This is especially true if migrants are keen to accept lower wages (e.g. willing to bypass traditional union bargaining). However, again, net migration doesn’t have to push down wages. The massive immigration into the US, during the twentieth century, was consistent with rising real wages. Increased migration, will also affect demand for labour due to higher spending in the economy. Immigration increases labour supply – but also increased labour demand.
However, particular labour markets may notice lower wages if there is a concentration of immigrants willing to work. For example, if wages are high in a particular agricultural market, migration from a low-income country may lead to falling wages in these specific markets.
Also, some migrants may be more vulnerable and more willing to work in the black market (e.g. accept a wage below the equilibrium).
Further reading: Lump of labour fallacy – the fallacy that increased labour supply always pushes down wages.
Bank of England study on wages and immigration
A Bank of England found a rise in immigration had a tiny impact on overall wages – with a 10% increase in immigration – wages fall by 0.31%. However, the negative effect was greater for semi/unskilled workers in the service sector, with a 10% rise in immigration reducing wages the equivalent of 2%. B of E report. However, this explains only a small fraction of the real wage decline since 2007.
Video on Immigration
Evaluation of Immigration
The impact of net immigration depends on:
- The skills and qualifications of migrants. The UK is increasingly strict on allowing only skilled workers.
- How easy do migrant find it to assimilate in the destined country? E.g. in the 1950s and 1960s, migrants from the Indian sub-continent / Caribbean may have found it more difficult to find employment due to poor English / racial discrimination.
- It depends on the age profile of migrants. If a high % are young workers, then this can help reduce the dependency ratio – a crucial issue for the government budget.
- It depends on the current economic climate. In a recession, migrants will find it harder to gain employment.
- It depends on the type and skills of migrants. Migrants from Eastern Europe may be more flexible and return home if the economic situation deteriorates. Low skilled migrants are more likely to be structurally unemployed.
- Migrants can be a source of foreign income, e.g. tuition fees from foreign students. However, migrants may also send a substantial portion of their earnings to relatives abroad – reducing the wealth of UK.
- Can the Economy absorb a greater population? For example, what are the impact on public services, levels of congestion, and housing?
Impact of Immigration on Housing
Positive net migration levels are a significant factor in increasing the number of households in the UK. Given limited housing supply (and difficulties of increasing supply), this is putting upward pressure on UK house prices and the price of renting.
Related posts
- Reasons for net migration into the UK
- Immigration and the black market
- Flexible labour markets and immigration
- Long-term migrants data at ONS
NOTE: EEA – European Economic Area – EU, plus EFTA countries Norway, Iceland and Liechtenstein.
About The Author
Informative and fairly unbiased. Louis most of the data was from ONS it seemed? It could be argued your comment is purely from an anti-EU standpoint.
Louis Walker is rather harsh about this website, which I think is distinguished for its clarity, but is factually correct in noting the statistical criticisms by their professorial colleagues of the Dustmann/Frattini report (Immigrant Fiscal Contributions 2001-2011), particularly Mervyn Stone to which I would add the work of Robert Rowthorn (Emeritus Economics Professor at Cambridge) in his 2014 report. However the continued general acceptance of the fiscal contribution of immigration, notwithstanding that even Dustmann quantifies the cost of earlier non-EU immigration at £90 billion from 1995-2011, fails to address the the issue of the public expenditure shortfalls right across those areas where immigration should have required such expenditure to increase. The perverse effect of this shortfall is to increase the apparent fiscal contribution of immigrants, and indeed all inhabitants, by the simple expedient of not actually spending the contribution on those areas which need it.
Nowhere is this economic illiteracy more obvious than housing. The much quoted requirement to build 240,000 houses per annum is largely based on the forecast of household formation from the Department of Communities and Local Government with a 2012 base year and a principal population projection based on net immigration of 165,000 annually to 2031. At that level the DoCLG concludes that about 40% of household formation is due to immigration but, adjusted for their larger households, means that about 83,000 new houses annually are required solely to keep up with immigration. At £250,000 per unit that is over £20 billion annually that has to found to stand still. (Dustmann’s EU immigrant challenged contribution ran at just £2 billion annually) Last year net immigration was 300,000, 80% greater than the DoCLG projections. The cost of properly housing all in our nation is rising exponentially and is becoming impossible to resolve by any remotely conventional policies.
Half of my family is black. I am acutely aware of anti-immigration rhetoric but, as a member of a well known economics institution, even more aware of the economic dynamics transferring housing capital from many in my family to the wealthy. In his evidence to the Treasury Select Committee Steven Nickell of behalf of the OBR (minutes published 13.02.2015) said that the general consensus was that we could not say whether immigration was overall beneficial to the UK or not, a position which has remained academically unchanged for some time. (see CReAM 2012 Ian Preston and Migration Advisory Report July 2014 which concluded that the main beneficiaries were the migrants themselves and the owners of capital)
We must all draw our own conclusions as to why uncritical support of immigration by the owners of capital, exemplified by the CBI, continues to be the default position of broadcasters and most of the press who seemed to have suppressed the old journalistic maxim of ‘follow the money’. To find who is making money out of immigration is where to start questioning current received opinions as to who actually benefits.
One half of my family is black. I am acutely aware of anti-immigration rhetoric but I am even more aware of the long term transfer of housing capital
from working families to those who already own capital with immigration being a very significant agent, together with the ‘dampening of wages’ acknowledged by Steven Nickell in his evidence for the OBR to the Treasury Select Committee. He took the view that the “general consensus was that immigration may be a little bit good or a little bit bad but that the evidence is not fantastically strong either way”. This position is entirely consistent with all academic studies, including CReAM in 2012 (Ian Preston’s report on economic effects of immigration on UK) and David Metcalf’s
Migration Advisory Committee July 2014 report on unskilled migration which drew the conclusion that the principal gainers were the migrants and the owners of capital.
We must all draw our own conclusions as to why the uncritical support of immigration by the owners of capital in the UK, exemplified by the CBI, continues to be the default position of broadcasting and most newspapers.
This site is appears to be less about objective economics and more about pushing pro-EU propaganda. For example, it quotes studies produced by UCL’s immigration research department (CReAM).
However, the author of this article appears to be unaware of the fact that CReAM’s studies have been discredited by a number of eminent statisticians (including UCL‘s own Emeritus Professor of Statistics). The criticisms are extremely serious.
Professor Mervyn Stone and others refer to the use of underlying crude assumptions, an all-embracing approach, the absence of sensitivity tests and the study being driven by a desire to prove a pre-determined conclusion.
He goes on to accuse Dustmann and Frattini of using questionable methods and having an inadequate understanding of the data, thereby significantly overstating their case. ‘’Small changes to large assumptions about the claimed benefits could make the supposed positive contribution of EU migrants disappear, and in fact turn negative.’’
The CReAM studies also totally ignore a number of costs arising from large-scale immigration. For example, they takes NO account of costs such as welfare benefits or social housing provided to displaced British workers. These costs run into billions and would almost certainly wipe out the modest gains asserted by Dustmann and Frattini.
There are other problems with this article. For example, using US migration flows in the early and middle 20th century as a comparator to 21st century Britain! But as this comment probably won’t even appear, I won’t waste time going over all the other issues.
But see http://creamcomments.blogspot.co.uk/2014/01/there-are-no-schoolboy-errors-in-our.html
The main conclusions appear robust
Terry, you claim that “The British cannot afford to buy in London, not even rent, it is too expensive. How come Muslims can take up residence in the Capital, where does their wealth come from, British social security payments?” Actually, lots of British people can afford to buy in London, and lots of Muslims (British or otherwise) can’t. Also I very much doubt that many people, British or otherwise, get rich from social security benefits. Where on earth did you get your statistics from?
Terry has no statistics or studies to support his assertions. He is regurgitating the Daily Mail and Express, who made it all up for people like Terry.
I don’t think Terry has ever been to London. If he had he’d know that, overwhelmingly, the people of London are not wealthy. He’d know they struggle to pay their mortgages, food bills, energy bills, local taxes, local parking, travel costs… like everyone else.
Terry would also know, if he’d ever been to London, that it’s the most cosmopolitan city in the world. The wealthiest people in London, apart from those who work in the City, and a few oil-rich Arabs in Knightsbridge, are Russian and Chinese businessmen who tend not to be Muslim.
Terry should also know that less than 5% of the UK population is Muslim, and that about 40% of the UK’s Muslims live in London – mostly in the poorest boroughs like Newham and Tower Hamlets.
But Terry doesn’t know any of this because the Terry’s of this world have their information and preferred narratives fabricated and assembled by the UK’s populist press, to suit the agenda of the non-dom, billionaire, tax-avoiding UK populist press owners.
Looking at longer GDP stats for the UK, there is no evidence that immigration has boosted or accelerated the growth of our economy. It appears that it simply proves that, on average, to succeed in work it doesnt matter where you come from or how skilled you are as most jobs don’t need a particularly high skill level.
If immigration was needed, we should see an acceleration in our GDP and a deceleration in the GDP of countries who’ve provided immigrants. There is no such effect. If supposedly highly skilled immigrants all left and were replaced by supposedly lazy Brits, I doubt we would spot any change, as the reverse process made no difference.
I loved the read. Very informative & brilliantly written.
this analysis is totally flawed about the impact immigrants have on the environment
no doubt if it stays the way its going people will start living in tents
I have been in the construction industry for 43yrs. The effect on the industry is that migrant labour have pushed the labour rates down by 60% with a gross rate of 30%. I have cut my gross rate by 10% and don’t have a further 20% to trim off the top unless I employ migrant labour. Something I am not prepared to get involved in. My only alternative is to change what I do. Which Is what I am doing. And why I will vote Ukip having been a dedicated conservative all my working life. I am British I try to buy British.
And yet bricklayers now earn £160/day. In fact I saw an advert in the paper for bricklayers at £170/day last week. I’m white collar with a degree and 3 good A-levels and I don;t earn that much!
Go be a brick layer then, what is stopping you?! The worst kind of people in this world are those that moan sbout ehat others have in comparison to themselves and then do nothing about thier own situation to better themselves – you can achieve anything, go get it for goodness sake!
Well matey, it’s highly likely you have never laid a brick in your life. You don’t state what degree you have, so I won’t comment about you, but please don’t undermine just what it really takes to lay bricks. The coordinator between brick and hand has to be perfect thousands of times as he lays each brick.
Add to that it is very demanding on the body.
And you’ll probably find that most bricklayers on £160 per day are self employed… so they won’t get paid holidays, bank holidays, sick, training, travel expenses or company pension plans…. they will also be able to be dropped from employment with no notice nor compensation.
Taking this into account they are probably on the equivalent of about 30K or less compared to an employed job.
Theres a difference between being self employed and earning 170, to working for someone else and earning the same. The builder provides his own tools, van, petrol and other expenses. I hope it wasn’t business you got your degree in. :/
Have the same problem at the moment, plenty of work out there, lots of building going on but none of it paying a livable wage though.
I’m a Joiner/maker with over 20 years experience been at it a lot longer working for my late father as did my brothers during school holidays and weekends yet in the last 5 years salaries and conditions are getting slowly worse yet turn on the tv and i’m told everything’s sweetness and light.
I feel construction in the uk is now pretty much a migrants game when looking at salaries and the fast downward trejectory of mine these past few years.
FWIW the majority of my work nowadays is remediating somebody elses cock up’s, and from experience a good deal of it is usually someone cheaper, less skilled and British than me!
Out of interest Jeff what were you re-training in, i thought about something in IT?
Still undecided on who to vote for though, they’re all much of a muchness in my opinion.