In the past two decades, the UK has experienced a steady flow of net migrants into the economy. This net migration has had a wide-ranging impact on UK population, wages, productivity, economic growth and tax revenue. To what extent does net migration benefit the UK economy?
- In 2016, Net long-term international migration was estimated to be +248,000 in 2016. Immigration was estimated to be 588,000 and emigration 339,000.
- 9,634 people were granted asylum or an alternative form of protection in year ending (YE) March 2017
- In the past five years, the UK population has been boosted by net migration of around 1,000,000.
Inflows and Outflows
- In 2011, the top 3 countries for the source of migrants was India, China and Pakistan.
- The top 3 destinations for people emigrating from the UK was Australia, India and US.
Age Composition of Immigrants
Source: Centre for Economic Studies – LSE
This shows that immigrant workers are likely to be in the mid-20s and 30s. It is this age group where workers are most flexible and willing to travel to find work. As they near retirement age, immigrant workers are more likely to return to the country of their origin. This age composition has implications for net contribution to tax revenues.
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 2005-2015, UK real GDP has increased significantly faster than GDP per head. See: GDP per capita for more info.