Essential guidance on economics exam technique:
A2 Markets & Market Systems
Labour Market - Migration
The costs and benefits of labour migration has become a highly topical issue among economists and policy-makers over recent years. Foreign workers now account for over 5 per cent of the UK labour force. This note considers some of the economic and social costs and benefits from the rising scale of labour migration.
An increase in the rate of net migration can have significant effects on the labour markets of individual countries and wider macroeconomic effects on variables such as economic growth, unemployment and inflation.
Economic factors influencing migration decisions
There are many reasons why people choose to migrate:
Financial incentives: Individuals may estimate the private costs and private benefits of moving from one country to another. The incentive to migrate is strongest when the expected increase in earnings exceeds the cost of relocation. In some countries there are significant differences in average wage levels that more than compensate for variations in the cost of living. In a world of rising economic inequalities, the motivation to move to search for better paid word can be extremely powerful.
Estimates of purchasing power parity can be useful in establishing the real income gains from working in one country rather than another.
Financial incentives are also affected by the tax and welfare systems of different countries. Just as capital can move from one country to another seeking the highest post-tax expected rate of return, so workers may be induced to move because of variations in the generosity of the welfare system and differences in the rates of direct income tax.
Non-financial reasons: Other reasons for migrating, such as the opportunity to study in a foreign country, learn a new language, joining family members, or more generally improving living standards and seeking a better quality of life. Revolutions in communication and transport have also encouraged higher levels of cross country migration.
The economic costs and benefits of migration
“The economic effects of immigration depend not on population growth or density but on the characteristics of the immigrants themselves. While every mouth brings a pair of hands, these hands sometimes make more than they eat and sometimes less.”
Does labour market migration create more of an economic burden for the host country? Or can it provide a valuable contribution to raising productivity, entrepreneurship and economic growth in the long term? There can be no definitive answer of course. What is certain is that migration will remain an important issue for the UK and for the European Union over the coming years. In our discussion below of the costs and benefits of migration we focus on legal immigration rather than the concerns that arise from the illegal movement and trafficking of workers from country to country.
Migration policies in the European Union
The benefits of migration:
Case study: Economic migrants from Poland
What are some of the macroeconomic benefits from an influx of workers into the economy?
Case study -Migration expands the UK workforce
The costs of migration
We cannot rely on mass immigration to solve the problems arising from ageing of the population and alleged labour shortages. Mass immigration is not an effective solution to these problems. To the extent that they are real, such problems can only be effectively tackled by mobilizing the under-utilized talents and energies of the existing population. This does not mean that there is no economic benefit at all from immigration. It will always be in our collective interest to admit skilled and talented people. But this is happening already
Opponents of labour migration including pressure groups such as Migration Watch highlight the potential costs of a growing inflow of new workers.
The longer term benefits and costs of increased labour migration are very hard to quantify and estimate. Much depends on:
Suggestions for wider reading
|Author: Geoff Riley, Eton College, September 2006|
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