Economics and the Immigration debate

As the storm force winds blew, I wondered to what extent the debates on immigration and austerity shared a common feature. In both cases economists might feel like someone trying to walk against high winds: it is hard, perhaps painful, and you seem to be getting nowhere fast. To be less metaphorical, in both cases the economic arguments seem to be irrelevant to the public debate, and the politicians want to go in the opposite direction to the one suggested by the economics.

I have talked a great deal about austerity before, but not about immigration. A typical example of the economic arguments is this NIESR study by Lisenkova, Mérette and Sanchez-Martinez (pdf, blog post), which models the impact of the current UK government’s attempts to reduce net migration. (As this Bruegel post shows, the UK debate is fairly typical.) Although the paper uses an OLG model, and allows for some quite elaborate differences between migrants and natives, the basic results are intuitive. As migrants tend to be younger, reducing migration reduces GDP per capita (by about 2.5% in 2060), because there are less workers for each pensioner. For this and other reasons, migrants make less demands on the state, so a reduction in migration raises government spending per person (e.g. the elderly use the NHS more) which requires higher tax rates.  One interesting result is that although restricting migration raises pre-tax wages (less labour supply), after a time post-tax wages are lower because of the higher tax rate.

In short, migration is beneficial for the economy as a whole, and for households as a whole. For a short summary of other empirical evidence, see this article by Jonathan Portes, or this from the OECD. Yet the political debate presumes the opposite. It is taken as read that migration causes all kinds of harmful effects, and the debate revolves around measures to prevent these. It is summed up by this quote from BBC political journalist Nick Robinson.

“What Jonathan Portes has helped us do is define the difference between an economist and a politician," said Robinson. "A fine economist he might be, but I suggest he would not have a chance of getting elected in a single constituency in the country. It is a widespread view that there is exploitation of the benefits system by migrants.”

So you see why I think there is a potential parallel with the austerity debate. The evidence suggests that migrants make a net fiscal contribution relative to natives, just as all the evidence suggests that austerity is harmful in a liquidity trap. However the ‘public’ believe otherwise, and (by implication) economists should get real and stop going on about evidence so much.

There is a difference, however. Government debt is not a ‘doorstep issue’, whereas immigration is. In 2010 the Eurozone crisis brought the issue of debt to the fore, but since then in most countries it has been the politicians and sections of the elite that have kept the debt problem alive (to justify austerity). The ‘need’ for austerity is accepted by the public because it is portrayed as governments doing what households do in bad times: tighten their belts. But I do not think excessive government debt is an issue that many politicians encounter when they go canvassing for votes, but migration certainly is. Equally I doubt that the current UK government would have made migration such a big issue if it wasn’t perceived as a vote winner, and if it was not for UKIP.

Does this make a difference to how economists react in each case? We plug away at the economics of course, but how do we explain why the economics seems to be ignored? With austerity most explanations involve thinking about how politicians and sections of the elite think: why they may be irrationally worried about market panics, or why debt may be a cover for other agendas. With migration the focus has to be about why large sections of the electorate believe that migration harms them.

I see three strands of thought here, although none are mutually exclusive. The first is to acknowledge that there is a natural tendency for communities to be concerned about outsiders, but blames the media and some politicians for playing on this concern. This can explain why popular concern about immigration can be so high in areas where there is very little. The second is to grant that migration may be beneficial for the economy as a whole, but acknowledge that for some the immediate (and therefore personally verifiable) impact is negative (e.g. less unskilled vacancies, lower wages, higher rents). This article by John Harris exemplifies this strand. A third takes the concern about outsiders more seriously, and talks about the benefits and costs of social diversity.

A second difference involves politics. To the extent that austerity is a cover for sections of the elite to push for a smaller state, then austerity morphs into a standard debate between right and left. This helps explain why what on the surface should be a technical macroeconomic discussion about multipliers and the effectiveness of unconventional monetary policy is in reality so politically polarised. This is not the case with migration. As this letter from members of various UK right wing think tanks indicates, restricting migration runs counter to the neoliberal agenda. Others argue that public concern about migration reflects the failure of the left to oppose (or worse, pursue) this agenda.

Perhaps I can sum things up this way. While I find the macroeconomics of austerity interesting (it’s my field), I believe the reasons why the economics is ignored are fairly straightforward and much less interesting. In the case of migration, I think understanding why the economics is ignored is much more of an intellectual challenge.

A New Year Aside

Many thanks to Alex Marsh for saying nice things about this blog, but Chris Dillow absolutely deserves the No.1 spot. To see why, read this. I would have loved to have thought of this counterfactual, but whereas I would have ended with something predictable on the economics or politics, Chris talks about the importance of luck. Brilliant!