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Monday, 17 June, 2002, 09:10 GMT 10:10 UK
Analysis: Who gains from immigration?
Indian IT experts
Germany already recruits IT specialists from abroad

The political controversy over immigration has intensified in Britain and other European countries in recent months, and influenced recent elections in the Netherlands, Denmark and France.

Many of those opposed to further immigration fear it may bring in its wake more crime, and some believe that it will jeopardise common values.

But much of the argument about immigration centres around its economic costs and benefits.

Opponents say that immigrants are taking the jobs of native workers, and lowering the wages of others.

Supporters of immigration argue that it has long-term benefits for the economy, providing needed skills and helping to boost economic growth.

And there is a related argument about the costs and benefits of immigration to governments. Do immigrants pay more in taxes than they receive in benefits?

Scale of immigration

The first task in any discussion is to get the scale of the immigration issue in perspective.

Immigration has been increasing in the last decade, but its scale is still far smaller than the peak of international migration - in the late 19th century - when some 17% of Europe's working population moved to the New World, mainly to the United States, where 30% of the population was foreign-born by 1910.

Immigration into the EU has averaged around 1.4 million each year, compared with some 2.3 million into the United States.

And about 5.3% of Europeans are foreign-born, compared with 10.3% in the United States, and nearly 25% in Australia.

What has changed is the spread of countries around the world from which migration now occurs, with Africa and Asia replacing Europe as the main source of immigrants.

More people have also entered Europe as asylum seekers in recent years, accounting for around one-third of immigrants - although it has declined sharply from its peak during the Bosnian and Kosovo crises.

But more immigrants are also coming as high-skilled workers to take temporary jobs in areas of shortage, such as teaching, nursing, and high-tech computer jobs - and governments are encouraging that trend.

Effect on wages

Some of the biggest controversy among economists concern the effect of immigrants on wages.

Much of the evidence has analysed the effect of Hispanic migration into the United States.

The leading scholar on the subject, Harvard professor George Borjas, argues that unskilled migrants do lower the wages of native workers who are competing with them for jobs like catering, child-care and cleaning.

However, the size of the effect is difficult to calculate, and is partly offset by the gains made by employers who can make higher profits because of the lower wages.

And Mr Borjas argues that skilled migrant workers who fill jobs where there are genuine shortages provide real benefits.

In Europe, there are even bigger skill shortages, due to a falling birth rate, and many migrants have higher education levels than Hispanic migrants to the USA.

However, there is also higher unemployment, especially in Germany.

Most economists believe that the current rise in unemployment has little to do with immigration, and more to do with the high costs of employing new workers, or firing old ones.

Unemployment rose rapidly in many EU countries during the 1980s when immigration was stable.

Taxes and benefits

Most immigrants are of working age, which means they consume less of the services provided by the state, such as health care and education, and pay more in taxes.

In the UK, Home Office research suggests that immigrants pay 2.5bn more in taxes than they take in benefits.

And the Treasury estimates that the economic growth rate has been boosted by a quarter-point because of immigration.

At present, many immigrant families are larger than average. If this trend continues, this could lead to higher public expenditure, for example on education.

However, the main demographic problem facing Europe is a declining birth rate, which is threatening to make it difficult to pay for pensions for future generations.

Some commentators have suggested that increased immigration could offset the growing pension burden on a smaller workforce. The number of workers in Europe supporting each pensioner is expected to shrink dramatically over the next 30-40 years.

The EU has rejected this argument, however. It says that the numbers of projected immigrants would not be enough to overcome the lack of people of working age, and other measures are necessary, such as increasing the participation of older workers and women in the workforce.

Worries about Eastern Europe

Ten countries of Eastern Europe are due to become members of the EU by 2004, with final negotiations taking place this year with Poland, Hungary and other countries.

The poorest regions of the Balkans, including the former Yugoslavia, Romania and Bulgaria, are not expected to become early new members, although there are substantial numbers of asylum seekers from this region.

The EU, however, estimates that around 335,000 people will migrate each year from Eastern Europe after the barriers to free movement come down, including 100,000 workers.

They say that fears of a major effect on jobs or wages are unfounded, although there may be "non-trivial" effects in certain border regions and in certain sectors where there is little labour mobility at present.

Most the immigrants will go to Germany or Austria, which could face an additional 220,000 migrants in the first years after enlargement.

However, the EU is likely to impose temporary restrictions on immigration during the period after enlargement, just as it did when Spain and Portugal joined the EU in 1986.

Long term growth

In the long term, the addition of more people to the workforce should boost economic growth, just as the addition of more land or capital would.

Of course, to increase living standards the productivity of companies has to grow faster than the labour force as well.

Evidence from economic historian Nick Crafts, of the London School of Economics, suggests that the huge migration from Europe to America in the late 19th century did boost the growth rate in the US, and contributed to its economic take-off.

But the key to that growth was a huge, open internal market.

It is this single market that the EU is still in the process of creating, within uneven results so far despite the introduction of a single currency.

If this becomes a success, then the economic problems of immigration are not likely to loom as large in the future.


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31 May 02 | Europe
17 May 02 | Business
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