Why immigrants should get a warm welcome

We can't stem the flow and we don't need to, argues Alan Barrett. Outsiders push up wages and everyone benefits
IMMIGRATION has been an emotive issue in Britain and in some other European countries since the late 1960s and early 1970s. Around this time debates arose over whether immigrants should continue to be admitted and laws were put in place limiting immigration. In more recent times it has re-emerged at the top of the political agenda in France and Germany. More surprisingly, the increase in the numbers of immigrants in countries such as Spain, Greece, and Ireland, countries which previously had emigration problems, has led to growing concerns there about population inflows.

In this article, I want to present an economist's view of the immigration issue: such a view differs from that of the non-economist for the following two reasons. First, economists have limited faith in the power of policy- makers to reduce immigration below the level at which it currently stands, which is what they have been trying to do. Secondly, by and large, economists are not at all worried about this and are actually quite pleased. What I want to do is to explain these two positions.

To deal with the first issue, let me explain why it is that immigrants will probably continue to enter European Union countries even in the face of tighter restrictions. As long as significant differences in earning potential between the EU and the countries of central/eastern Europe and north Africa remain, an incentive will exist for at least some to move in pursuit of improved earnings. Not all will choose to move; for many, the value of living at home outweighs any potential income gain from moving. But for others, potential income gains will be sufficiently large to generate movement; in more extreme cases, survival will dictate their movement.

It is argued, however, that immigration policy can be tightened up to restrict further entry. In a sense, if one views immigration policy as being similar to constructing a dam and to maintaining it leak-free, then policy is about plugging the holes. All of the recent immigration legislation has been written with this view in mind, but the experience shows that the dam still has leaks and consequently immigrants continue to enter with little sign of abatement.

To illustrate this point, let me point to the work of David Coleman of the University of Oxford. He has demonstrated that although restrictive measures began to be imposed in Britain in the 1960s, immigration continued strongly. What is more, since the mid-1980s the net inflow has actually risen.

How can this be? In essence, the answer lies in the strength of the incentive for people to move, which I mentioned above. Primarily, if the gap between earnings in two countries is sufficiently high, some will try to move by whatever means, be they legal or illegal. But in addition to this, immigration law faces constraints based on humanitarian considerations and provisions in international law which produce holes in the dam that people can exploit.

To varying degrees, countries' immigration laws allow for the re-unification of families, thereby giving an entry route to some. The same laws also allow refugees to apply for asylum. In this case, individuals can enter the country legally by applying for asylum; once in, many stay even if their application is turned down. With respect to such applications, Coleman presents some interesting figures. In 1992 and 1993, almost 30,000 applicants were refused asylum or exceptional leave to remain in the UK; however in 1993, only 1,819 were known to have left the country, either through deportation or voluntarily. Is such behaviour a surprise? Hardly! If the gains from illegal activities exceed the costs, those activities will often be undertaken. In the case of many immigrants the gains may be large; what is more, if the cost is merely deportation, the risk is well worth taking.

Before leaving this point on the inevitability of immigrant flows into countries of the European Union, let me briefly consider whether the flow will increase or decrease. Klans Zimmerman of the University of Munich has pointed out that while the populations of western Europe are ageing and declining, the populations to the east and south are increasing. For example, the populations of Turkey and Morocco are forecast to grow by 60% up to 2025; for Algeria the figure is 100%. The likely over-supply of labour in these areas, some of it skilled but more generally unskilled, combined with the shortage in western Europe will generate increased incentives for movement and, more than likely, will result in an increased flow.

I said that economists were not worried about this inability to further reduce immigration flows. In order to see why, we have to consider the reasons for restricting immigration generally. Firstly, there exists the belief that immigrants compete with existing workers for jobs; this, it is argued, leads to wage reductions and job losses. Secondly, it is thought by some that immigrants' use of the social security systems imposes a drain on government finances. Thirdly, there exists a feeling that outsiders by their presence reduce the quality of life.

It is with respect of the first of these issues - the effect of labour markets - that many economists diverge from the anti-immigration lobby. Studies have been undertaken into the effects of immigrants on the wages and employment opportunities of existing workers. The overriding conclusion to emerge is that if any negative effects arise, they are minimal. What is more, in areas where unskilled immigrants have taken up jobs, the effect has been to increase the wages of more skilled workers.

One way to understand this is to think of how the inflow of unskilled workers allows skilled workers to focus on more complex tasks. In this way efficiency is increased. Generally, economists believe that increasing the extent to which workers move increases economic efficiency, as workers move to where they can be best used and, therefore, where they can earn their highest wage. And remember, this applies to the immigrants themselves. The increase in the wages of skilled workers should not be taken to imply that the unskilled immigrants are necessarily being exploited; the immigrants can also gain through the more efficient use of their labour, relative to where they would earn lower wages or be unemployed. Ironically, the EU has promoted the movement of workers within its boundaries precisely for these reasons while at the same time limiting the movement of workers into the EU.

As for the other reasons for restricting immigration, the reality is less clear cut than the rhetoric would often lead us to believe. With respect to the social security issue, a proper enumeration of how much tax is paid by immigrants and how many benefits are paid to them would be required before a definitive statement could be made. And with regard to the effect on the quality of life of outsiders, it is just as easy to see that diversity adds to the quality of life rather than taking from it.

If proof is needed of the difficulty of restricting immigration below current levels, consider the case of the United States; they have been passing laws and increasing enforcement for many years and yet the Mexican illegals continue to enter at the same rate. As I discussed above, the gap between earnings in the US and Mexico is so great that some Mexicans will try to overcome the tightest restrictions. And as to the effects of immigrants, the country which has experienced one of the largest inflows relative to its population in recent years is Israel; while there are factors specific to that country which have influenced its recent good economic performance, it can at least be said that there is no evidence that its immigrants have been an economic drag.

q Dr Alan M Barrett is a Research Officer at the Economic and Social Research Institute (ESRI), Dublin and also a Research Affiliate in the Centre for Economic Policy Research's Human Resources programme. Further details about CEPR on 0171 878 2900.