There is a lot of discussions about immigration and its effect on economies lately in Europe, so I'd like to ask a question. Is it true that immigration helps to sustain welfare in rich European countries? For example, in the case of pensions, since life expectation is increasing and natality rates are decreasing in the richest European countries, the ratio of people receiving a pension to that of active workers (who pay those pensions with their taxes) is increasing. Since immigrants usually have a higher natality rate, they should help counteract this effect.

However, often people counter this argument by saying that immigrants receive much more money from welfare, than they return through taxes, for various reasons:

  • unemployment is much higher among immigrants than among natives
  • there are many irregular immigrants who still receive healthcare (if they go to an emergency room), but who don't pay taxes
  • etc.

Especially (but not only) in Denmark, this constant grievance has reached incredible levels. It seems to me baseless racism, but I'm not an economist, so I'd like to know: are there studies which prove that the contribution to welfare from immigrants is a net positive? Are there studies that indicate that by blocking immigration, rich European countries would risk not being able to pay pensions in the future?

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Here is a chart from the OECD, which shows the net fiscal impact of migrants on their recipient country (i.e. by how much to they contribute or withdraw from the welfare state, albeit excluding in-kind benefits such as healthcare). For most Western countries, Denmark included, migrants are modest net positive contributors ("they pay in more than they take out").

This is because migrants tend to be disproportionately working age, whereas the native population contains many retired or young people. Thus, migrants tend to pay a lot of income tax relative to the average native. Luxembourg and Switzerland stand out because both are small economies that attract many high-wage knowledge workers.

On the vertical axis of this chart is the net contribution to the fiscal budget. So a value of 1% means $(\$\text{tax paid}-\$\text{welfare received})/\$\text{GDP}=0.01$. Note that this is different to (and less than) migrants' overall contribution to GDP because, for example, migrants keep much of their contribution to GDP in the form of after-tax wages.

Fiscal impact of migrants

I took the chart from Oxford's migration observatory, which has more information specific to the case of the UK.

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  • $\begingroup$ The vertical scale is percentage of GDP, right? I.e., in Switzerland immigration increases the GDP by 1%. Correct? Any chance you could get more recent figures? Some of the people who object to immigration say that the situation has drastically changed after 2012: I know, know, "no true Scotsman" and all that, but these folks have an hidden agenda, they don't play fair...so if you could get figures from, say, 2012 to 2015, that would be excellent. $\endgroup$ – DeltaIV Jul 12 '18 at 9:44
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    $\begingroup$ @DeltaIV No, your reading of the chart is a little off. The scale is in percent of GDP, but it's a measure of only the fiscal contribution, not overall contribution to GDP. So a value of 1% means $(\$\text{tax paid}-\$\text{welfare received})/\$\text{GDP}=0.01$. Migrants' overall contribution to GDP will be much larger than the figures here because much of what migrants contribute to GDP they keep themselves in the form of after tax wages. $\endgroup$ – Ubiquitous Jul 12 '18 at 9:52
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    $\begingroup$ @DeltaIV The chart comes from a page published by migration researchers at Oxford in May 2018. I'd be surprised if there was more recent data at a global level; otherwise they would have included it. The URL I linked has more recent figures for the UK case. E.g. "The OBR estimates suggest that the [UK] government budget surplus in 2020-2021 would be higher under the high migration scenario and lower in the low migration scenario: it projected a £16.9bn surplus in 2010-2021 under the high migration scenario, compared to £5.2bn in the low migration scenario." $\endgroup$ – Ubiquitous Jul 12 '18 at 9:53
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    $\begingroup$ very interesting. It's a pity this doesn't include the cost of in-kind benefits such as health care, but overall it suggests that immigrants "pay more than they get", even in Denmark. +1 $\endgroup$ – DeltaIV Jul 12 '18 at 10:09
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    $\begingroup$ @DeltaIV good point, I edited the answer to be clear that such in-kind benefits are not included. $\endgroup$ – Ubiquitous Jul 12 '18 at 10:12

The typical analyses which tend to pretty unambiguously show net positive impact of immigration on the economy (despite the likelihood that some specific labour market segments may experience lower wages, which is a negative for workers in that sector at least in the short run) could differ from analyses of specific undertakings to accommodate large numbers of people fleeing an extremely deadly conflict zone while disallowing them from participation in the labour market.

So it can be correct to state that immigration policy positively impacts the economy, while allowing for the possibility that some humanitarian undertakings may have a net cost to public accounts and/or GDP per capita, in particular in the short run.

It would be extremely premature to conclude whether accommodation of refugees in 2015 (in particular in Germany) will have an aggregate positive impact on average income in a country in 2020, 2030 or 2050. For example, specific undertakings to achieve a desired positive impact on wages, profits, GDP per capita and/or public accounts could succeed, or they could fail to succeed. In both cases there is risk that other specific undertakings to promote their failure could succeed, or fail to succeed.

The main thing here is to recognize that economic analysis of a) labour market-driven immigration (both demand by employers and also supply by workers) should be considered as distinct from b) population flows which are selective on the basis of humanitarian need (among those with ability to reach a place where they can apply to be considered for asylum).

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  • $\begingroup$ good point. However I've never heard of cutting/blocking refugee immigration (except from the members of the Visegrad group), while stopping/reducing the numbers of economic migrants is often discussed. Thus my question should be intended as "considering immigration as a whole, does the benefit to the welfare state from the migrants who work, overcome the debt from migrants who don't/can't?". $\endgroup$ – DeltaIV Jul 12 '18 at 15:38
  • $\begingroup$ The present 'dialogue' pertaining to "economic migrants" is not about people who go through the existing process for legal immigration related to the labour market. $\endgroup$ – nathanwww Jul 12 '18 at 15:48
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    $\begingroup$ It is mostly about claims that people were falsely claiming asylum when their real motive was exclusively economic, and perhaps they were not in fact in any danger in Afghanistan or Syria. For example, the refugee has a mobile phone and cash, and therefore is claimed to not have a legitimate claim to asylum. $\endgroup$ – nathanwww Jul 12 '18 at 15:49
  • $\begingroup$ Both of those are separate from the question of, having been accepted for asylum a) should they be allowed to work while holding asylum status, and b) if they are allowed to work, is the effect positive or negative, including potentially excessive refugee flows this could attract. $\endgroup$ – nathanwww Jul 12 '18 at 15:49
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    $\begingroup$ It would still be suitable to separate those as a) immigration policy, as distinct from b) refugee policy. Immigration policy is generally oriented toward economic gain, and also (among other things) by desire of host country citizens and businesses to enjoy degrees of reciprocity with respect to access to legal travel and/or work in foreign countries. Refugee policy is a function of international treaty law which requires countries to, at a minimum, at least consider every application for refugee status or asylum. $\endgroup$ – nathanwww Jul 12 '18 at 17:11

The argument that immigration can somehow be related to social welfare (eg. higher pensions) is over-simplistic. Even assuming that immigration does provide a surplass for EU countries, this is by no means translated into more social benefits. However, it can indeed be translated to larger profits for the industry:

During the last 5-year immigrant crisis, EU countries are separated into 2 schools, the ones that welcome some immigrant population (Germany, France, etc) and the very negative ones (Denmark, Austria, etc).

Regarding the first group, the extend up to which their motives are humanitarian is highly doubtful. Immigrants means cheap labor hands and due to their uncertainty they have lesser demands. They are by default the most vulnerable part of the working class, thus easier to exploit. In that sense, and in absence of labor-force is certain economic areas, the european industrialists are very keen to employ a certain amount of such labor power.

When this is not the case, though, immigrants are exploited in worse ways.
1) Anti-immigrant repressive apparatuses, ranging from private-for-profit immigrant detention centres to border militarization & surveillance systems, prooves extremely profitable for the transnational corporate economy
2) Direct accumulation from immigrants' possessions

An extra point to bear in mind is that the immigrant crisis gave rise to a large increase of far-right groups and even parties in EU, some of them also have representatives nowadays in European parliament. Their agenda is not very beneficial for the social welfare, as the recent past has shown.

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