Does immigration help to sustain welfare in rich European countries?

Question

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?

Answer 1

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.

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

Answer 2

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).

Answer 3

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.