The Migration Surge and Its Economic Reckoning
The Migration Surge and Its Economic Reckoning
The rich world is experiencing an unprecedented wave of migration, with far-reaching implications for economies, inflation, and public services.
The Story:
The world is currently experiencing an unprecedented migration boom, with the rich nations at the forefront of this surge. Last year, a staggering 1.2 million people moved to Britain, the highest number on record.
Similarly, net migration to Australia is twice the pre-pandemic rate, while Spain's equivalent figure has reached an all-time high. In the United States, nearly 1.4 million people are expected to move in this year, a 33% increase from the pre-pandemic period. Canada's net migration in 2022 more than doubled the previous record, and Germany's was even higher than during the 2015 "migration crisis." This migration boom has brought a sense of normality to some places, such as Singapore, where the foreign workforce has returned to pre-pandemic levels.
However, in other regions, the influx of migrants has resulted in drastic changes. For instance, in Newfoundland and Labrador, Canada's second-smallest province, net migration is running at more than 20 times the pre-pandemic norm, with the capital city of St. John's feeling more like Toronto with each visit. The surge in migration is not just limited to certain regions; it is a global phenomenon. Many of the new arrivals are from Ukraine, India, and Nigeria, and they often have family connections in richer countries, particularly Britain and Canada. Some of this increase is attributed to people making up for lost time during the pandemic, but the rich world's foreign-born population has now exceeded its pre-crisis trend, suggesting that other factors are at play.
One of the key drivers of this migration boom is the nature of the post-pandemic economy. Unemployment in the rich world is at its lowest level in decades, and employers are desperately seeking staff, with vacancies near all-time highs. This has provided a strong incentive for people from abroad to travel and seek employment opportunities.
Additionally, currency movements have played a role, with the British pound buying more than 100 Indian rupees, compared to 90 in 2019, enabling migrants to send more money back home. Many governments are also actively trying to attract more migrants. Canada has set a target to welcome 1.5 million new residents in 2023-2025, while Germany and India have signed an agreement to allow more Indians to work and study in Germany. Australia has increased the time period that some students can work after graduating from two to four years, and Britain has welcomed Hong Kongers fleeing Chinese oppression, with well over 100,000 arrivals. Even countries traditionally hostile to migration, such as Japan and South Korea, are now looking more favorably on outsiders as they seek to counteract the impact of aging populations.
The View:
The migration boom has significant economic consequences for the rich world, and it is a phenomenon that policymakers and economists must grapple with. While some have argued that high immigration can help the Federal Reserve in its efforts to cool the labor market and slow down inflation, the evidence for this claim is weak. In fact, the influx of migrants may have the opposite effect, as their increased demand for goods and services, particularly in the housing market, can contribute to rising inflation.
The surge in migration is also having a direct impact on GDP per capita, which has fallen or failed to grow in several rich nations, including Australia, Britain, Canada, Germany, Iceland, and New Zealand. This is largely due to the shift in the type of immigration, with a greater proportion of low-skilled and low-paid migrants arriving in these countries. Industries that are most vocal about a lack of workers and are hiring lots of migrants, such as agriculture and hospitality, tend to require no qualifications or experience and offer poor pay and conditions.
The impact of this migration boom on public services and government budgets is also a significant concern. While high-skilled migrants can make enormous net fiscal contributions, the question is harder to answer for low-skilled workers. On the one hand, they may not require public schooling, which is expensive, and they can even prop up public services directly, as seen in the surge of work visas for health and care workers in Britain. However, as these migrants age and retire, they may become a fiscal drag on the system, particularly if social security systems are progressive and redistribute wealth from the rich to the poor.
Economies that welcome lots of migrants tend to benefit in the long run. Just look at America. Foreign folk bring new ideas with them, which can spur innovation and economic growth. However, the economic consequences of this migration boom are complex and multifaceted. While it can provide a much-needed boost to the labor market and economic growth, the influx of low-skilled migrants may also contribute to rising inflation, declining living standards, and increased pressure on public services. Policymakers must carefully navigate these challenges, ensuring that the benefits of migration are realized while minimizing the potential downsides.
TLDR:
The rich world is in the midst of a migration boom, with record-high numbers of immigrants arriving in countries like the US, UK, Canada, and Australia.
This migration surge has significant economic consequences, impacting GDP, inflation, labor markets, and public finances.
While migration can boost economic growth, the influx of low-skilled workers is also contributing to higher rents and costs of living in many regions.
The shift towards low-skilled migration raises concerns about its impact on wages and productivity, as well as the ability of governments to provide public services to the growing population.
Effective management of the migration surge requires balancing the economic benefits with the challenges of integrating a diverse workforce and ensuring the sustainability of public systems.
Policymakers face the difficult task of creating a welcoming environment for migrants while addressing the potential strains on infrastructure and public budgets.
The long-term economic consequences of this migration boom will depend on the skill composition of the new arrivals and the ability of governments to adapt their policies accordingly.
Insights From:
Immigration is surging, with big economic consequences - The Economist