The question of whether immigrants make a positive or negative contribution to a state’s economy has been the subject of intense controversy across countries in Europe. Christian Dustmann and Tommaso Frattinioutline results from research in the UK which found that recent immigrants – those who arrived after 1999 – have provided a consistently positive and strong contribution to the UK’s fiscal health. This contrasts starkly with the “drain on our economy” view often maintained in public debate.
In the national debate about the pros and cons of immigration, the impact on the UK’s tax and welfare system and overall public finances is perhaps the single most important economic issue. We have recently seen claims that immigrants from Europe “free-ride” on the benefits and health system. These stories result in demands that, not only should their access to benefits and public services be restricted, but also that immigration from European Union (EU) countries should be restricted.
Following this debate, it is surprising how little well-researched evidence exists on how much immigrants actually take out of, and contribute to, the public purse. Our recent research paper, published by the Centre for Research and Analysis of Migration (CReAM) at University College London, fills this void. Based on the UK Labour Force Survey and a multitude of government sources, we calculated the net impact of natives and immigrants by assigning individuals their share of cost for each item of government expenditure and identifying their contribution to each source of government revenues.
Strong and consistent
Our findings are remarkable. Recent immigrants – those who arrived after 1999 – have provided a consistently positive and astonishingly strong contribution to the UK’s fiscal health. Between 2001 and 2011, immigrants from the European Economic Area (EEA – the EU plus three small neighbours) contributed 34 per cent more than they took out, with a net contribution of about £22.1 billion.
At the same time, recent immigrants from non-EEA countries made a net contribution of £2.9 billion, thus paying into the system about 2 per cent more than they took out. Overall, immigration to the UK between 2001 and 2011 therefore provided a positive net contribution of about £25 billion. And don’t forget that this occurred over a period in which the UK had run an overall budget deficit.
In contrast, over the same period, the tax paid by natives amounted to just 89 per cent of the welfare they received. This works out at an overall negative fiscal contribution of £624.1 billion. Our analysis thus suggests that rather than being a drain on the UK’s economy, immigrants arriving since the early 2000s have made substantial net contributions to its public finances. This is a reality that contrasts starkly with the “drain on our economy” view often maintained in public debate.
Our conclusion is further supported by evidence on the degree to which immigrants receive tax credits and benefits compared with natives. Recent immigrants are 45 per cent less likely to receive state benefits or tax credits. These differences are partly explainable by immigrants’ more favourable age-gender composition. But even when compared with natives of the same age, gender and education, recent immigrants are still 21 per cent less likely than natives to receive benefits.
The evidence is clear: recent waves of immigrants, those who arrived in the UK since 2000, and who have driven the stark increase in the UK’s foreign-born population, have contributed far more in taxes than they received in benefits. We also point out that by sharing the cost of fixed public expenditures (such as defence), which account for 23 per cent of total government spending, immigrants reduce the financial burden for the rest of us.
In addition, most immigrants arrive in the UK after completing their education abroad and thus at a point in their lifetime when they are ready to put into the system more than they take out. If the UK had to provide domestically to each immigrant the level of education they have acquired in their home country (as it does for natives), the costs would be substantial.
Finally, our research also points out the strong educational background of immigrants who come to the UK. For example, in 2011, 21 per cent of UK natives had a degree, compared to 32 per cent and 38 per cent for EEA and non-EEA immigrants respectively. Similarly, about one in two native-born individuals fall into the “low education” category (defined as those who left full-time education before 17), while only one in five EEA immigrants, and one in four non-EEA immigrants do so. Given all this evidence, claims about “benefit tourism” by immigrants from Europe seem to be disconnected from reality.
This article was originally published at The Conversation. Read the original article.
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Note: This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.
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Christian Dustmann – University College London
Christian Dustmann is Professor of Economics at University College London, Director of CReAM – Centre for Research and Analysis on Migration, and Scientific Director of the NORFACE Research Programme on Migration.
Tommaso Frattini – University of Milan
Tomasso Frattini is Assistant Professor at the Department of Economics, Management and Quantitative Methods (DEMM) of the University of Milan.
And what of imports over exports?
In UK pounds – what is the net benefit or cost of each migrant insofar as they: 1/ contribute to the nation’s exports vs 2/ consume goods and services sourced from foreign nations.
I know that you really, really want to justify immigration. That is obvious.
But consider the country’s balance of payments and the effect each immigrant has on deficit and debt.
Try this at home: Walk into a cafe/pub and ask your friendly neighbours to list all the people they know who, by dint of working in an exporting business, would have earnt more money from overseas customers than they would have consumed as a customer from foreign sources, on the point of their retirement.
Here, in Australia, whole rooms of people cannot think of a single person who exports anything at all let alone export more than they import.
Immigration changes the structure of your economy.
It structures up your nation to import more and export less.
It structures up your nation to incur more debt and to accept a greater degree of foreign ownership.
This is why smart, export orientated nations, carefully plan even internal migration flows.
That’s largely an argument against people, not immigrants per se. Most people in a given country will import more than they export – because, as you say, most people don’t export anything at all. We’re not changing the structure of the economy by adding or subtracting more people to the overall population in that sense, we’re simply changing the size of the population.
Second, immigrants also contribute to UK exports because they tend to bring capital from an external country and spend it in the UK’s domestic market. The folk tale of “immigrants sending their pay cheques home” is always mentioned in these debates, but we rarely discuss the opposite effect of immigrants spending their existing savings in the domestic market. Students are an obvious example of individuals that export nothing during their stay in the UK, but who actively contribute to increasing UK exports (i.e. the export of higher education).
Third, if immigrants lead to productivity gains – and if they didn’t then businesses wouldn’t choose to hire them in the first place – then they increase the competitiveness of exporting businesses. Restricting immigration in this case is essentially just an example of a costly regulation that reduces the competitiveness of businesses – a company wants to hire a particular worker that they’ve deemed would add to their business, but the government prevents them from doing so on the grounds of restricting immigration.
Finally, individuals don’t need to work in export sectors to raise the overall competitiveness of a country’s export market. Bob Hancké has shown pretty conclusively that one of the main problems in the Eurozone crisis is that non-export sectors in countries like Spain (generally the public sector) have become a greater burden on the economy, causing productive (export) sectors to have to pick up the tab through taxation, reducing their competitiveness in turn. That argument also goes for immigrants that contribute more through taxation than they receive in public spending (the subject of this article).
Jack, you said: “Most people in a given country will import more than they export – because, as you say, most people don’t export anything at all. We’re not changing the structure of the economy by adding or subtracting more people to the overall population in that sense, we’re simply changing the size of the population.” Which makes no sense!
If you change the percentage of the population that is engaged in import intensive activities – then you have certainly and adversely and permanently changed the structure of your economy.
This is the area the writers need to focus on.
That is the main game of this discussion.
As to confusing visa selling with “education exports” – I’ll elect to leave you to your collective delusions. Research in Australia has found that each student imported on the visa/education racket sets our nation back in excess of $200,000 in infrastructure and support costs – whilst the so called “exporting” institution clears about 2 grand per head. A massively “subsidised”, self deluded “indisutry” if there ever was one!
Immigration has nothing to do with current account deficits or surpluses, productivity has. Services export is also something most people do not see. If what you say would be true, then the US with its restrictive immigration laws could be an export nation, and Germany or Canada with their liberal take on immigration would have no way of accumulating trade surpluses.
Did you know the overall immigrants balance of payments account was in UK’s favour? That is that British migrated to other parts of the world were making more contribution back into Britain than immigrants over here were getting out of Britaon. Based on “immigrants no good” argument why not all the British people and companies working abroad and making billions be rolled back into Britain.
“If you change the percentage of the population that is engaged in import intensive activities – then you have certainly and adversely and permanently changed the structure of your economy.”
At no point did you offer any evidence about the percentage of the population engaged in import intensive activities. Your evidence was that most people in general (walk into any cafe…) aren’t involved in export activities, not that immigrants are disproportionately involved in import intensive activities.
If that’s your actual argument then adding immigrants isn’t going to change the percentage at all, it simply raises the size of the population. If immigrants are no more or less likely to be involved in export industries then adding immigrants to the population will maintain the percentage of citizens involved in exports at exactly the same level. That’s basic mathematics – if 10% of people are directly involved in exports then adding more people to the total doesn’t change the percentage (because 10% of those you add will also be involved in exports).
If what you actually want to argue is that immigrants are more likely to be involved in import intensive activities than natives then fine, but that’s not what your example proves.
As for education, I know nothing about the situation in Australia, but the figures you’re quoting are about 17 times larger than the British equivalent. The University of Sheffield has calculated that the average international student in the UK will account for around £6-8,000 per year in infrastructure costs and public spending. Quite what students in Australia are doing to account for the equivalent of about £120,000 each is beyond me. That’s an absolutely preposterous estimate and certainly has no impact at all on the UK debate.
To balance the public spending costs we have tuition fees, but also subsistence costs – because students have to eat, pay for accommodation, pay for utilities and all of the other activities that put money into local economies (often as direct transfers from rich parents abroad). In the Sheffield example this is between £11,000 and £18,000 depending on the type of student.
That’s somewhat larger than the infrastructure/public spending costs, before we add the excessive tuition fees they pay – at LSE for a Master’s degree you might be paying as much as £26,000 per year as an overseas student. Even if we take the low end estimate, that’s contributing over £30,000 per student to the UK economy – well over what the average worker contributes, with none of the public spending beforehand (i.e. the medical and education costs required to raise a child to the age at which they become a productive member of society). I’m not sure where the delusion fits in – international students are extremely beneficial to the UK economy, by any measure.
what Australian study on the cost/benefit of foreign students ? would you be so kind as to provide a link to it.
I find the ratio 100 to 1 a bit too “convenient” 😉
Yes thats right! Good old uk opens its front door to anyone
Now how much do you need
Oh yes we will educate you for free
We will look after you when you sick
Oh by the way mr migrant and miss asylum seeker was it a 2 or 3 bedroom house you wanted
Free electricity and gas for asylum seekers oh and not to mention free food vouchers this is all while they put a claim in at taxpayers expense not 1 or 2 but 3 appeals
This is all while they working at the local carwash or takeaway for 30 to 40 pound per day saving to send home or make business and its the tax payer who foots the bill well its time for the inn keeper to say no more room at the inn.
Asylum seekers aren’t allowed to work while their application is being processed, that’s why they have to be given food and accommodation. If you’re suggesting that they should be both denied the right to work and denied the right to food and accommodation then what you’re advocating is letting them starve to death.
If someone cares to read the Sunday Star,Auckland NZ,eight days ago.There’ s an interesting article on money from Asia(China) being invested here in real estate.One student bought 20 million dollars worth.The money provided by his/her parents,I think.Even using a blog,I defy anyone to cover these issues and do justice to the real problems flowing from immigration which,most obviously in the West since the seventies,has been mostly driven by sectional interests at the expense of the national economies and democracy.In Australia and New Zealand the corruption started somewhat later,but the aims are the same: To a lot of businesses it is money for jam: think growing population,think so-called language schools and uni places generally.Back-door immigration so obvious if people wish to be ignorant about it its no use arguing the point: Business migration,ditto: Real estate.The agents have been making a killing for decades.The incumbents who have(been able) to borrow to buy/let have done fin- The resulting inflation makes it harder for people on low wages to buy/rent.: Inflation due to lots of money coming in while wages are not even going up with the much lower official figure hits the lower economic quartile much harder.Then,increase in money supply in an unequal society is greatly to the advantage of business and those in well-paid jobs,at the expense of the rest.A matter of political influence bringing home the bickies.Immigrants are not shy to get all the benefits they can,the few laudible examples,much trumpeted,of course,notwithstanding.
There are many other factors involved.Unfair competition,for instance.Many Asian refugees are so-called penny-less and get set up by social security,now Centrelink in Oz.Hey,within a year they have got a business and a luxury car.It makes one think.The examples are too numerous to be flukes.So,money from Asia,its not the same for people who have to pay tax on their hard-earned savings,here,to make a start or try to keep a family business going.Politics is a Machiavellian business,and immigration politics even more.Immigration from countries which have no democracy also dilutes the home-vote,especially if it is economic refugees.Since the academic community is not unbiased as far as politics,economics and democracy is concerned,don’t expect them to scrutinise anything overly much if it does not suit the corporates who really run the show.
Some genuine people would consider my remarks gibberish.I think it best to let people find out the hard way if they so insist.I have no personal economic stake either way,no political barrow to push.
However,that there are still people so ignorant of plain to see facts,in Holland and England,for instance-countries which I know well- has had me conclude years ago that apart from the shills,and those who benefit directly,people are afraid of the facts.Lastly,for now,I am in favour of sensible and measured migration if it is reciprocal condition-wise,or clearly of social and other benefit overall and accepted by a vast majority of the incumbent citizenry-say,eighty-five percent at least.
As it’s not explained anywhere can someone explain this “In contrast, over the same period, the tax paid by natives amounted to just 89 per cent of the welfare they received. This works out at an overall negative fiscal contribution of £624.1 billion.”
For example does the £624bn include state pension?