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More people, no per capita gain
The benefits are real. Immigrants enlarge the labor force and lower the dependency ratio, which counts the children and retirees for every person working. A lower value means more taxpayers to fund pensions, healthcare, and other public services. The Office for Budget Responsibility found the average migrant is a net fiscal contributor, paying more tax than they cost in public services, and studies show higher net migration leads to marginally less government borrowing. Migration also increases consumption, and high-skill entrepreneurs come to the UK to access finance, hire talent, and invest.
The picture gets blurrier from there. Housing supply is relatively inelastic, so added demand has pushed up prices, especially in the rental market, which is good for landlords and not so good for renters. There is also some evidence that low-skill migration reduces the incentive to invest in machinery and automation, which hurts productivity growth.
Why can GDP rise without GDP per capita rising?
GDP is the total value of everything a country produces, and GDP per capita divides that total by the population. A newcomer who produces about as much as the average resident adds to the total but leaves the average unchanged. Only if new arrivals are more productive than average, or make others more productive, does the per capita figure rise. The Migration Advisory Committee's 2018 review of EU migration found little evidence that it had changed overall employment or average wages for UK-born workers.
Why is British housing supply so slow to respond?
England's planning system dates from the Town and Country Planning Act of 1947, which made almost all new development subject to permission. Green belt policy, in place since the 1950s, restricts building on land around many cities. Because each project is decided case by case, approvals take a long time and the outcome is uncertain. That means more demand does not quickly produce more homes, and prices and rents take the pressure instead.
How can cheap labor discourage automation?
A firm weighs the price of a machine against the wages of the workers it would replace. When wages are lower, the machine saves less money and pays back more slowly. Economist Ethan Lewis found in a 2011 study of US manufacturing plants that areas receiving more low-skilled immigrants adopted less automated equipment. Lower investment in machinery means each worker has less capital to work with, which slows the growth of output per worker.
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