Addressing the Debate over the Economic Impact of Migration Remarks for the Conference on “Can Migration Work for All in Europe?”

IMF News, January 9, 2017

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Published: January 9, 2017

Context and purpose

Speaker: David Lipton, First Deputy Managing Director, IMF.
Location and date: Brussels, Belgium; January 9, 2017.
Objective: Reconcile the academic consensus on migration’s economic benefits with the strong public and political backlash; inform policy discussion and IMF work on migration’s economic impacts.

Core economic arguments and analytical framing

Partial equilibrium view (public perception):
- Immigration raises the supply of labor, exerting downward pressure on wages for native workers of similar skill levels.
- This perspective is salient in public opinion and political debate.
General equilibrium and dynamic effects (economists’ response):
- Immigrant workers may complement, rather than substitute, for native workers.
- Immigrants spend much of what they earn, raising demand and the derived demand for labor, boosting wages and creating jobs.
- Businesses invest to equip immigrants with capital, raising productivity and reducing downward wage pressure.
- Native-born workers retrain and relocate to stronger labor markets or attain higher-paying jobs.
Analogy with trade debates:
- Like trade, immigration can create winners and losers.
- Dynamic adjustment and business responses take time; there can be transitional losers.
- Affected natives may need retraining or relocation.
- Multiple concurrent forces (global financial crisis, labor-saving technological change) complicate attribution of declining living standards.

Empirical findings reported by the IMF

Overall conclusion: The Fund’s work aligns with the view that the economic impact of migration on receiving countries is generally positive.
Specific empirical findings:
- Immigration has significantly increased GDP per capita in advanced economies—because skill levels and complementarities boost labor productivity, and because influxes of working-age migrants help counteract labor shortages from demographic developments.
- Although the top 10 percent benefit most, the gains from migration are shared across all income groups.
- Inequality does not increase as a result of the entry of migrants into the workforce.
- No significant negative effects were found on the middle or lower income groups in receiving countries.
Skill composition effects:
- Both high- and low-skilled migrants can raise labor productivity.
- High-skilled migrants: bring knowledge, increase innovation, and boost productivity of native-born counterparts.
- Low-skilled migrants: increase efficiency by taking jobs with applicant shortages and can prompt increases in skill levels among natives.
Caveats and observed exceptions from other studies:
- Some U.S. studies show migrants have negative wage effects on earlier generations of immigrants and native-born high school dropouts.
- Some studies show immigration reduces hours worked by native-born teenagers.
- These effects warrant investigation in the European context.

Areas identified for further research

Re-examine findings as experience accumulates, especially given "huge new flows in Europe."
Better understand assimilation outcomes:
- Rapid integration observed for many Eastern Europeans.
- Need clearer understanding of assimilation for refugees and migrants from the Middle East and Africa.
- Need data-driven assessment of second- and third-generation outcomes, particularly for cohorts from developing countries; existing comprehensive datasets in some countries (for example, Norway) are useful.
More granular research on:
- Which native groups are hurt by migration, and through what mechanisms.
- Whether low-skilled migrants’ positive effects on native skill upgrading are as certain or significant as those from high-skilled migrants.
- Impacts on labor markets, public services, and fiscal finances over longer timeframes.

Policy implications and recommendations

Governments can greatly affect short- and long-run migration impacts through policy choices:
- Selection criteria, settlement services, work rules, educational opportunities, and cultural/assimilation policies all matter.
Social welfare and fiscal policy considerations:
- Determine the right balance of social welfare policies to avoid moral hazard and welfare shopping; this requires detailed understanding of migrant experiences and incentive structures.
- Anecdotal evidence: perceived misalignment of social benefits contributed to political backlash (example cited around the Brexit vote where unemployed UK workers perceived delays in benefits relative to new migrants’ access).
- Native perceptions of competition for limited welfare resources (public transport, health care, overcrowded schools) can exacerbate tensions—policy adjustments informed by better evidence could reduce social friction.
Practical priorities for policymakers:
- Be frank about winners and losers and the need for transition assistance (retraining, relocation).
- Obtain more granular evidence to guide social welfare, labor market, and assimilation policies.
- Continue to reassess policy responses as new evidence emerges.

Conclusion and institutional role

The IMF’s role:
- Assist member countries (the 189 member countries of the IMF) in real time to design policies that integrate migrants into the mainstream.
- Continue conducting research and learning to help countries chart courses that bring economic benefits to all and address disadvantaged groups.
Final policy message:
- Economic benefits of migration are well established, but more work is needed to clarify distributional impacts, transition dynamics, and effective policy responses to mitigate harms and maximize shared gains.

Source: David Lipton, "Addressing the Debate over the Economic Impact of Migration," Remarks for the Conference on “Can Migration Work for All in Europe?”, Brussels, January 9, 2017.