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Article | 24 January 2024 | ESG
Over the past few years, legal and illegal migration to the world’s most developed economies has been at what the OECD calls ‘unprecedented levels’. Stripping out millions of Ukrainian refugees, more than a third of OECD member countries are reporting their highest migration in at least 15 years, driven by humanitarian and employment considerations. Compared with the 2010s, annual net immigration tripled in the US and UK during 2023, while it doubled in Canada and Australia.
The US, Europe and UK all face major elections during 2024, with stricter immigration control proving an important issue for voters. At the end of 2023, pollsters YouGov identified immigration as the second most important issue for the electorate in the UK, superseding both health (no. 3) and the environment (no. 4) . The Dutch government’s collapse last summer over its migration policy serves as a warning, even to those countries not facing elections such as Italy and Germany, which has reinstated border checks. Globally, migration into the US dwarfs all other countries, with more than 1 million legal arrivals in each of the past two years. The foreign-born population in the US is now estimated at almost 15%, a level last reached in 1910, when the electorate also called for curbs on inflows.
Yet there is a paradox at the heart of the debate on migration. Despite the increasing pressure on western governments to reduce it, the World Bank estimates the total number of migrants worldwide at 200 million, less than 3% of the global population. Half of this total are migrants moving between developing countries . In addition, managed migration is needed by developed economies to replace ageing workforces, as many suffer declining birth rates. The pandemic exacerbated already low birth rates across Europe, particularly in Spain and Italy, which have some of the lowest fertility rates in the OECD . The result is that by the end of this century, Italy’s population is expected to be half its 2021 level of 59 million. The dependency ratio across Europe is 32, meaning that for every 100 people of working age between 15-64, there are 32 retirees. By the end of the century this ratio will be 57, and one third of Europe’s population will be retirees. At the beginning of 2024, the European Union Commissioner for Home Affairs stated that the annual 3.5 million legal migrants to the bloc would have to increase by 1 million to compensate for its shrinking workforce.
History demonstrates the benefits of migration from low productivity to high productivity countries. A study by the American Economic Association has estimated that global open borders would increase gross world product (GWP) by 50-150%, as poorer migrants become more productive due to the greater resources, including capital, available in more highly productive countries . While completely open borders are never likely to materialise, higher levels of migration can help to ease labour shortages, slow inflation and support consumer demand. Migration helped the US workforce grow three times faster than its underlying population in 2023 and could help to explain why the country was able to avoid a recession last year. At the other extreme, Japan has the OECD’S highest age dependency ratio (50), projected to rise to 79 by 2050, something that has been dubbed ‘Shrinkonomics’. Even accounting for higher levels of automation and artificial intelligence, aging populations will increase demand in the more labour-intensive services sector. Without an infusion of additional workers, the long term economic implications of a rising dependency ratio on countries such as Japan and Italy can include higher interest rates, as savings are drawn down by retirees. Leading to lower levels of investment, this will likely impact economic growth.
Irregular/illegal migration is highly unpopular with electorates in the west, where it can be viewed as a criminal enterprise, an erosion of sovereignty, and a drain on stretched public finances. It has been exploited by opposition political parties in many countries and in response, some governments (including the UK, France and Canada), by seeking to limit the inflow of illegals, may give the impression they are less welcoming to legal migrants. Yet the economic benefits of legal migrants vastly outweigh the costs of illegal migration and will increasingly prove necessary to remove the growing and debilitating demographic deficit across the developed world.
