UK Economy and Immigration

8/4/2019 UK Economy and Immigration

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CONTENTS

ABSTRACT .......................................................................................................... 3

iNTRODUCTION .................................................................................................. 4

OVERVIEW .............................................................................................................................. 4

KEY ISSUES .............................................................................................................................. 6

BACKGROUND INFORMATION ............................................................................................... 7

TOPIC DESCRIPTION ........................................................................................... 9

LITERATURE REVIEW ........................................................................................ 11

THEORY ................................................................................................................................. 11

BASICS ........................................................................................................................................... 11

POTENTIAL AND ACTUAL OUTPUT THEORY .................................................................................. 13

ECONOMIC GROWTH AND PRODUCTION POSSIBILTIY FRONTIER ............................................... 20

INFLATION AND IMMIGRATION .................................................................................................... 22

UNEMPLOYMENT AND IMMIGRATION ......................................................................................... 24

IMPERICAL RESEARCH........................................................................................................... 27

IMPACT OF IMMIGRATION ON NATIVES....................................................................................... 27

GDP PER CAPITA ............................................................................................................................ 29

WAGES .......................................................................................................................................... 30

UNEMPLOYMENT .......................................................................................................................... 31

METHODOLOGY ............................................................................................... 32

RESEARCH PROBLEM ............................................................................................................ 32

HYPOTHESIS .......................................................................................................................... 33

RESEARCH QUESTIONS

THE SOURCES OF DATA ........................................................................................................ 34

AVAILABLE SOURCES OF DATA...................................................................................................... 34

ANALYSIS AND FINDING ................................................................................... 40

IMMIGRATION AND THE UK ECONOMY ............................................................................... 40


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DETAILED ANALYSIS OF THE CONTRIBUTION OF IMMIGRATION TO THE GDP .................... 41

ANALYSIS OF THE FINDINGS ................................................................................................. 42

1 Immigration is positively related to economic growth .............................................................. 42

2 Immigrants performs important tasks in UK ............................................................................. 43

3 Immigration helps senior citizens .............................................................................................. 44

4 Immigrants play important role in Health services .................................................................... 44

5 Immigrants will perform the job which British will not ............................................................. 44

6 Immigration increases national output ...................................................................................... 45

7 Immigration and effect on prices ............................................................................................... 46

8 Immigration and interest rates .................................................................................................. 46

9 Immigration helps exports ......................................................................................................... 47

10 Immigration and their fiscal contribution to host country ...................................................... 47

CONCLUSION ................................................................................................... 49

REFERENCES ..................................................................................................... 51


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ABSTRACT

For the economy of United Kingdom, Immigrants have become very crucial and

irreplaceable part of its development. It is very surprising to notice that the eighth part of

the British work force is comprised of immigration. Where city of London being even more

flooded with immigrants. Many firms and even many sections of government operated

public sector uses the efficient workforce of immigrants. But it is said that the excessive

immigration over net emigration results into the high growth in the population of the UK. It

is also not viable to support the claim that the sole purpose of immigration is just to fill the

job vacancies of certain skill shortage. No wonder that such claims are not based on sound

analysis and may contain errors, but Immgrants surely contribute to the expansion of the UK

economy.

There are more concerns of increasing population in the country as well as the population

density. Such trends are characterised as the economic consequences of the rising

immigration in the country. It is also considered that immigration also has high impact on

the housing demands of the country, but with supporting in depth analysis, it can be drawn

that immigration is not the only factor that causes the housing crysis over the country.

Based on the overall conclusion, it can be said that immigration not only fills up the labour

shortage on the UKs labour market but also contribute to the economic growth. Even

though the economic effects of immigration is not considerably big on the native population

of the UK but it has positive implication over the long period of time. Besides immigration

has highly supported the commerce and industry of the UK economy.


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INTRODUCTION

OVERVIEW

The issues related to immigration have become the most important aspect of the United

Kingdom economy. Significant to notice, 12% of total labour force of UK consists of

immigrants. This proportion is quite higher in London city. While various arguments hold an

opinion that the immigration (less emigration) doesnt provide any considerable benefit to

current native population. The most of the leading authorities has favoured the immigration

in various ways, which highly supports that immigration brings the benefit to the host

country.

The supporting evidence could be statement on the Londons mayors London plan which

indicated London being the most culturally diverse city in the world. Furthermore there is

few more citation in mayors plan about immigration.Londons diversity is one of its great

historical social, economic and cultural strengths. New arrivals moving to London from

overseas will contribute further to it. London is already a highly diverse city, one of the most

multi-racial in the world. Nearly one-third of Londoners are from black and minority ethnic

communitiesand) a significant growth in (these) is projectedover the next 15 years.

International in-and out-migration has been high and is projected to remain so(Spatial

Development Strategy for Greater London, February 2008)

It is not only the city of London which has gained the benefit from the immigration, A few

words below from the Mayor of New Yorks immigration department. If New York City is the

capital of the world, it's because of the energy and vision of generations of immigrants.Immigrants are 36% of New York's population and 43% of the labor force. They continue a

long history of spurring growth, fuelling our economy, and building dynamic communities.

David miller the mayor of the Toronto, Canada;It happens that Toronto's two largest

groups of immigrants are from China and South Asia. That means we have a natural

advantage in this shifting global economy. We already have the cultural and business links to

make Toronto a hub of trade and business between North America and Asia

Thus, Immigration can be seen as the proof that the implication of its presence brings the

cultural diversity and economic growth in major cities those are called The capitals of the


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world. The key objective of this report is to gathering relevant data to strengthen the

support to the fact that immigration has positive impact on the UKs economic growth. Since

the early beginning of the 21st

century, The UK has depicted the constant economic growth

and financial strength over other European countries as well as the other countries in the

world. One of the important reasons of such a concrete economic expansion can be traceddown to the increase in international immigration in the UK since early 21

stcentury. But the

considerable issue is can the country still sustain the expansion brought by the immigration.

The current emerging trends of population rise in city area and the population density

bringing down the standard of living with high cost of living is totally worth the concern.

It has been very important to study the various impacts of immigration on UK economy to

ensure that are leading to economic growth. The government has repeatedly emphasized

on GDP as a measure of economic impact of immigration in the UK. This turned out to be

irrelevant and misleading criteria. The center point of the analysis should be effect inresident income per head due to immigration. Looking at the demographic effects of rapidly

rising immigration is definitely raising the public concerns. There is a strong need of an

analysis of effects of immigration on economy, culture and society. Ignoring the other

effects, which are highly subject to the personal point of view, economic effects are highly

rationale to analyze .A critical analysis is based on certain arguments

- Immigration brings enormous benefits to the economy in the UK as it stimulates the

growth in economy.

- Immigration is the additional labour force needed to do the work that residents

wont do.

- Fiscal benefits gained by the UK economy from immigration are significant.

The public view about immigration:

37%

40%

23%

Agree

Disagree

Nuetral


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As seen from the above chart, there is 37% of population who believes that Immigration has

good effect on economy and stimulates economic growth. 40% of people suggests that

Immigration has negative effect on the UK economy and should be reduced. While 23% of

people are those who are neutral stating that it is necessary to have immigrants but for

doing the job which residents wont do. It is not either beneficial or harmful.

Besides, there are certain issues that require the priority of action by government

- Build an effective database of the extensive data and statistics of immigration in the

UK.

- To review the economic effects of immigration on the country supported with firm

evidences and implementing the policy tools to remove the negative impact rather

than restricting immigration at all.

- Better implementation of the statutory employment conditions and minimum wage

rates.

KEY ISSUES

The key issue of this report is to monitor the contribution of immigrants to the

growth of the UK economy. The attempts are also made in light of understanding the

economic implication of immigration on the native population of the UK. As this

debate has a wide scope and confused many often it is crucial to clarify the

boundaries of the debate. The economic implications are strictly based on anything

related to economic scope of the impact. It includes impact of immigration on

economic growth and its indicator, native populations income, unemployment,

national health services, public services, the housing issues. It does not consider any

social or cultural impact of immigration on the country and so not included in the

discussion of the issue. Thus, this discussion only focuses on the impact of

immigration on the UK as overall and disregarding regional differences. (Still it may

exhibit certain important points those are highlighted on basis of regional diversity.)

The central theme over the discussion is focused on certain issues

- The data available on the background information of recent immigration

- The concrete evidences of relation between immigration and unemployment

- The impact of immigration on income and standard of living of native population

- The scale of job skill shortage needed to fill out with immigration- The fiscal benefits of immigration to the government of the UK


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- The economic impact on housing sector and population density

- Judgment of arguments that suggests negative impact of immigration on the

economy.

BACKGROUND INFORMATION

It is crucial to review the main characteristics of the target population on the basis of scale,

scope and demography. The above data is extremely essential to understand the

implications of immigration. It is significant to notice that the data available on the

immigration trends in the UK is not enough. According to Karen Dunnell from the National

Statistics there is now broad recognition that available estimates of migrant numbers are

Inadequate to meet all the purposes for which they are now required. They are the weakest

component in population estimates and projections in the United Kingdom, both nationally

and at local level (p 35). The Statistics Commission, which monitors official figures,

described the available statistical information on immigration as weak (p 505).

Another major reason of data being inadequate is the illegal immigration. Just like the most

of the other countries, there is very little data available on the scale and scope of illegal

residence of immigrants and illegal employment as well. As per the Home Office records,

the estimated illegal immigrants in the UK in 2001 were approximately around 430000.

Explanation for why it is difficult to gather data about illegal immigration - no country in the

world knows how many people there are who are living or working illegally, with the

probable exception of Australia where they count everybody in and they count everybody

out-Prof. Salt (University college London).

In words of Dr Anderson from Oxford University center of migration the Home Officeestimate excludes immigrants who are residing in the UK legally but breaching the

conditions (including any employment restrictions) attached to their immigration status, a

situation described as semi-compliance (Q 223). For example, some immigrants on student

visas work more than the 20 hours legally allowed during term time (Q 223). It can be

extremely difficult and contentious, in practice, to define and draw a clear line between

legal and illegalin the employment ofimmigrants.

(Migration Statistic 2008 Annual report, 2008)

Population growth in the UK in last few years has also lead authorities to point out

immigration responsible for it. Britain has been experiencing the fastest population growthrate earlier this decade and such growth have not been noticed since 1960s. Thus, it is


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significantly seen that proportion of immigrants to the resident population has increased

due to net immigration. The net immigrants in the UK are estimated to be 10 % of total

population. Immigrants have become 12 % of the total working age population in the UK in

compare to only 8 % in 2001 and 6 % in 1981. But it is lot lower in United Kingdom rather

than other countries in the world, such as Australia, Switzerland, and Canada being 24%, 23

% and 19% respectively.

The above chart from Total International Migration estimates shows the rise in immigration

and emigration and net change in net immigration. The upward movement of the line chart

definitely supports the argument of steadily high immigration in the UK. According to the

Labour Force Survey, up to 3% of the total working age population of the UK is from Africa

and Middle East, 2.5% from India and only 1% from A8 countries.

Immigration status is also significant for the economic analysis of the implication of

immigrants. Determining the rights of immigrants in Britain labour rights, benefits and

rights, including the use of Family reunification and the rights and benefits to remain

permanently in British Columbia Citizenship. As Annex 8 different types of immigrationstatus showed Associated with different rights and restrictions. For example, most

immigrants who hold a work permit may only work for qualified Allows the

employer. Instead, relevance, and non EEA domestic residents in the United Kingdom is free

Employment in the United Kingdom. Immigrants authorized to work in unskilled jobs Right

to family reunification, but the skilled and highly skilled are allowed. Distribution of job

seekers "such as benefits, enter changes various types of law.


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TOPIC DESCRIPTION

I have chosen this topic as a part of my dissertation as per my knowledge of the recent

changes in the economy and the concern of government and society about it. The recent

depression trend and economic downturn has made every government to reconsider their

economic policies as well as fiscal policies. Sudden economic and financial crisis has forced

all the governments and business organization to find the cure of this widespread disease ,

and the UK government is no exception. Majority of experts blamed excessive immigrationto be the one of the reason causing this recession.

My topic for the dissertation is immigration and economic growth in the UK. As the topic

it suggests that it is highly debatable and self explanatory. It is highly discussed and analysed

by various government authorities and statisticians. In order to see the importance of the

topic I would like to consider the leading news paper articles as a scope of this topics public

concern.

ANALYSIS: WHO GAINS FROM IMMIGRATION? (Schifferes, 2002)

There is a lot debate and controversial arguments on the immigration and the effects it has

on the Britain and the European Union countries and political influences seen in the France,

Denmark and Netherlands. Many people opposing the immigration suggested the fear of

more crime and political instability due to the immigration whereas few arguments are

being raised over the demolishing cultural identity of Britain. But most of the arguments

related to the migration are about its economic costs and benefits. The arguments are often

found that immigration has high suspect of creating unemployment in the economy and

thus bringing down the minimum wage rates. Well, supporters of immigration argue that it

brings positive impact on economy in a long run. Not only has that immigration provided theneeded labour skill supply to boost the economic growth. One related argument to that is

immigration mostly pay more taxes than they receive the benefits.

Immigration has been the controversial issue for years in not only UK but several other

countries. One major reason for their controversy is the assumed effect that immigration

has on the labour market and wage rate regulation system of the economy. It is treated as

the simple economic issue that the excessive immigration brings more supply of labour in

the economy than rather needed. Excess supply in contrast to demand creates worst

mismatch unemployment. As per the simple rule of demand and supply, excessive supplyover demand brings down the prices and in this case the wage rates. But as per Prof. Borjas,


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if immigration fills in the job that country has shortage of skills, it brings the real benefit to

the economy. If country is experiencing skill shortage of the Doctors, immigrant doctors

provide real benefit to the country. Talking about the immigration and unemployment,

many experts believe that there nothing to do with immigration and unemployment. While

others believe it has little to do with the unemployment situation due to costs of employingnew workers. Despite of the argument that immigration brings the unemployment in the

economy, the Germany is experiencing high level of unemployment and there is no

evidence of highly dispersed immigration in the country. The most of the immigration in

Germany is from Turkey.

Analysing the data of work age distribution of immigrants, it can be stated that most of the

immigrants are of working age and pay high taxes and even consume less of public welfare

services such as NHS (National Health services).

RECORD LEVELS OF IMMIGRATION HAVE HAD "LITTLE OR NO IMPACT" ON THE ECONOMIC

WELL-BEING OF BRITONS, AN INFLUENTIAL HOUSE OF LORDS COMMITTEE HAS SAID- BBC NEWS

(APRIL 2008)

Another news report by the BBC News regarding immigration based on the concrete data

from the House of Lords committee. according to the claims of the report if the net

incoming immigration continues to stay the steady rate 190000 per year for next 20 years ,

it would impact on housing sector and lead to 10 % rise in house prices. Justifying the

rationale of the comment, even if in the absence of immigration, the general level of price

and effect of inflation and economic growth can also raise the prices of infrastructure in the

economy.

Thus, immigration and its implication on economy have the high characteristics of concerns

of public, government and society.


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LITERATURE REVIEW

THEORY

BASICS

Before we start the analysis it is necessary to go through the theoretical background and

depth of the topic. The issue in light is Immigration and the economic growth, where few

terms that needs to be clarified is

Immigration

Economic growth

GDP(Gross Domestic Product) as a measure of economic growth

Immigration is the movement of individuals from their native country to host country in

order to engage in an economic activity or social and cultural activity .

Economic growth is a measure of increase ofdecrease in the countrys GDP(Gross Domestic

Porduct) . i.e. if countrys GDP was 100 billion last year and it increased to 125 billion this

year, then it can be said that the economic growth of the country is 25%.

GDP (gross domestic product) or GDI (gross domestic income) is the total figure of all output

products and services produced in the country in monetary terms. It is the summation of

the market value of all goods and services produced in the country. It is also considered


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close to the indicator of standard of living. GDP can be derived by three different methods,

1.Product method 2. Expenditure method 3.Income Method.

Before we move further on immigration it is necessary to understand the Economic

growth and what are economic effects of the economic growth. According to the UK

government, A HEALTHY ECONOMY LEADS TO HIGHER LIVING STANDARDS AND

GREATER PROSPERITY FOR INDIVIDUALS. IT ALSO HELPS BUSINESSES TO BE PROFITABLE,

WHICH GENERATES EMPLOYMENT AND INCOME.

The benefits from the ecomonic growth is as below :

Better standard of living : Economic growth is very crucial for the nation through which we

achieve higher standard of living and poverty levels can be minimised.For the countries ,

who regard growth as a tool of erasing poverty and bringing economic stability is economic

growth is primary objective to achieve.

Rising Employment : Evconomic growth brings more employment opportunities.From the

given chart , the economic growth of the UK economy has rised consistently since 1993 and

it has reflected to the employment figures. The total employment in the UK is increased

from 2.5 million in 1993 to almost 30 million .


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Rise in the Capital stock investment : The economic growth bring more employment to the

economy and it raises the income levels of the residents. More income results into more

savings and it in turn grows the investment in the economy. The higher economic growth

rate also substantially attract the foreign investment if the countrys economic growth is

greater than the other.

Tax revenue to Governmet: More economic activity and enormous growth increases the

total tax revenue raised by the government. The more tax revenue in government treasury ,

the more would be the expenditure on public goods and services and social

welfare.Government can handle more development projects.

Less Pollution : More economic growth enables the nation to invest and sustain the

technology to produce cleaner energy . More growth will allocate the expenditure for

environment protection. Over last 30 years , energy consumption per head is reduced in the

United Kingdom. We now expect to live on average 30 years longer, to work almost half

the amount of time we used to every year, and to enjoy an array of new goods and services,

including air travel, antibiotics, computers and televisions. Economic growth and rising living

standards has also meant a cut in rates of carbon emissions and natural resource depletion

never possible in the 20th century

SOURCE: PROFESSOR NICK CRAFTS, 2002Royal Economic SocietyPUBLIC LECTURE,

DECEMBER 2002

Every coin has two sides , definitely economic growth has other side too.High growth rate

and fast economy can cause lots of social and cultural damage to the nation as well.

Inflation Risk : Inflation is the potential danger on the stable economy. It is normal to have

nominal inflation in the economy with high growth rate, but it is feared that demand pull

inflation and cost push inflation cna raise price level and hike in interest rates.

Inequalities of Income and Wealth: The economic growth may not be the even distributed

to the whole society and can cause large inequality of income & wealth.

It is not only important to achieve high rate of economic growth contionously but also to

sustain the same economic growth over time. The way worlds natural resources areextracted , it is highly doubtful to see long run sustainability through the rapid extraction of

the limited resources.

POTENTIAL AND ACTUAL OUTPUT THEORY :

It is very crucial to know what is the concept of Potential output capability of economy and

actual output achieved . The analysis of this theory helps to understand how immigration
http://www.res.org.uk/http://www.res.org.uk/http://www.res.org.uk/http://www.res.org.uk/


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helps to increase the actual output of the economy and how it is related to the economic

growth .

In our simple model we classified resources as capital

goods and labour, although a more detailed classification would subdivide both

these categories as

(a) Capital Goods:

Land: all natural resources including agricultural land, rivers, forests, climate

and mineral deposits;

Capital: all factories, offices, warehouses, shops, houses, machinery and

equipment, stocks of materials, roads, railways, harbours, airports, vehicles,

ships, schools, colleges, universities and similar assets produced in previous

time periods;

(b) Labour Force:

Labour, which is that proportion of its population able and willing to work,

the quality being dependent upon variables such as age, effort, hours of

work, education, skills, aptitudes and attitudes;

Enterprise, which consists of those individuals in the labour force with organisational

and managerial ability or with financial skills, such individuals

taking risks in starting new companies and launching innovative products

sometimes with their own and sometimes with borrowed resources.

(Keith G. Lumsden, 1990)

Lets assume that the economy is stopped (paused) at certain point of time , theoretically it

is possible to find out the value of all resources and maximum possible output that the


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economy can produce .

In above figure It is shown that how the population of the country contributs to the nationaloutput. The population includes all the workforce which includes the Immigrants which

work for the economy.Thus the total output of the nation is depend on the 1.the Quality

and the Quantity of the Labour (Resident population plus immigration) 2. The quality and

the quantity of the Capital stock . Technology is also considered important in determining

the national output of the economy but as we assume technology resources being stable in

short term , we do not consider technology in separate to the capital stock . Captial stock

consist of man made resources and natural resources that are used in production of goods

and services. Natural capital stock is limited in nature and no one can do anything to move

the resources. The analysis of the national output of different countries and the population

of the country in proportion to its output contribution to the world economy.


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From the above pie chart , the highest contribution of GNP (Gross National Product) by

32.8% is Europe , United kingdom being the central hub of the economic activity in Europe.

After that North America s economy being 29.7% output in total World GNP. Asia has 10.4%

contribution in the total world GNP,while Japan contributing 7.9% of the total world output.

But if we see the population distribution of these top contributing economies, Asia comes

first followed by China and Africa. We can see the ratio of output and the population can

bring the per capita GNP. Simple math can suggest that North America has highest per

capita GNP . but Europe has the second highest Per capita GNP. Potential Output is the

optimum output of goods and services produced when the full labour force and capital

stock is employed . But in real terms the full employment of resources is not possible. There

are certain factors in economy that leaves the economy below the potential output. The

scenario with unemployed resources in the economy can be graphically presented as below.


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As we now come to the concept of the economic growth, the potential output of the nation

is always depend on the quality and quantity of the labour and capital stock and existing

technology. But positively the potential output doesnt stay stable and grows over time. Thiseconomic growth is caused by

Growth in quality and quantity of the workforce

Growth in quality and quantity of the capital investment

Technology advancement

Another reason for the growth in GNP is the rise in the Gross National Product. Gross

national product produced by the country is mainly used by four groups of individuals

Consumers or households which include the Immigrants as well as they contribute to the

expenditure on goods and services.


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Firms use the resources and product and the services , more economic expansion can lead

more expenditure on products and services

Government sector uses the resources for the the public goods and services and health and

welfare services.

International exports to foreign government , firms and households.

The above detailing stated the concept of the Potential output and its relation to the

economic growth and Immigration. Lets say Potential output is an estimate of output that a

country is going to have in the following year/s . The actual output of the economy is the

GNP (Gross National Product) it is the sum of monetary value of all goods and services

produced in a year in particular country. It is obtained by sum of all products and services

multiplied by its market price.

GNP = X (apa + bpb + . . . + zpz)

In such scenario , we would use here a simple economy model(For the sake of simplycity ,

we are assuming no government intervention in economy and the economy is running

totally on market forces) to explain the relation between GNP , GNE and GNI

GNP (Gross National Product) is the total value of goods and services produced in theeconomy in one year. GNE (Gross National Expenditure) is the total value of expenditure

done by households and firms (Ignoring the Governement intervention).GNI (Grosss

National Income) is the total value of the income flow to the resource owners (Land , Capital

Labour and Entrepreneurship ).As the ultimate aim of all three concept is to evaluate the

economic activity , the results are same and all three methods are identical.

Simple economy model holds certain assumptions there are only firms and households.

Households include all working age population including immigrants. As immigrants supply

the labour and Capital (assuming investments from immigration ) and they receive theincome for the resources supplied . The expenditure is also made to buy product and

services to make their livings.


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GNP = C + I

where C = consumer goods produced and I = investment (capital) goods.

GNI = C + S

where C = consumer goods purchased and S = savings.


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The above illustration can graphically explain the concept of GNP , GNE and GNI in easy way

and representing the equation that states that all three equation reach to the same

conclusion.

ECONOMIC GROWTH AND PRODUCTION POSSIBILTIY FRONTIER

As we started the discussion , the simplified economic model was assumed to be shoet term

where the quantity of labour and capital stock is limited and it cannot be increased

substaintially. Such an assumption on the short term period is reasonable to certain extent.

But in this case , introduction of the immigration in the economy , it is a short term increase

in labour force. The supply of other factors of the production can be easily changed but the

supply of labour force is quite limited to the native population and it s age structure .

Looking at that perspective , it is just impossible to raise more labour force when you have

all the resources of the country already employed in economic activity. Plus new workers

can be trained but new skills and expertise is slow process of learning and involves huge

amount of the time. Immigration is the best option to the economy to expand further. It

benefits in two way.

The host country economy , all the resources are fully employed and production capacity of

the economy is reached to its production frontier (Maximum possible output level of theeconomy) .The additional labour supply through immigration gives the boost to the

economic activity of the country and brings more economic growth

The Native country from where the immigrants come from , typically seen as developing

countries which have high levels of unemployment and abundant idle resources and factors

of production. Excess labour supply causes unemployment and therefore it adversely affect

the economy. The migration of the labour to the host country reduces the labour supply in

native country leading to more job opportunities to fill up the vacant positions . Thus ,

unemployment is reduced in the home country and it leads to the economic growth.


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As we can see the above graphical presentation about how economic growth works in the

economy , we can understand the positive implication of immigration to the economy.In

simple model , Countrys capital and labour stock produces the output and earns the income

on it. The income earned is not usually all spent and proportion of the income is saved by

the households , which in turn is channelized to the investments in the economy. That

increases the stock of capital investment in the economy. Thus , it is clearly seen as Savings

and Investment performing the multiplier effect on the economic growth .

It is also important to understand the Savings and Investment multiplier effect for the firms

in the economy . The possible choice on the firms point of view can be to contribute

resources for improving the current assets i.e trainings of the employees , research and

development projects; The economic phenomenon about the issue is described as below

It can be three kind of economic possibility


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Prodigality: In the current year of the economy , economy chooses to consume all the

resources to the production of goods and services , there are no resources employed for the

additional capital formation . The economy experience the depreciation of the resources .

Now the following period economy hasnot gained any additional capital which means

economy grows negatively.

Satiated : If the economic resources in the economy are forgone for the capital formation to

the same extent as the depreciation , the economy would have the newer resoureces the

following year to replace the wear and tear to the economy. The resultant effect would be

the stable economy with no growth.

Thriftland : The maximum possible retention of the resources to gain additional advantage

of the newer resources the following year . Such economy experiences the high proportion

of the growth rate.

INFLATION AND IMMIGRATION

The inflation rate is the percentage increase per year in the average price level from

one time period to another. Thus if Ptis the average price level in period tand if

Ptis the average price level in period t+ 1, then the inflation rate in time period t

is defined by

INFt= PtPt


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Pt

Expressed alternatively, the price level in period t+ 1 is:

Pt= Pt(1 + INFt)

But what do we mean by the price level? The most commonly cited measure of the

average level of prices is the Consumer Price Index. This index measures the average

level of prices of the goods and services consumed by the typical household. In

most market economies this index is calculated monthly. Several hundred goods

and services regularly purchased each month by average households are selected,

initially to establish a base period, and the quantities purchased and the prices paid

are noted; an index is then constructed.

The problem of choosing the appropriate policy is compounded by the fact that

society is composed of many members, who may differ as to whether inflation or

unemployment is a worse problem. It is obvious that people such as construction

workers, who are likely to become unemployed if aggregate demand is low,

would regard a low-unemployment/high-inflation combination as relatively painless.

Others, such as retired persons relying on their pensions for income, who

would lose real income because of inflation if aggregate demand is high, would

consider a high-unemployment/low-inflation combination to be relatively easy to

bear. This is one reason why there is so much disagreement as to what constitutes

the right policy for a government to undertake. Because the goals of policy are

essentially subjective in nature, people can agree about how the economy works

and how policy affects the economy, yet disagree sharply about what should be

done. Thus, policy makers will usually be in the position of being unable to please

everyone, and decision making remains a political as well as an economic process.

Short-term policy making is also complicated by another factor: the short-run


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policy goal should not be decided without taking into account the long-run consequences

of that policy. It might be possible, in normal situations, that high

unemployment and low inflation today will permit certain preferred combinations

of unemployment and inflation tomorrow that would be impossible otherwise.

In such situations, the appropriate short-term policy goal might be to choose an

aggregate demand target that is below potential GNP. Before the long-term implications

of any policy can be analysed, however, it is desirable to understand fully

the nature and short-run consequences of policies designed to control aggregate

demand. This is the next topic to be tackled.

UNEMPLOYMENT AND IMMIGRATION

Immigration is blamed on the ground that the immigration bring unemployment in the host

economy and affects the resident population income. To judge the effects of the

immigration on the unemployment and the labour market . If an economy is undergoingconstant change that could be positive or negative , it experiences certain degree of

unemployment. As normally all the unemployment criteria are viewed in a same way and

considered negative impact on the economy. It is quite crucial to understand the basic types

and characteristics of the unemployment.

Frictional Unemployment : With the growing world with lot of new opportunities , it is not

generally seen that people stick to the same jobs for a long time. People keep changing the

job and searching new job takes time due to the information problems. As the person is just

changing the job to one to another and not changing the occupation , overall economic

status of unemployment remains unchanged . Such unemployment is called frictional

unemployment. I.e. Lets say a manager of A ltd. Leaves the job in London and searches for

another job for a manager in London. After few information and job search , he gets another

job at manager at B ltd. The time he spent on shifting one job to the other is considered as a

frictional unemployment. The Understanding of this concept brings to the conclusion that

immigration has nothing to do with the frictional unemployment and it would be unchanged

with or without the presence of the immigrants.


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Structural Unemployment : In such kind of unemployment , it occurs due to the mismatch

between the the job vacancy and the qualification of the unemployed person. i.e. There

might be 1000s of job vacancies for the Doctors in the economy , but there are unemployed

engineers in the economy . Thus the occupational mismatch causes the unemployment . As

the earlier type of the unemployment rises from the information error , it can be curedeasily , but for structural unemployment , it is not easy to create more vacancies or raise the

required work force. But in given example , we can not raise the vacancies for engineers but

we can surely fill up the vacancies of Doctors by bringing in the immigrants . Thus it may

seem that unemployment remained same as still those enginners are jobless, but infact

immigration has filled in the vacancy for the doctors and economy is producing more output

than before.Thus , Immigration has no effect on reducing the structural unemployment , but

it doesnt negatively impact on the structural unemployment. But still as we saw through

example , it bring economic growth by filling in vacancies that resident population cant .

Seasonal Unemployment : Easiest term to understand , as the term is self explanatory , it

occurs due to production level of the related industry is affected by the seasonal condition

such as weather , calendar or may be time period. Such occupation brings high employment

for certain period of time and minimum or no employment for certain point of time.

Apparently Immigration has no influence of such unemployment.

It is quite essential to notice that although it is widely claimed that immigration brings

unemployment in the wide proportion to the economy , we saw the theoretical possibility of

how immigration has no direct influence on any of the above three type of immigration.

Nevertheless , it brings the essential need of finding out the real possible factors behind the

stated unemployment.

Unemployment is affected by the general level of economic activity. When actual

output is close to potential output, employment is high and there will be strong

competition among employers to hire labour. Employers will be more active in

advertising job opportunities and the improved flow of information will reduce

frictional unemployment. Employers will also offer better retraining allowances

and financial assistance to those moving home in order to attract people from other

occupations and areas. These measures will reduce structural unemployment.


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When actual output is well below potential output there will be less competition

among employers to hire labour and frictional and structural unemployment will

increase.

Unemployment is also affected by the quality of transmission of job information.

Jobs cannot be filled unless employers and employees can be brought into touch

with each other. Employers advertise jobs through the Internet, local and national

newspapers, radio and TV, private agencies, shop windows, billboards at the factory

or office gate, and word of mouth. Employees use some or all of these methods

of looking for work. The better the methods of communicating information, the

lower will be unemployment.

There is always some structural change in an economy. Tastes change, new

products emerge, goods produced domestically are displaced by imports, and technical

change occurs. For example, the increased demand for holidays overseas has

reduced the demand for domestic holidays; the development of man-made fibres

has reduced the demand for natural fibres; Japanese cars have taken an increasing

share of many domestic car markets; the railways displaced the stagecoach and

canals, and the motor car has largely displaced the railways; the manual typewriter

displaced the quill, the electric typewriter displaced the manual typewriter, and

the PC displaced the electric typewriter. New economic activities expand and old

ones contract. These changes require a redistribution in the skills and location of

the workforce. The higher the rate of structural change, the higher will be the level

of structural unemployment.

Structural unemployment will be minimised where it is comparatively easy to

acquire newskills and move from one home to another. This will depend on factors

such as the availability and cost of retraining programmes, the cost of travel and

moving home, suitable schools for children, and suitable hospitals for the infirms.


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The higher are these costs, the higher the level of structural unemployment.

Institutional restrictions and barriers also affect unemployment. These include

any action by government, or by organisations of employers and employees that

restrict the efficiency of the labour market. For example, unemployment will

increase if the government imposes minimum-wage levels above the level that

would be established in the marketplace; if organisations place undue restrictions

on entry to certain jobs; if unions impose restrictive practices, restrict employment

to union members, or impose unduly long periods of training; if local authorities

discourage geographical mobility by favouring local residents in allocating houses;

if pension arrangements impose heavy costs on those who change jobs. Anything

that limits the ease of changing or taking employment will increase unemployment.

Finally, unemployment is affected by seasonal industries. Economies that are

dependent on farming, fishing, forestry and tourism will experience seasonal fluctuations

in unemployment. Some economies have clear natural advantages in these

industries. Hence, they continue to use many of their resources in them in the full

understanding that unemployment will result at certain predictable periods of the

yearly cycle.

EMPIRICAL RESEARCH

IMPACT OF IMMIGRATION ON NATIVES

The findings of Prof. Barry Chiswick from University of Illinois suggests that characteristics ofimmigrants is majot determinant for the consequent economic effects to the host


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country.Prof. Christian Dustmann from University College London noticed that effects of

immigration on native population can be judged by portfolio of skills of both natives and

immigrants . In addition to that it is also significant to trace how quickly immigrants can

adjust in the host countrys economy.Most economic influences of immigration is divided in

either Low skilled vs Highly skilled or Longrun vs shortrun .

Analysing short run impact , economy in a short run supply of capital and technology cannot

be increased.thus , the primary intention of immigration is to increase the supply of labour

in economy . Wage rates are not lowered until labour is excess supply and therefore it raises

the profit of employers and capital owners.It produces positive income effect to native

population overall when the skills possessed by migrants differ from the native

population,otherwise it creates competition between migrants and natives and therefore

reduces the positive income effect.

Considering the long term impact of immigration, in the long run economy , technology and

capital is fully variable .Migration raises return on capital in short run, therefore investments

are accerelated in the economy and profit margins are driven down. More investments in

Mchinery and capital goods demand for more workforce . Wage rate rises more than normal

fearing inflation in the economy . Immigration fills the shortage of labour and turns labour

market into equilibrium in long run. If economy can absorb immigrants to significant level ,

it would not leave any impact on native populations income.Full international capital

mobility can even attract more investments which in turn is beneficial to residents. (Borjas,

1995)

The analysis done by professor Stephen Nickell notes that the monetary policy of the host

country influences significantly on impact of immigration in long run.His work on the above

issue is explained in the example : initially unemployment goes up,

downward pressures on wages, downward pressure on inflation, monetary

policy is loosened, some expansion in the economy absorbs the extra workers

and at the end the thing [the economy] looks much the same as it did at the

beginning except there are more people-Prof Stephen Nickell

Most well known economists gave the findings that suggested the long run impact of

immigration is to expand employment and the economy i.e. the economic growth with no

effect on native populations income .It is been counter argued that the probability of

dynamic and spillover effects arising from immigration is not taken into account.Such as ,

Professor Rowthorn argued that immigraition will increase population density and inturn it

would reduce the productivity of native population. John Elliott, Chief Economist at the

Home Office, suggested that: ... in the longer run we will expect more dynamic effects to

come into play. We can think of migrants contributing to the productivity of native


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workers directly though spillover effects. One might imagine a migrant

surgeon standing next to a domestic surgeon and them learning from each

other

GDP PER CAPITA

There are few researches carried out on effect of immigration on GDP of the nation and GDP

per capita. Home office reports reveals the effect of immigration on GDP being 6+ billion in

2006 but no data could be derived for GDP per capita.It says that there is no concrete proof

gained stating the effect of immigration on GDP per head.Thus it is accepted that noresearch is carried out signifying the analysis of effect of immigration on native populations

per capita income in the UK. It is quite surprising to monitor the absence of data in such

important issue.I personally do think that GDP per capita is the key thing to focus on fewwords from immigration minister Liam Byrne.

The organised body on research of demography of the UK The National Institute of

Economic and Social Research (NIESR) estimated that migration in 7 years duration starting

from 1998 has shown the effective results of increase by 3% in real term GDP. Still critics

suggests that the time duration of research in question , only 3.8% of total populationconsisted of immigrants which is considerably lot lower than current scenario. Making a

simple math , it suggests that 3.8 % of population contributing 3% to GDP wpuld turn the

results into negative impact on GDP per capita.The only limitation of this survey is only

labour supply increase has taken into account and capital supply increase due to

immigration is consistently ignored leaving research finding inaccurate for finding per capita

GDP.Probably adding up the potential increase in capital stock due to immigration can

suggest the positive per capita GDP and immigration is favpourable to the nation once

again.

Further research carried out by NIESR also undergone the analysis of A8 projected future

immigration data using model of economy developed by them. Results are interesting

when the time baseline is considered as 2005, the first few years negative effect on GDP per

capita is seen.Gradually in long run positive effect on GDP per capita is achieved by 2015

being 0.3%.Relative short term negative impact is traced due to high rate of unemployment

initially , difficulty in adjustment of capital stock in relation to the size of

immigration.Whereas the positive effects are caused by high number of working class

migrants and increase in capital investment in the economy in long run. As per the ITEM

club suggests , the effect of recent immigration trends on GDP per head in negligible or

slightly adverse. (Young, 2007)


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To conclude the current issue, it is said that Migrants have very negligible effect on GDP per

head or native populations income. Ignoring the critics without any concrete evidences ,

even if the dynamic and spill over effects are taken into account , there would be very little

difference caused in the original findings. Still it is possible in theory that above empiricalevidences do not suggest the possibility of siginificant benefits caused by immigrants to

resident population. But it also does not suggest any negative impacts which still leads to

further research needs.

WAGES

Immigration has wider impact on the labour market and wage rate regulation in short term

and long term to the host country economy . it is quite important undergo the analysis of

labour market impact as immigrants directly fill in the workforce. But there are some

fundamental difficulties experienced while analysing the effects of immigration on labour

market.

- Most of the immigrants are attracted to the area of strong economic growth and

major cities (London in current scenario) where employment opportunities are

higher with higher wage rates.As shortage of labour can attract more immigration ,

potentially these economic areas are more affected with consequences which

cannot actually represent the whole picture of the economy.

- If immigrants are scattered around the whole country , the research population

needs to be covered becomes much wider and local labour market researchs are no

more comprehensive .

- The current data on the immigration may be based on small sample sizes which

causes considerable measurement errors when such data is used on wider terms.(Smith, 1997)

The recent studies in the UK by Profesor Dustmann and other co ordinates gives a

conclusion that immigration has positive effect on the incomes of resident population, but it

decreases the minimum wage of the low paid job workers.Which is further explained by the

proportionate 1 % change in immigration and residents ratio results into 0.5% decline in low

paid workers income and rises the top workers income by 0.6%. Thus, overall effect is

considered positive as economists dont bother to address the issues of inequality of income


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in the economy.These effects are accepted on fair basis.Further explaination to these

effects is given by Prof. Dustmann and Prof. Ian Preston immigrants appear to

be most concentrated at precisely the same points where we find the most

negative wage effects(al, March 2003)

All of the above empirical evidences suggest that immigration has negative effect on income

of unskilled labour force.Contradicting arguments to that are raised by Professor

Blanchflower that the income of low skilled workers is lowered by immigration ,but the

resultant effect is negligible.Further to this , Prof. Blanchflower has stated that though the

direct competition doesnt seem to exist , there is much effect of immigration on residents

indirectly.Although, that can be solved by government intervention and decing the lower

limit for the wage rates (National Minimum Wage that already is applied in the UK).

In conclusion , it can be said that the immigration has very little negative effect on the low

paid workers and have little positive impact on high skilled workers income.Effective

measures should be taken to set up a law that fixes the minimum wage rate according to

the standard of living criteria and concrete actions should be taken against illegal

employment.

UNEMPLOYMENT

Earlier we found the words from Professor Dustmann if there are any effects on

unemployment is due to statistical error in data used for analysis or possibly a small

population size targeted.Dr. Riley from NIESR had an argument that if a concrete conclusion

can be reached or not from the DWP studies that emigration is considered on side by side to

immigration. The simulation model analysis done by NIESR reveals that in a short run

immigration has the negative effects that leads to unemployment but in long term this

effect is neutralised to zero.The presented facts overall is sufficient to suggest that the

impact of immigration on economy and unemployment is short term in nature in the UK .

Quite possible but still it is not proved yet. (LORDS, 2008)


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METHODOLOGY

Research is a purposeful activity carried out for the search of knowledge and solutions to

the particular problems. Research is a scientific activity based on facts , theory and

principles used for the academic purposes. There are several definitions of the term

research given by various experts , but it is quite impossible to reach an extensivedefinition to such a broad terminology.

Research comprises defininig and redefining problems , formulating hypothesis or

suggested solutions,collecting , organising and evaluating data, making deductions and

reaching conclusions and at last carefully listing the conclusions to determine whether they

fit the formulated hypothesis or not Clifford Woody

The methodology of the research is described as a systematic approach for solving the

research problems. The methodology is of this research is based on the aims and objective

of the study .first of all , it is necessary to gather the background information about the

subject of research problem. The facts and figures as well as the data about empirical

research is gathered . the research problem is in critically evaluated on the basis of

literature review and theoretical models. The crucial analysis of the data is carried out to

reach the conclusions which are based on the hypothesis and the research questions

formulated.

RESEARCH PROBLEM

Research problem is a crucial part of the research on which whole research is based. The

research problem this study is quite straight forward and one of the biggest debate issue incurret UK economy. Immigration has been raising concerns to the UK government about its


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cost and benefits to the nation. While the government is trying to stop more immigration

flow in the economy certainly suggests that immigration is considered to have an adverse

effect of the economy. The supporting evidences to the government actions are the

government reports outlining the rise of the immigration and the negative implication of

that.

The problem of research is to identify if immigration is beneficial to the UK economy or not

if yes then to what extent ? Does immigration gives significant contribution to the economic

growth ? if yes then government actions towards immigration are justifiable. Thus , the

problem is to go beyond just the statistical data of the government reports and analyse the

effect of immigration in economic point of view.

HYPOTHESIS

Developing the hypothesis is to develop a tentative statement that suggests the

possible explaination to certain cause and effect relationship. The hypothesis may

include the possible predicition of the outcome. As generally , though it should

not ; hypothesis is often substituted as a theory.

Hypothesis to this research study

despite of the statistical data about the immigration, immigration is related to

the economic growth of the UK in economic point of view

For the above hypothesis immigration is a dependent variable , whereas

economic growth is an independent variable.

RESEARCH QUESTIONS

The main research question of the study is

WHAT IS THE ECONOMIC IMPLICATIONS OF THE IMMIGRATION ON THE UK ECONOMY

?

The research question stated above is broad in a nature and has many sub questions to be

followed

- WHAT IS THE POSSIBLE RELATION BETWEEN IMMIGRATION AND ECONOMIC

GROWTH.?


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It is quite crucial to analyse the exact relationship between immigration and

economic growth rather than just gathering data about demographic characteristics

of the immigration

- WHAT IS THE ECONOMIC IMPORTANCE OF THE IMMIGRATION IN THE UK

ECONOMY ?To find out the sole purpose of introduction of the immigration in economy and to

analyse if immigration still holds the same economic importance

- WHAT IS THE EFFECTS OF IMMIGRATION ON THE NATIONAL OUT PUT AND GDP

OF THE UK ECONOMY ?

Immigration can affect the national output and the GDP of the nation but it is

necessary to find out positively or negatively and to what extent.

- WHAT ARE THE IMPLICATIONS OF THE IMMIGRATION ON THE RESIDENT

POPULATION?

It is also important to analyse the implication of immigration on the residentpopulation of the UK on its level of income , level of minimum wage rate and

standard of living.

- WHAT ARE THE INFLUENCES OF THE IMMIGRATION ON THE LABOUR MARKET OF

THE UK ECONOMY?

As the immigration is part of the nations labour market , important to find out what

extent it affects the regulation of the labour market in the nation

- TO WHAT EXTENT INTEREST RATES AND INFLATION IS RELATED TO

IMMIGRATION IN THE UK ?

To find out any relationship that immigration may possibly have on general price

indices and monetary flow of the economy

THE SOURCES OF DATA

AVAILABLE SOURCES OF DATA

- Immigration has increased at significant level since 1995 , from which incoming

immigrants are decreasing since 2006 and total amount of the immigrants has also

decreased. The arguments has raised that the recent decrease in immigration is due

to the global recession and high unemployment rates in the UK since last few years.

- In 2009, 14% of the working population in the UK consist of immigration , the same

figure was seen 8% in 1995. Today UK has 5 million immigrants of the working age .


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- The UK experiences lower proportion of immigrants as compared to Australia which

is 25%, Germany which is 12.9% or the United States which 13.6% in compare to 10%

of the UK itself.

- In comparison to the resident population , immigrants are more educated . most of

all immigrants are concentrated around London. Brent has 60 % of the workingpopulation as immigrants in compared to lowest being Knowsley by 3%.

There are few graphical presentation of data which are more easier to explain the difficult

issue like immigration. As seen in the given chart supplied by Labour Force Survey, the figure

1 shows the proportion of immigrants in the UKs total working age population in a long run.

The time scale taken into consideration is large 30 years. It is straightforward to see thattill 1995 the immigrants proportion was stable between 7 % to 7.5% but since then , from

last 15 years it rised to 13%.


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If we consider figure B for the short term analysis of the last decade immigrant population

of the working age was 9% in 2000 , where the graph displayed its peak in 2009 being 13%

,since 2009 raising concerns and government policy actions it decreased little to 12.5%.

The country of origin of immigrants in the UK is worth analysing. It is interesting to see the

top contributer countries of immigration in the UK. In 1985 16.5% of the immigrants were

from Ireland , 13.5% of immigrants from india , 6.9% of immigrants from Pakistan , 5.1%


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from Jamaica 4.6% from germany . but in 2009 , india has been largest sender of immigrants

being 10.7% , Poland being 7.9% , where as immigrants from Pakistan rised to 7.2% , 5.1%

from germany and 3.5 % from Africa .

If we analyse the country profile of latest new immigrants in the country , 11.4% immigrants

are from india , 8.9 % immigrants from Poland, 5.6% immigrants from United States, 3.9%

from South Africa and 3.5% of immigrants from france.

As the immigration has rised in last few year in all over the country. It is more rised in the

major city areas mostly in London , it is also important to notice that new immigrants are

more and more disperse in case of geographical distribution. The issue is more clear in

below graph.

Note: LO=London, WMM=West Midlands Met., GM=Greater Manchester, SE=South East,

EA=East Anglia, WY=West Yorkshire, EM=East Midlands, SW=South West, TW=Tyne & Wear,

NW=North West, SC=Scotland, SY=South Yorkshire, WM=Rest of West Midlands,

NI=Northern Ireland, NY=North Yorkshire, WA=Wales, ME=Merseyside, NO=North of

England.

From the above graph, we can see the proportion of the working age population in various

major city across the UK. The red bar indicated in the chart in all the data on year 1985

,whereas the green bar in the chart indicated all the data of 2009. The maximum

concerntration of immigrants is found in London in 2009 and minimum in north of England

by 4% in 2009. Where as in 1995 the immigration was less dispersed and more concentratedin London and the least in South Yorkshire by 4%.


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To some extent, education is the key indicator of the occupation and education of the

industry. Immigrants are more educated on an average than that of the residents. This

education gap is rising over time and more and more immigration is educated only 20% of

UK residents finish their Masters education by the age of 22 , where as 70 % of immigrants

finished the education of Masters by the age of 22.

From the above chart we can see the education profile of resident is compared to existing

and new immigrants. There are 53% of the residents who have left school under age of 16 ,

such ratio in immigrants is 24.8% and 15.4% in new immigrants. Whereas only 18.7% of the

resident population has level of education till 21 or more years in compare to 38% of all the

immigrants and 50% of all the new immigrants.

Education has a lot to do with the selection of occupation and industry by the immigrant.

There are large number of the immigrants who are working for the professional

occupations. The occupational distribution of the immigrants is as above. It can be seen

from the above table that out of all immigrants in the UK majority of the immigrants are

occupied in the restaurants and hotels. Whereas more of immigrants are living in London

where there is no scope of agriculture , no employment is seen in agricultural sector.

Analysing the data , 6.3% of immigrants are occupied in agriculture , 11.1% in

manufacturing, 6.7% in energy, 8.3% in contruction, 11% in retail, 14% in transport, 13% in


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finance , 7.8% in public administration , 9.6% in education , 14.1% in health and 8.6% in

other occupations.

If the occupational statistics of the resident population is compared to the same of the

immigration , the facts accumulated can be presented as below, in managerial occupation ,

there are 16.4% of the resident employees whereas 12.6% of immigrants. 13.1% of

residents are engaged in professional occupations whereas 16.5% of the total immigrants

are engaged in the same occupation.

Such data in Assistant professional job is 14.7 for residents and 14.2% for the

immigrants.11.6% of residents are in administrative occupation whereas 8.3% of immigrants

are in the same occupation. In Skilled trade 10.8% and 9.1% respectively for residents and

immigrants. Personal services has 8.8% of residents and almost same proportion of

immigrants. There are 7.4% of resident populations working age people employed in Sales

jobs whereas same for the immigrants is 6.5% of its working age proportion.6.9% of the

resident population and 8.5% of immigrants are engaged in Processing sector.the larger

number of immigrants being 15.7% in compare to 10.4% of resident wok force.


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ANALYSIS AND FINDING

IMMIGRATION AND THE UK ECONOMY

The economic justification provided by the reports and findings of UK government , GDP is

the primary concern about indicator of the immigration contribution to the groeth of the UK

economy. There are mainly two arguments in major; one of that is , immigrants consist of

8% of the total UK population ,whereas their significant GDP (Gross Domestic Product)

contribution to the UK economy is 10%. In another argument made by the prime minister of

the UK in his speech , if the net immigration disappears all of a sudden, the growth rate thatthe UK economy is experiencing will be lowered by 0.5%. The reliable source about the

information that is provided in this report is Migration Watch . It has scrutinized the claims

in depth to reach the conclusions . It suggests that these arguments are highly based on the

simple methodology which is not reasonable and as so both arguments are considered

inaccurate and misleading.

As we reviewed the first argument stating that the 8% of the immigration population

contribute the overall GDP by 10 % , it is such a big statistical error. First of all, it doesnt

consider the children of the immigrants those are born in the UK. If we add up them, theproportion of immigration to the total resident population reaches to 10% and their total

contribution to the UK economy is revealed as 9.8% . According to this rationale , the

argument being the contribution to GDP higher is consistently wrong.It is important to

notice that only the immigration that falls under working age criteria is considered while

calculation their contribution to the GDP. On the other side , focusing on the comment of

the prime minister of the UK ; stating that immigration only symbolise 0.5% growth in

economy quite exaggerated. In fact, the treasury officially claimed that the new incoming

immigration contribute 0.4% of the total GDP alone. In this simple calculation of total

migration , the existing immigration and its dependants are ignored.

According to the recent estimates provided by the Government Actuarys Department (GAD)

net immigration being 130000 per annum. The recent projections on net immigration trends

till 2003-2031 , it will consist 5.2 million to the total and about 3.8 million to the working age

population. Which is equal to 0.35% growth rate in total immigration. Such population

increase by 0.3% each year so the per head benefit of the additional immigration is 7p per

week. This amount of benefit doesnt add any significant growth per capita income of the

resident population. In addition to the that the representative from the government

department has claimed that immigration literally contributes more than 15% to the UKeconomy.


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DETAILED ANALYSIS OF THE CONTRIBUTION OF IMMIGRATION TO THE

GDP

The government consistently stated that only 8% of the immigration population of the UK

contributes the 10% growth in the economy and its GDP (Gross Domestic Product). The

press release made by the Home Office suggested in November 2003 included the major

speech by the Home secretary , David Blunkett saying ; Effectively managed legal migration

is vital to Britains economic and social interests, the Home Secretary, David Blunkett, will

argue in a speech this evening. Legal migrants make up eight per cent of the UKs population

but generate 10 per cent of our gross domestic product.The similar argument has restated

in the House of the lords in February 2004 by Baroness Scottland of Asthal saying ;

Migrants make up 8 per cent of the population but generate 10 per cent of our total wealth.Migrants are substantial net contributors to the Exchequer. (Baroness Scotland of Asthal

speaking in House of Lords , February 2004)

In addition to this claims , this is very broad issue with the wider scope . First of all the

definition and characteristics of immigrants is considered by government is any foreign born

person even including the british citizens born overseas. Some of the interesting facts traced

down in this analysis.

- The percentage of the working age population (working age population in the UK is

considered as people between age of 16 to 60women and 65- men) who were born

in foreign countries were 10% of total UK population in 2001

- Out of total 3.63 milion immigrants , 2.31 million immigration contributed to the

labour market of the UK economy.

- The resident population born in the UK were 32.33 million people comprising 89.91%

of the total population in 2001. Out of it 24.22 million people were considered under

the working age population making it 74.5%.

- From the above data it can be said that in 2001, the total contribution of

immigration in total working age population was 8.74% being 2.31 million out of the

total working age population of 26.5 million

- Average earnings of the working age population differ from immigrants to the

resident population. In reference to the statement of Russell Haque from the

department of work and pensions, immigrants have 19% higher income than those

of the resident population. The data compared of wages and earnings of residents

and immigration population , immgrants perform better overall than the residents

and and on an average immigrant receives 12% more than the resident population in

the UK. (Russell Haque:, December 2002)1

As mentioned before Migration Watch

1.1The principal population projection shows the population rising from 59.554 million in 2003 to 65.700 million in 2031 based on

net migration of 130,000 a year a rise of 6.146 m. The natural change (no migration) projection shows the population rising to


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undergone the gross analysis of the weekly income of the native employee and

immigrants and found out that on an average an immigrant earns 415 per week

compared to 487 per week for the resident population. (Office for National Statistics:

National accounts: GDP by category of income.) The demographic analysis of the age

distribution of the population is as below.

-

From the above chart it can be said that the resident population according to their age

group there are 21% of children and approximately 20% of retired senior citizens and leave

the rest of the population as working age people. On the contrary it has , 8% of immigrant

children 75% of working age population and 18% of senior citizens. Now it is quite

transparent to see that immigrants have more working age population than the

counterparts.

ANALYSIS OF THE FINDINGS

1 IMMIGRATION IS POSITIVELY RELATED TO ECONOMIC GROWTH

It is very simple to understand for even a common man that immigration has positiverelation with economic growth, it is just a simple math as the population increases, total

output increases proportionately, other factors assuming constant. If the population of

certain country rises by x% the economic growth of that nation would rise by X%, where

basic assumption would be immigrants are equal productive as the native population. Even

if it is assumed that the immigrant are just half productive than the native population, still

60.519m a rise of 0.965m. The rise due to migration is therefore 5.181m a compound annual growth rate of just over 0.3%. The

corresponding comparison for the working age population shows that migration will cause this to grow by 3.793 million on a

base population of 38.432 million an annual growth rate of 0.34%.


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economic growth can be achieved proportionately (it would not achieve any surplus

economic per head).

Economic growth is a positive effect to economy but not unless it produces additional

output per head. We would be discussing supporting data and supporting evidences that

immigration produces that in later sections. Measures of economic growth may be

misleading in case of immigration statistics, where Government consistently considered

GDP as indicator of economic growth. Whereas some advocates of immigrants just compare

the output of immigrants with total output of nation and consider the resulting answer as

the proportion of immigrants in economic growth.

In another point of view, assuming two countries one being developed and another being

less developed. There are 3 factors to economic growth, which are labour, capital and

technical skills. Developed countries already having strong position on capital and technical

skills, the only thing that can increase economic growth is increasing the size of labour force.

Immigration is most feasible way to add up the labour force. Thus immigrants from less

developed country can transfer some part of their income to their home country which can

be turned into the additional capital resources in the less developed countrys economy. On

counterpart the wastage of talent and resources in less developed country can be saved and

unemployment can be reduced. Thus, it serves both purpose of growth in developed and

less developed country A win-win approach.

Even if immigration has its downsides, it should not be restricted entirely. If short term

surplus or deficit specific skills can be solved by immigration, that is beneficial. That canresolve the issue of frictional unemployment. (Stewart, 2005)

2 IMMIGRANTS PERFORMS IMPORTANT TASKS IN UK

This issue cannot be proved just by theory but it needs concrete evidences as well. The

empirical evidences are seen below. America has welcomed millions of immigrants everyyear from last twenty decades. Such a large immigration must have filled some vacancies at

least, but surprisingly surveys revealed that the key job vacancies are constantly high and

that suggests that more economic growth needs more labour to perform some of the vital

jobs which can be facilitated by immigration. But still it is not true that immigration fills in

every vacancy available and leads to unemployment. If logically considered, the income

earned by immigrants still stays in the economy and circulates in the circle of income. They

spend money on food, living and such more activities and such spending leads much more

vacancies and employment.


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If we try to understand this in theoretical aspect, a simple economy has industry and

households where industry provides employment and pays for the labour capital and

entrepreneurship that households have provided and produces goods and services to the

households. Households spend their income buying those good and services provided by

industry .If immigration create an additional supply of labour, it doesnt mean it leads tounemployment; it also increases the spending and investments proportionately so that

economy still stays in equilibrium. (leader, 2005)

3 IMMIGRATION HELPS SENIOR CITIZENS

Mostly immigrants are the young age population which indicates that they are one of theincreased tax payers. It is a point that immigrants help pensioners indirect way. Immigrants,

which are young tax payers, gradually they grow old and return to their own countries but

their contribution to national pension fund stays in the country which actually adds up the

pension fund for native citizens. Thus end of the day the native citizens are benefited from

the pension fund that is raised by immigrant population.

4 IMMIGRANTS PLAY IMPORTANT ROLE IN HEALTH SERVICES

As seen in the UK economy the national health services NHS is run by considerable amount

of immigrants who are technically skilled for the particular job. It has the same scenario for

construction industry. It is feared that if immigrants disappear all of a sudden, Health system

and construction industry functioning would be disrupted. However the replacement to that

task in health service can take several years which is not acceptable in such a core aspect of

nation. Thus, same criterion applies to all major industry as it would collapse if half of their

skilled workers are gone.

5 IMMIGRANTS WILL PERFORM THE JOB WHICH BRITISH WILL NOT

There are certain numbers of jobs which are low paid and native citizens would not be

comfortable to perform such jobs in such low wages but these jobs are performed by

immigrants. There are some arguments against it the immigrants would also turn citizenafter some time and they would not like to do such job which will need more immigrants


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and it will go on and on.In any economy where economic growth is rising, there would be

lot more new career opportunities rising. Native population would grab those opportunities

and leave the old job vacancies unfilled. But of course these jobs have primary importance

which is filled by immigrants. Sooner or later the wages rise due to economic growth and

employer has to decide about the vacancies. Let s say if an employer is getting an unskilledworker for 2 pounds per hour, he would create demand of lot more employees.

Another important aspect is import and export in the country. If country produces all

products even if its production costs are greater, Imports of such products should be

beneficial, but it is not always feasible to import as it negatively affects the economy. The

solution can be found by

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UK Economy and Immigration

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