AS Macro Revision: Migration and the Economy


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AS Macro Revision: Migration and the Economy

  1. 1. AS Macro Revision Migration and the Economy Spring 2014
  2. 2. We add new resources / links / articles every day to our Economics blogs Follow this link for the AS Macro Blog on Tutor2u
  3. 3. The Scale of UK and Global Labour Migration In the year to June 2013 - 503,000 people immigrated to the UK whilst , 320,000 emigrants left the UK. Net migration = 183,000 • Labour migration between countries has become an increasingly important feature of a globalising world • Migration has an impact on sending and receiving countries • Over 200-million people are now estimated to live in countries in which they were not born • The global stock of international migrants grew by 38 per cent from 1990 to 2010. However, international migrants constitute a small fraction of the world population, just 3.1% in 2010 • Migration is overwhelmingly from less developed to more developed countries and regions
  4. 4. Economic Benefits of Net Inward Migration The benefits of net inward migration depend in part on the human capital of migrant workers and how long they stay in a country 1. 2. 3. 4. 5. 6. 7. Migrants provide fresh skills and higher labour productivity An increase in the size of the active labour supply – boosting potential output A driver of innovation and entrepreneurship Positive multiplier effects if migrants find paid work Reducing skilled-labour shortages in growing industries Remittances sent home by migrants add to the gross national income of home nations – creating potential for rising exports Tax revenues: Legal immigrants in work pay direct and indirect taxes and are likely to be net contributors to the government’s finances.
  5. 5. AD-AS Analysis & the Effects of Labour Migration General Price Level LAS1 LAS2 AS1 AS2 AD1 AD2 GPL1 Y1 A rise in net inward migration will bring about an increase in the size of the active labour supply and also an increase in aggregate demand. There might also be positive effects on long run aggregate supply (LAS) Yp1 Y2 Yp2 Real GDP
  6. 6. Risks / Costs from Net Inward Migration Several pressure groups / parties campaign for tighter restrictions on migration – remember to keep to economic arguments! 1. Welfare costs: Increasing cost of providing public services 2. Possible displacement of domestic workers 3. Social tensions arising from the problems of integrating thousands of extra workers into local areas and regions. 4. Rising demand for housing which forces up property prices and housing rents for many groups in the population 5. Poverty risk: Migration may have the effect of worsening the level of relative poverty in a society. And many migrant workers have complained of exploitation by businesses that have monopsony power in a local labour market.
  7. 7. Evaluating the Economic Effects of Labour Migration The effects of migration are hard to quantify. Much depends on 1. The types of people and their skills who choose to migrate from one country to another i.e. The quality of migrants may be more significant than the quantity 2. The ease with which migrant workers settle into a new country and whether they find regular jobs 3. Whether a rise in labour migration stimulates capital spending by firms and by government 4. The dynamic effects of migration e.g. Gains in innovation and research from migrant entrepreneurs, scientists and other groups 5. Whether migrants decide to stay in the longer term or whether they regard it as temporary (e.g. to gain qualifications, learn some English)
  8. 8. Longer Term Dynamic Effects of Migration Waves of inward migration can have structural effects on a country’s macroeconomic performance Increase in the labour supply which might cause lower unit labour costs for host country • Increase in population size • Rising demand for public services • If housing stock is fixed, can lead to higher prices and rising rents Labour Market Consumption Fiscal Effects Competitiveness Inward migration increases pressure on govt spending but will also lead to rising tax revenues • Human capital helps generate new ideas • Many migrants start businesses – possible exporters • Knowledge spillovers
  9. 9. Get help on the AS macroeconomics course using twitter #econ2 @tutor2u_econ