Economy has Nothing to Show for Mass Immigration
It is said that "immigration boosts Gross Domestic Product". This is seen by Immigration Enthusiasts as an argument in its favour. In reality, not only is the economic growth marginal at best, but we should stop using it as an indicator of the health of the economy, says Alistair McConnachie, who has a degree in Agricultural Economics.
For years, the government has tried to push the idea that mass immigration is good for the economy. The idea is that it will improve "GDP", which means "Gross Domestic Product".
WHAT IS GROSS DOMESTIC PRODUCT?
It was adopted as the main measure of a country's economy at the Bretton Woods conference in 1944.
According to the International Monetary Fund (IMF):
Theoretically, GDP can be viewed in three different ways:
● The production [or output] approach sums the "value-added" at each stage of production, where value-added is defined as total sales less the value of intermediate inputs into the production process. For example, flour would be an intermediate input and bread the final product; or an architect's services would be an intermediate input and the building the final product.
● The expenditure approach adds up the value of purchases made by final users – for example, the consumption of food, televisions, and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners.
● The income approach sums the incomes generated by production – for example, the compensation employees receive and the operating surplus of companies (roughly sales less costs). (1)
Similarly, the UK's Office for National Statistics (ONS) tells us that:
There are three distinct ways of measuring GDP – output (the goods and services produced in the economy), expenditure (money invested by businesses and spending by households and government) and income (business profits, household income and government tax take). These should theoretically add up to exactly the same number. (2)
It continues:
The most often cited of these is output. That is because, in the short term, it is the measure of GDP that we have the best information about, thanks to our large monthly survey of UK businesses, and so is the basis for our initial estimates of GDP.
It says:
When we produce our first quarterly estimate of GDP, as well as having these initial output estimates, we also publish our first estimates of expenditure and income. However, because the initial estimates of output are of a higher quality, we align (or balance) our estimates of expenditure and income to the output growth rate. We only balance to output in the most recent two quarters, though. For recent quarters older than the most recent two, we create a simple average of what our output, expenditure and income estimates are showing to create the headline quarterly GDP figure.
However, the GDP figure is not an accurate reflection of the living standards per person. It does not measure whether people are economically better off, or not!
It also includes output, expenditure and incomes which are related to negative events. For example, if an earthquake hit London, the rescue efforts and re-building would increase the GDP!
That is why GDP per capita (which means "per person", sometimes stated as "per head") or better still, Income per capita, are far better indicators of our living standards.
Nevertheless, the government uses GDP as the main measure for the "growth" of the economy, and often argues that more immigration will somehow boost the "GDP growth" figure, year on year.
The idea is that more people in the country will mean that there will be more output; more expenditure; and more income generated.
However, while some politicians and economists assume a growing GDP will be an inevitable consequence of immigration, the figures suggest that even this assumption is largely bogus!
For example, UK GDP for 2023 is estimated to have increased by a tiny 0.3% according to the ONS here (see 3rd para under 'Main Points'). ("GDP growth" is a measure of the difference between GDP in one year, compared to a previous year, expressed as a percentage.)
The assumption is also incorrect as far as the more meaningful GDP per capita figure is concerned.
Indeed, mass immigration is leading to living standards growing at "the slowest rate in decades", as we will see below.
"VERY SMALL" IMPACT of IMMIGRATION on ECONOMIC GROWTH LEVELS
Prof Alan Manning, of the London School of Economics (LSE), writing in 2022, states:
But on the relationship between immigration and growth I think much comment is deeply confused. The root of the confusion is what we mean by "growth". Growth might mean an increase in gross domestic product (GDP), the total amount of goods and services produced in the economy. Because immigration means more people and more people means a bigger economy, immigration almost certainly increases growth in this sense. But we normally think of growth as being desirable because it represents an improvement in the material standard of living in the country. Then, GDP per capita (per person) is a much better measure of growth and the relationship between immigration and growth more complicated as immigration raises GDP but also the capita bit of the formula. (3)
The formula is: GDP per capita = GDP/population.
He continues:
Before the pandemic disrupted the economy, UK GDP per capita was about £33,700. An extra immigrant will raise GDP per capita if their contribution is above this figure, reduce it if its below.
However, he also points out:
One contribution of immigration to GDP is the earnings of the migrants themselves. But their work also generates profits; labour income [the amount someone earns] is about 60% of total income, meaning that 60p in earnings generates £1 in GDP on average. If a migrant's earnings generate the same profit per pound as the average, this would mean that any single migrant earning above £20k would raise GDP per capita. The lowest visa salary thresholds are currently slightly above this level.
He's saying that if you earn just over £20,000, you generate just over £33,000 in the wider economy for the GDP figure which is around what would be needed to keep the GDP per capita figure stable, or slightly increasing, at an assumed £33,700.
FURTHER IMPACT of DEPENDENTS, SETTLEMENT RULES and LOW-INCOME RECRUITMENT
He goes on:
But if the migrant has a non-working partner and child, they would have to earn over £60k to raise UK GDP per capita. Rules on rights to bring dependents, rarely discussed, make a big difference for the impact of immigration on GDP per capita.
Furthermore, the long-term effects are not properly factored into the equation. As he states:
The effects of migration on GDP per capita may be more positive in the short run than in the long run. Initially, the migrants are on work permits, they have to work. But if they settle, some will end up out of work (just like everyone else) and will eventually retire. So settlement rules, again rarely discussed, matter for the impact of immigration on growth.
This angle is not properly addressed because successive governments are far too focused on the short-term figures which they can flag up at Budget time, in order to give the impression that everything is somehow OK. The long-term consequences of their actions are kicked down the road for future governments to deal with!
Prof Manning ends by referring to the conclusion of a January 2020 report from the Migratory Advisory Committee – an independent, non-statutory public body that advises the government – which he chaired:
But the bottom line was that the impact of a well-chosen immigration policy on growth was very small unless one focused on total GDP, which is the wrong measure. For high-skilled immigrants, it is likely that GDP per capita is raised but for lower-skilled immigrants it is much more debatable. And a lot of the current discussion is about reducing restrictions on immigration to address labour shortages in sectors like agriculture and hospitality, where productivity and salaries are low.
STOP USING GDP as the MAIN MEASURE of a "HEALTHY" ECONOMY
We've said before that GDP as a measurement of the health of the economy needs to go! (4)
This is especially so as far as immigration is concerned.
It is far better to concentrate on GDP per capita instead of merely "GDP" – and ideally Income per capita.
These are far better measures because we can see them acting out in our own lives. They tell us if things are getting better or worse for the average person.
Politicians and economists might prefer to cite the overall GDP figure, but despite massive levels of gross immigration into the UK, even that is stagnant.
In addition, the GDP per capita growth in the UK is now "lower than in any previous decade since at least the 1970s".
For example, Eir Nolsøe's article "Slowest rise in living standards in 50 years", had a sub-title in the print edition which said: "Real GDP per head up just 0.3pc a year this decade as surge in migration weighs on the economy."
It stated:
New figures from the Office for National Statistics (ONS) show that real GDP per head, which is often described as a measure of average living standards, is growing at the slowest rate in decades.
It has increased by only 0.3pc a year on average so far in the 2020s. This is much lower than in any previous decade since at least the 1970s.
GDP per head has slowed as the population has grown faster than the economy. Net migration added 1.5m to the population across 2022 and 2023. The economy grew by 4.3pc in 2022 as the UK bounced back from the pandemic but growth slowed to just 0.3pc last year. (5)
The online version has a slightly different title and subtitle. See the full article in the Appendix below.
To conclude: When we consider the health of the economy, we should concentrate on the GDP per capita figure, and especially the Income per capita figures. In any case, both the GDP figure, and the GDP per capita figures indicate that the economic arguments for mass immigration are bogus.
The above is from the ONS report referenced in the article below, and can be found here.
APPENDIX - ARTICLE from DAILY TELEGRAPH
Living standards improve at slowest rate in 50 years as immigration soars
Real GDP per head rises just 0.3pc as population grows faster than economy
Eir Nolsøe. Senior Economics Reporter
The Daily Telegraph in print 19 October 2024, online 18 October 2024.
Households' living standards are improving at the slowest rate in more than 50 years, as soaring immigration fuels population growth and the economy stalls.
New figures from the Office for National Statistics (ONS) show that real GDP per head, which is often described as a measure of average living standards, is growing at the slowest rate in decades.
It has increased by only 0.3pc a year on average so far in the 2020s. This is much lower than in any previous decade since at least the 1970s.
GDP per head has slowed as the population has grown faster than the economy. Net migration added 1.5m to the population across 2022 and 2023. The economy grew by 4.3pc in 2022 as the UK bounced back from the pandemic but growth slowed to just 0.3pc last year.
The economy has not kept pace as a result of a worklessness crisis and persistent problems with productivity. The number of people out of work from sickness has surged to a near-record high of 2.8m, fuelling fears of a spiralling benefit bill.
The ONS said: "Long-term sickness, ageing of the resident population and net migration for reasons other than work each may have been factors that contributed to a higher population outside of the labour force."
Even as living standards have, on average, increased in the 2020s, GDP per head remained below pre-pandemic levels at the end of June following an in-year slump.
GDP per head suffered a dramatic drop during Covid before recovering only weakly, leaving it vulnerable to falling below pre-pandemic levels.
The ONS's findings suggest economic growth is being fuelled by more people arriving, not because of improvements in productivity. It means there is little more to go around on a per-household basis than before the pandemic.
The findings come as immigration once again becomes a top concern for voters, with 45pc of Britons saying it is among the most important issues facing the country.
Sentiment is now on a par with just after the EU referendum in 2016 and means immigration is the second-most cited concern after the economy.
Worries about immigration had been in decline since Brexit and only started rising consistently again from autumn 2022.
The war in Ukraine and Hong Kongers fleeing tightening security laws resulted in around 210,000 people arriving on humanitarian visas in the past two years.
The surge in immigration has come as women in Britain have fewer children than at any point since the 1970s. Migration has become the main source of population growth as a result.
Migrants appear to have higher employment rates than the population as a whole, the ONS said.
It added: "Continued improvement in employment prospects for non-EU born residents in the UK may further contribute to increasing real GDP per head."
<end of article)
REFERENCES
1. Tim Callen, "Gross Domestic Product: An Economy's All" IMF, undated.
2. Craig McLaren, "What is GDP and how do we measure it?" ONS, 12 December 2022.
3. Prof Alan Manning, "The link between growth and immigration: unpicking the confusion" LSE, 3 October 2022.
4. Alistair McConnachie, "Territorial Sovereignty: Lock the Doors, Guard the Gates, Secure the Border" 27 May 2024.
5. Eir Nolsøe, "Slowest rise in living standards in 50 years" Daily Telegraph, 19 October 2024, p31.
Also see:
Karl Williams, "Britain will pay for the costs of low-skilled migration for generations" Daily Telegraph, online 14 September 2024.
Matthew Lynn, "The consensus that mass migration makes us richer has been shattered" Daily Telegraph, online 16 September 2024.
For more articles on this subject see our Territorial Sovereignty: Article Index
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