Hard Evidence: are migrants good for the economy?

By: Carlos Vargas Silva, Senior Researcher, Migration Observatory
(This blog was first published by The Conversation on 19 August 2014)

Two studies about the impact of migration on the UK economy have been published which – if media reports are to believed – appear to contradict one another. A closer reading of these reports, however, shows that in fact they come to very similar economic conclusions. Even so, from reading them it is possible to suggest very different approaches to migration policy.

One study by Professor Robert Rowthorn led to headlines such as: “Further proof of damage created by immigration” and: “How mass migration hurts us all”.

The second study is a paper published by Lisenkova and others in the latest issue of the National Institute Economic Review which led to headlines such as: “Reducing immigration would slow UK economy and lead to tax rises” and: “Cameron’s migration cap would leave Brits poorer and taxes higher

So clearly the two reports have created space for some news outlets to pick their own truth. But what should we make of these different studies – and what do they contribute to our understanding of the impacts of migration on the economy?

Long-term impact on GDP

Both studies look at different annual net migration scenarios in the future to provide a picture of the long-term impact of migration on GDP and GDP per capita. The future level of net migration (that is, the difference between immigration and emigration) determines the size and age structure of the UK population.

As shown in Figure 1, if all other things remain equal, a higher level of net migration is expected to lead to a larger UK population (see complete explanation here).

Figure 1.

Figure 1.

But migrants also tend to be younger than the overall UK population and net migration is also likely to decrease the “dependency ratio” – an assessment of the number of people of working age compared to the number of people of retirement age. For instance, Rowthorn suggests that the dependency ratio will be 3.5 percentage points lower with annual net migration of 225,000 compared to an annual net migration of just 50,000 (Rowthorn defines the dependency ratio as the number of people 65 years of age and above per 100 persons aged 15-64). Figure 2 presents the 15-64 years old population of the UK under different assumptions about net migration.

Figure 2.

Figure 2.

Rowthorn suggests that, given a set of assumptions about employment rates and labour productivity: “GDP per capita is 3% higher in 2087 with high migration than with very low migration”.

The paper by Lisenkova and others looks at two scenarios: net migration of 200,000 and a lower migration scenario, which assumes that net migration is reduced by around 50% – close to David Cameron’s migration target of less than 100,000. They find that by 2060 GDP per capita would be 2.7% lower under the lower migration scenario.

Given the impact of net migration on the size and age structure of the UK population it comes as no surprise that both studies conclude that higher net migration will be associated with a higher level of GDP and GDP per capita.

Long-term fiscal impacts

The two studies also look at the long-term potential “fiscal implication” – the impact on UK government finances – of migration to the UK. Rowthorn also looks at the short-term fiscal impact of migration. Rowthorn scrutinises previous analysis from the Office for Budget Responsibility which suggests that lower levels of net migration will lead to higher public sector net debt to GDP (see Figure 3). While Rowthorn does not contest the validity of the OBR estimates, he underlines the high levels of uncertainty related to these estimates.

Figure 3.

Figure 3.

The paper by Lisenkova and others suggest that under the lower migration scenario to “keep the government budget balanced, the effective labour income tax rate has to be increased by 2.2 percentage points”. Again, this refers to estimates for 2060.

Both studies come to similar conclusions – that lower levels of net migration will impose greater pressure on national debt over GDP. This effect is just the result of faster ageing of the population with lower levels of net migration, and corresponds with standard economic thinking.

Why the different implications? There is agreement on the general economic effects of higher net migration in both studies: that conclusion is that higher levels of net migration lead to higher GDP per capita and lower net debt as a share of GDP. Where there is disagreement is about the need or desirability of higher net migration.

Social impacts

The Lisenkova makes a straightforward economic argument from this about the benefits of migration in maintaining an age structure which supports economic growth. They do not venture into providing policy prescriptions and accept that their analysis does “not take into account the potential social impacts of higher migration”.

Rowthorn, however, emphasises that it may be preferable to have lower levels of migration even at the expense of faster ageing. He suggests that the levels of migration required to increased GDP per capita or lower future public debt are so high that their social impacts may outweigh the positive economic benefits. He points to potential problems such as overcrowding of public facilities (including schools, hospitals, roads), limited supply of housing and strain on natural resources (for example water) as additional reasons for preferring lower levels of migration.

This goes back to the essence of the migration debate in the UK. Economic estimates are important, but limited in that they cannot resolve important judgements about the type of society people want. These preferences over the “sort of place we want to live in” can drive people’s views and choices on migration just as much as the “pure” economic factors.

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Sticking plaster solutions? City-level responses to destitute migrant families

By: Jonathan Price, Research Officer

Laws and policies framing the entitlements of migrants to welfare benefits lie at the intersection of two of Europe’s most contentious contemporary public debates: immigration and welfare. These often tense and emotive debates are the subject of a forthcoming study soon to be published by COMPAS, and funded by the Open Society Foundations. Focusing on two European cities – Berlin and Madrid – we examine how laws and policies in these two cities frame entitlements and exclusions to welfare benefits for migrant children and their families; how these families access or are unable to access services to which by law they are entitled; the implications when they are not entitled or able to access those services, and the ways in which the state and NGOs have responded to any problems these exclusions create.

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The course of true love never did run smooth

By: Melanie Griffiths, Research Associate, University of Bristol and COMPAS alumni

Migration scholars have traditionally neglected the intimate and family realms, an omission that has been blamed on an enduring assumption that (initial) migrants are single men, moving for labour purposes. The perception is increasingly being challenged, including by researchers at COMPAS and the University of Bristol, who are currently conducting an important joint project on interethnic marriage migration and integration.

Such research demonstrates that mobility does not exist outside of the world of human relationships. People who move have family ties in their countries of origin, and will go on to make new ties. As the work on transnationalism contends, our intimate lives are increasingly likely to span multiple countries and cross formal borders.

This is not, however, a new phenomenon. Indeed, the policing of cross-border love has long been employed in defining the nation. Historically, political concern over Britons marrying non-citizens has tended to be biased on grounds of gender, ethnicity and class. Overt discrimination has largely been erased from the legislation, but bureaucratic hurdles against mixed immigration status relationships still exist and these continue to disproportionately affect certain people over others.

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Saving the Lifeline: Studying the Somali diaspora involvement in the 2013-14 campaign

By: Giulia Liberatore, Research Officer

For most Muslims around the globe, Ramadan is a quiet time of the year, dedicated to introspection and prayer. It is a period where the pace of life slows down and tranquillity reigns. But in 2013, this was not the experience of many Somalis in the UK, as they engaged in an unexpected wave of political mobilisation—one that I have been researching over the last couple of months, as part of a larger project onDiaspora Engagement in War-Torn Societies.’

pound coinsThe trigger for these events came on the 8th May 2013, when Barclays Bank announced that it planned to shut down the accounts of 250 money transfer operators (MTOs), amongst which were four Somali MTOs operating in the UK, including Dahabshiil, the largest in the Somali remittance market and a major player in the formal economy of the Somali regions. [1]

The decision didn’t come as a surprise to many. Over the last few years, and particularly following the financial crisis, mounting pressure from many Western regulators (particularly in the US and the UK) has led to tighter regulation around the prevention of money laundering and the financing of terrorist activities. For example, in the UK, HSBC was fined $1.9 billion in 2012 due to money laundering offences and lack of controls, and as a result closed down its MTO accounts. In this climate, banks such as Barclays, who provide accounts for MTOs, were inevitably going to weigh the perceived risks and due diligence costs with the profitability of banking MTOs (Lindley and Mosley 2014: 4-5). But the impending account closures were particularly worrying for the Somali diaspora and others, given the lack of an established banking system and the absence of viable alternatives.

A Somali uprising
The seeds of dissent were planted soon after the announcement by a small group of individuals with close ties to some of the MTOs, who immediately appreciated the consequences of the Bank’s decision. Gradually, Facebook and Twitter feeds were sprinkled with this concern and momentum gathered quickly. A key moment was the signing of a letter  by over 100 academics and NGOs pressuring the government to find a durable solution to the issue; this prompted the first wave of public and media attention and encouraged the mobilisation of Somali groups and individuals. Throughout the long and hot days of Ramadan, young volunteers collected signatures in mosques, shopping centres and Somali restaurants in support of the petition ‘Save Remittance Giving’, which was organised by a host of east London Somali groups in collaboration with Labour MP for Bethnal Green and Bow, Rushanara Ali. Awareness of the issue was also raised online through a change.org petition which was set up by campaigner and director of a Somali educational consultancy organisation, Farhan Hassan. The latter spread rapidly, reaching many social network-savvy youngsters who found further channels of distribution. When Olympic athlete Mo Farah endorsed the campaign a further spike in signatures ensued; the two petitions quickly garnered over 100,000 signatures, culminating in a first parliamentary debate on the 17th July.

Youth engagement
Somali youth have often been portrayed as disengaged not only in UK politics, but also in matters affecting the homeland.[2] However, an interesting feature of the campaign was the substantial involvement of the one-and-half and second generation Somalis, and of a number of newly established diaspora youth groups.

Somali groups in the UK, set up predominantly by the first generation, have long been providing crucial support to those settled in the UK, as well as engaging with issues ‘back home’. Some of the more recent groups, however, have emerged following the July 2005 bombings and the growing threat of Al-Shabaab recruits, as the Home Office began to involve the diaspora in its various counter-terrorism and integration projects. Another catalyst for their growth was the Foreign and Commonwealth Office’s (FCO) efforts to engage with and consult the diaspora prior to the Somalia 2012 Conference. Indeed, one of the legacies of this consultation was the establishment, within the Somalia Unit, of the first and only ‘diaspora outreach role’ in the FCO.

Rubick's Cube with social media logosIt was many of these same groups that spearheaded the campaign against the Barclays’ decision, and the young campaigners involved were (and continue to be) adept in these activities. Speaking both English and Somali, they were able to engage individuals across the generational divide and, to this end, they exploited social networking technologies, as well kinship networks and word of mouth. This allowed them to mediate between different groups of Somalis as they sought to present a coherent and unified voice which transcended regional and clan divisions.

Moreover, having been raised predominantly in Europe, they were attuned to development and humanitarian discourses, and even well-placed to work collaboratively with international organisations. A good example of this was their partnership with Oxfam and Adeso in October 2013; in one of the most memorable stunts of the campaign, the campaigners mounted Barclays-sponsored ‘Boris’ bikes and cycled in protest into central London. Making their way through busy London traffic they delivered bags of fake money to the bank’s headquarters, in order to illustrate the difficulties they would face in sending money to their loved ones back home should the accounts be closed. Barclays were asked to ‘back-pedal and fast!’

But one of the key determinants of the success of the campaign was the ability of these groups to capitalise on their knowledge of the UK political system and the relationships which they had cultivated with various government departments. Local MPs were lobbied to support the cause, meetings with key figures in government were arranged, and even at meetings on unrelated matters, the issue of remittances was raised and forced onto the table. As one government employee in the Somalia Unit pointed out: Somalis know how to get what they want and they persevere until they get it! The signatures from the petitions were put to good effect, and these young diasporans established themselves as a force to be reckoned with. 

Framing the debate
In a post financial crisis climate, any campaign against a major bank was bound to gather some traction, but for tangible results, the campaigners knew they also needed to get the government involved. Initially, however, the government dismissed the issue as a commercial decision, over which they had no say, and stated in its ‘Factsheet on Somali Remittances’ in October 2013 that Somalis had alternative avenues to remit money back home. This was vehemently disputed by the campaigners.

First, the campaigners highlighted the uniqueness of the Somali corridor, pointing to the aforementioned lack of a central banking system, the lack of viable alternatives, and the cost efficiencies of the current system.

Second, they pointed to the profound humanitarian consequences of any closure of this corridor.  The annual remittance flows of $1.2 billion was said to be a ‘lifeline’ for the country, constituting more than international aid, foreign investment and exports put together (Hammond et al 2013: 1). Once the campaigners placed this in context, their logic was impossible to ignore. After all, the government had hosted two conferences on Somalia in 2012-13, presenting the country as one of its top foreign policy priorities. It had also recognised the crucial role played by remittances, which had been particularly highlighted during the famine in 2011. By the time of the parliamentary debate in July 2013, these were well-trodden lines of argumentation.

Eventually, the government changed tack.  In October 2013, with pressure mounting, it committed to setting up an Action Group on Cross Border Remittances composed of three working groups. One of these is developing a ‘Safer Corridors to Somalia Pilot Project’, and is coordinated by the Department For International Development (DFID) with the support of the National Crime Agency, and in consultation with an advisory group and a technical implementation team. The influential role of the diaspora groups in this period can be discerned from the fact that three diaspora representatives, as well as the coordinator of the Somali Money Services Association (SOMSA), were selected by the government to form part of the advisory group[3], which meets on a bi-weekly basis.

Searching for a Solution
Despite the government’s commitment, Barclays has not revoked its decision and the Somali MTOs are yet to find alternative banking options. Dahabshiil, which sought and won an interim injunction against Barclays Bank continues to operate as usual for the time being.

Whilst popular attention given to the issue has since declined, Ramadan 2014 has again proved to be a relatively stressful period for many campaigners as they await further developments. The plan for the Safer Corridor project is due to be presented and implemented in the coming months, and the diaspora representatives have been developing a community engagement strategy to facilitate communication around the Pilot.  But adding to the stress is the on-going fear that Dahabshiil’s account will be closed before a durable solution is found.

While my work thus far has been primarily with the campaigners in London, next month I will be travelling to Hargeysa, Somaliland, to research the transnational impact of the diaspora’s involvement in the campaign. I will be investigating what the various stakeholders are doing to find a solution to the issue, and, most importantly, I will be assessing the role of the diaspora in shaping a changing money transfer sector.

The project is led by Nicholas Van Hear and funded by the Leverhulme Trust as part of the Oxford Diasporas Programme. Based on primary research, it focuses on diaspora engagement in Sri Lanka, the Somali regions, and Afghanistan. The Somali component of the research focuses on the diaspora’s involvement in the campaign to maintain remittance flows, against the background of growing stability across the Somali regions since 2012. 

References

Lindley, A. and Mosley, J. 2014. Challenges for the Somali Money Transfer Sector. Nairobi, Kenya: Rift Valley Institute Briefing Paper.

Hammond, L. et al. 2011. Cash and Compassion: The Role of the Somali Diaspora in Relief, Development and Peace-Building. Report of a Study Commissioned by UNDP, Somalia, January 2011

Hammond, L. et al. 2013. Family Ties: Remittances and Livelihoods Support in Puntland and Somaliland. Food Security and Nutrition Analysis Unit – Somalia



[1] Others included Mustaqbal, Tawakal and Horyaal.

[2] See Hammond et al (2011) for a recent exception to this case.

[3] Other members of the Advisory Group include banks, regulators, NGOs, international partners and the UK and Somali governments. The technical implementation team is led by the World Bank.

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Colombia: A Wandering Country?

By: Isabel Ruiz, Official Fellow & Tutor in Economics at Harris Manchester College, and Carlos Vargas-Silva, Senior Researcher, Migration Observatory

We just attended a presentation of the documentary Pais Errante (which roughly translates in English to a Wandering or Nomadic Country) which was presented at the 15th International Association for the Study of Forced Migration (IASFM) Conference that took place in Bogotá, Colombia. Pais Errante tells four stories of forced displacement in Colombia (in Spanish, English subtitles coming soon). Colombia has over 5 million internally displaced people, leading the world in this category. This large internal displacement is the result of a complex and multifaceted-armed conflict that has lasted for over 50 years.

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