Migration, labour market outcomes, inflation and growth perspectives

Although overall impact of immigration on native labour market outcomes, inflation and growth is not clear, labour migration can lower regional disparities in Europe. Immigration lowers wage demands as workers become aware of substituting them with foreign labour force become easier every year. Labour supply increase in flexible market lowers inflation pressure as the fear of unemployment tends to have downward impact on wages. Interestingly, the fear of unemployment in Ireland and UK has risen as the number of East Europeans has increased since 2002, even though there has been no change in unemployment. Consistent with the rise in fear, average earnings growth has fallen since 2003. Sweden has been concerned about skill shortage. So after opening borders, although the scale of the flows has been relatively small, actual unemployment and fear of unemployment declined as migrants solved some of the bottlenecks in economy. Additionally foreign workers are mostly from countries, which suffer high unemployment rate.

Immigrant workers in an economy would raise the supply potential of the economy. Surveys suggest that workers from East-Europe are highly productive. Highly productive workers could temporarily raise the domestic rate of productivity growth and lower natural rate of unemployment by filling skill gaps and tempering wage demands. As immigrants spend lower fraction of their income than natives, because migrants send remittances back home and spend less money on durable goods, so migration could lower inflation pressure by rising potential supply more than demand. This argument is based on three assumptions. Firstly, consumption behaviour is affected by fear of unemployment resulting from a more flexible labour market. Secondly, as firms are able to substitute capital and labour, they can offset some of investments. Thirdly, migration remittances lower purchasing power in host country, but increase it in country, which is receiving remittances. (Blanchflower, Shadford, 2007)

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2 thoughts on “Migration, labour market outcomes, inflation and growth perspectives

  1. I agree that these rather positive effects emerge with the migration of skilled labour. But the people are most afraid of the low-skilled immigrants who would most probably be a burden for their countries welfare system, even if there are very few of that kind of migrants.
    The problem could be, that the word “(im)migrant” has a negative tone and it’s very difficult to change that, because the media usually covers negative cases concerning immigrants.

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  2. Yes, that true that always on TV in news we can hear more bad things about this immigration than positive things. For example, here in Spain, lot of people do not like “black people” – because the first thoughts, that they are here just to work, that they are illegal immigrants, they are bad and they are thief’s and other things. In my country we do not have this kind of problem of immigration, we just have immigrations from Work war I and II from Russia, but this is part of history.

    Ethnic Latvians constitute about 58 % of the population. Russians, who live mostly in Latvia’s urban areas (Riga, Daugavpils, Jūrmala), are the largest minority, representing about 30 % of the population. Before 1940, when the Soviet Union annexed Latvia, Latvians comprised about 77 % of the population within Latvia’s present-day boundaries. After World War II ended in 1945, a large influx of Russian workers into Latvian cities reduced the Latvians’ overwhelming majority. The Latvian population also decreased significantly during the war and the subsequent Soviet-conducted mass deportations to Siberia and other parts of the USSR.

    We are the country that emigrate to other countries.

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