The benefits and costs of immigration in Ireland

 

Why the tech sector and immigration need each other (linkedin.com)

Many speak of the burden, cost and disruption of immigration.  Immigration impacts on public spending and ‘crowds out’ accommodation, healthcare access and jobs for others, so it is claimed.  It is part of the ‘Ireland is full’ narrative and basically sees immigration – especially ‘too much’ of it – as an economic, social and even cultural problem.   

As well as economic fears there is a deep-seated fear associated with some vague sense of deep belonging, identity and national self-worth. It is claimed that ‘they’ are not like us by virtue of cultural norms, colour, behaviour or religion (if applicable).  The race, nationality and faith issues will be addressed in the 10^th blog in this series to be published in mid-May.  Here, I am dealing with the economic issues of claimed costs and unexplored benefits. In doing so I acknowledge that there is a close interaction between ‘non-economic’ and economic effects of immigration.  Hence, this blog is limited to what is deemed to be ‘economic’ and of direct monetary consequence.

Migration entails costs as well as benefits. Countries and regions losing people through migration lose on skills and valuable human resources.  Countries receiving migrants gain economically, culturally and spiritually. At the same time, immigration may entail extra costs at least in the short-run where, for example, some asylum seekers or some refugees require support and services and are not in a position to work.  That said, many immigrants also make important contributions in caring for others in ways that are not counted in statistics on employment and contribution to GDP (a perennial problem in so far as labour force and national accounts typically ignore the economic value of caring). 

It is not possible to assess all of the costs and benefits. However, economic research points to the benefits of migration in terms of raising economic growth and promoting innovation and cross-fertilisation of ideas and knowledge. I start with the evidence on micro-level impacts.

Immigrants are relatively over-represented in some sectors such as hospitality, healthcare as well as construction while they are under-represented in education and public service.  Figure 22 shows the latest data from the Central Statistics Office (CSO) in relation to employment by sector.  Slide your mouse over the chart to see data values.  The sector with the highest proportion of non-Irish citizens is Information and Communication with other nationalities accounting for over 38 percent of the total. The lowest proportion is found in Agriculture, Forestry and Fisheries at under 4%.  Almost one in five workers are non-Irish nationals (19.5%).  It is likely that close to 25% of the workforce is composed of either non-Irish citizens or new Irish who  acquired Irish nationality in recent decades.  The immigrant population is very unevenly spread across economic sectors.

The Irish workforce is clearly multi-cultural and many immigrants are working in high-productivity and high-earning occupations while others are working in low-productivity and low-earning occupations.  Immigrants working in the health and education sectors are likely to be paid much more than those working in accommodation and retail.

The composition of the workforce by educational attainment may be gauged by the proportion of persons aged 25-64 with a higher education qualification.  This age-group serves as a rough proxy for the workforce.  In the third quarter of 2023, just over half (51%) of all Irish nationals in this age-group had completed higher education while the corresponding figure for non-Irish nationals was 63%. These figures suggest that the quality of ‘human capital’ (as measured narrowly by educational attainment) is relatively high among immigrants in Ireland.

Higher education students account for a large sub-group of immigrant flows from outside the EU/EEA.  Degree or foreign language students on what is called ‘Stamp 2’ permissions can work up to 20 hours per week during the academic year and up to 40 hours per week at other times. In practice, many work than these prescribed limits.

On a crude measure of average (median) weekly earnings it is clear that some migrant groups are relatively high earners.  Figure 23 shows that Indian workers earn, on average, significantly more than other nationality groups. Yet, there is considerable variation within all nationality groups.

 

Some idea of relative ‘human capital’ is shown in Figure 24.  EU Member States are ranked by the gap in educational attainment between foreign nationals and ‘native’ population.  For the EU27 as a whole, educational attainment is lower for immigrants aged 15-64 than for the population of reporting country nationality.  The reverse is the case for Ireland where foreign nationals have relatively much higher education than Irish nationals.  In fact, the educational attainment of foreign nationals, in Ireland, was higher in absolute terms than for foreign nationals in any other EU Member State.

Human capital theory would strongly suggest that well-educated populations are more economically productive on average.  But, what about the match between educational attainment and skills employed?  Figure 25 shows estimated ‘over-qualification’ in Ireland compared to elsewhere.  Over-qualification is measured by the extent to which highly educated persons are working in low-skill occupations.  Two findings stand out here: immigrant workers in Ireland are relatively less over-qualified than immigrant workers in other EU States, and secondly, immigrant workers in Ireland are not as over qualified relative to Irish workers as is the case elsewhere. Another way of interpreting this is to say that Ireland makes better use of its foreign human capital than other EU States. 

 

In summary, based on the data so far considered, non-Irish nationals are more highly educated, earn less on average and in all likelihood produce relatively more and therefore pay more in income and consumption taxes than the Irish population. Not only that, but they are more educated than foreign nationals in other EU Member States. Ireland seems to be in a win-win situation with regards to the size and composition of its migrant workforce and population. Given the impending demographic crisis facing Europe, Ireland is uniquely positioned to take advantage of a relatively young native population as well as a relatively higher proportion of well-educated immigrants. You could hardly ask for better than this!

However, an important caveat is in order here. The research literature establishes that immigrants internationally are, typically, at a loss in terms of labour market opportunities and income. The Economic and Social Research Institute has reported on data for Ireland (Wages and Working Conditions of Non-Irish Nationals Working in Ireland, 2023). Using matched administrative data for 2011-2018 (more recent data have not been used for similar research), the authors show that migrants worked in lower-quality jobs and were lower paid than Irish workers (even when statistically controlling for age, education and other  factors). However, big differences exist across different migrant groups with many Eastern European, African and Central and South American migrants showing much lower employment conditions than those from Asia, West-EU, North America and Australasia. The gap is even more pronounced for women coming from Eastern Europe, Africa and Central and South America.  Workers from Eastern Europe earn, on average, around 20% less than Irish workers even when education, size of firm and type of job are taken into account.

Macro-economic impacts

The macro-economic impact of inward migration on GDP and productivity growth is hard to measure.  Analysis of impacts depend on context, time period and a host of enabling institutional and cultural factors. Ireland is no exception.  We may infer from the micro-economic evidence that higher levels of human capital played a not insignificant role in stimulating growth especially in the 1997-2007 period as well as in the more recent post-recession recovery. However, economic growth also acts as magnet for migrants in way that is difficult to separate cause and effect. 

A review of the evidence by the Organisation for Economic Cooperation and Development in 2014 (Migration Policy Debates) concluded that immigration accounted for almost 70% of workforce growth in the EU in the early years of this century.  Migrants filled niches in both fast-growing and declining sectors of the economy.  The review found that migrants contribute significantly more in taxes and social contributions than they receive in benefits. It also viewed the impact of migration on economic growth and technological progress as positive.  How these findings relate to Ireland is an under-researched area.  No definitive conclusions can be made. However, it is highly likely that the growth in turbo-charged sectors such as IT and pharma was aided by the arrival of highly skilled migrants.

On the downside it is possible that the arrival of low-skilled migrants put downward pressure on wages in particular sectors and occupations. However, there is no clear evidence that this was the case especially as labour market conditions improved markedly after 2013. Andersson, Eirksson and Scocco (2019) in a review of refugee migrants in the EU15 between 1995 and 2017 found that

Our empirical findings suggest that refugee migration has a small but positive and statistically significant impact on the growth of low-wage occupations in the EU 15 as a whole. However, the effect is attributed to Southern Europe and the UK and Irish economies.

Immigration entails costs as well as benefits especially when arrivals are refugees facing significant barriers in regards to language skills, residence permits, accommodation and access to an over-stretched public service on many fronts.  International Protection seekers are not allowed to work in the first six months as their application is processed.  This taken along with the arrival of over 80,000 Beneficiaries of Temporary Protection who stayed up to now has placed considerable demands on scarce accommodation including that in the hospitality sector. This has had very significant implications for public expenditure in areas directly affected.  Receiving migrants as a result of war and other human catastrophes does entail an upfront cost at least in the short-run even though economic and other benefits ensue and these are not just confined to the labour market. Taking a longer-term and big picture view of things it may be argued that immigration helps European countries to address labour market shortages and population imbalances as a result of ageing.

A demographic note of caution

One final relevant point of interest is in order.  The native Irish demographics are pointing downwards with a continuing fall in births and a gradual increase in the proportion of foreign births in Ireland (reaching 26.5% in the third quarter of 2023).  Either long-term trends in Irish fertility rates are reversed or inward migration becomes the only policy option to sustain labour force and economic growth and public finance sustainability given our ageing population.  If some are concerned about being swamped by waves of immigration in the short to long-term then we need to look at how demography is going to impact our healthcare, pensions and community care areas.  Immigration looks not only inevitable but necessary to sustain economic growth and innovation as well as pay for public services for a changing population.