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British History: Did Immigration Benefit The British Economy Since 1945?

By Edited Dec 29, 2014 1 0
Uk immgrants
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Was immigration beneficial to the UK economy?

In the period after World War II, the UK was facing a severe labour shortage. Following the demand for labour it was not long before migrants started flooding in, notably from Ireland, Poland and the Caribbean. Over the years, this immigration would substantially increase form just roughly 72,000 p.a in from 1946-1963 to an average of 200,000 in 1964-1982 before peaking at 300,000 from 1983 to the start of the new century. This elevation of the number of immigrants would ultimately serve to correct the immediate economic threat. Conversely, the increase in immigration was paired with similar increases in emigration, resulting in net population decreases until after 1982. Yet, despite the obvious need to replace the emigrating population with immigrants, many of the UK population remained hostile to the increasing number of migrants. So one of the biggest problems that must be addressed is just to what extent were these migrants beneficial to the British economy.

There are several major benefits enjoyed by the UK from the increasing number of migrants, first of all being the substantial increase in international competition that was achievable only through the use of migrant workers. For instance, being largely uneducated, migrants were willing to undertake jobs that usually required little skill to perform for low wages. This is beneficial to UK firms as the cost of hiring British citizens would be substantially higher given that these jobs weren’t much demanded. Additionally, migrants proved to be an extraordinary source of flexible labour. Evidenced by the increasing usage of “gastarbeiter” or temporary workers during the 1950s golden age when productivity was booming, it became evident that having a ready supply of cheap labour was imperative sustaining an industrial boom to achieve higher output. Thus it must be noted that immigrants played a very important role in achieving in industrial success. Showing great benefit to UK firms that were now able to operate at cheaper costs, they would serve to increase returns on capital investment and increase international competitiveness.

Furthermore evidence displays that immigrants played a largely positive role in societal economic development. There are numerous positive implications resulting from the fact that many immigrants return to their original country after retirement. With the destination country not having to bear costs of the training and upbringing of its workers, paired with the country also not having to pay welfare costs in their retirement, it becomes obvious why having many migrants can be potentially very valuable. This is especially true in productive economies with low unemployment (such as the UK in the golden age) as the taxes paid by these migrants far surpass the benefits they receive on aggregate. In fact, recent studies carried out by Dustmann and Frattini suggests that from 1995 to 2011, the migrants from the European economic area contributed 4% more than what they received in benefits. For this reason it is implied that immigrants may be more productive to the UK than its citizens who are estimated to only pay 93% of the benefits they receive.

Moreover, the fact that many immigrants return to their original country upon retirement would greatly boost the welfare system in the UK. With the working population growing at a slower rate than the dependant population after the 1930s, there was no question that a bigger working population was needed to provide retirees with pensions.  Foreign workers proved to be an ideal replacement to the declining number of children that UK households had as they were able to contribute taxes while working while not as significantly contribute to the ageing population seeing as many choose to retire in their home countries. Because of this, labour migration may essentially be one of the few solutions that would enable the UK to sustain its levels of pension and welfare. However it must also be noted that this is dependent on immigrants returning to their original country after retirement and may serve to backfire should they choose to stay. In this scenario migrants can prove to be a disbenefit to the UK as having few kids would add to the pressures faced by an ageing population. Conversely, having more children would also prove problematic as large families tend to siphon more from the welfare system.

Additionally, many of these migrants lack substantial education. Studies in 2002 report that over 50% of migrants have no qualifications with just 20% being highly qualified.  Implications of this would arise from the fact that increasing levels of immigration correlate to an increasingly unskilled workforce with numerous consequences. One of which would be the fact that reorganisation of industry would be rendered more difficult. Deindustrialization into a more modern industry specializing in the service sector would prove difficult seeing as professional training is required to find jobs in the service sector. Instead, immigration may serve to push the economy away from the service sector and revert to sweatshop labour for a large portion of the foreign population. This would not only undermine the Rowthorn and Coutts argument for deindustrialization which centred around the benefits achievable by specializing and contracting out but would also negatively impact the power of trade unions to maintain labour standards. As such many of the UK working population will suffer from the poor bargaining position of the trade unions. While it may certainly not be bad for economic growth given that firms become more competitive as trade union power weakens (as they can work workers harder with less pay), it is not hard to see that public sentiment towards foreign immigrants would be worse off.

The negative sentiment towards immigrants was evident by findings in the 2002 European survey indicating concern among residents in receiving countries that immigration is detrimental to their wages. While the Dustmann report concludes that there is no significant evidence that ties adverse effects of immigration to employment or wages of existing workers, it can be argued that total societal welfare is diminished as a result of this poisonous mentality.

As such, it can be observed potential benefits of immigration far outweigh the costs. These potential benefits however are dependent on the inclination and likelihood of immigrants returning to their home countries after working in the UK. Overall however given the current circumstances, on aggregate immigration has played a positive role in the welfare of an ageing society. Immigrants greatly contribute to the pensions enjoyed by the dependants while serving to dampen the effects of an ageing population. Moreover, potential benefits of having competitive firms are reaped by the entire population in the form of higher GDP per capita outweigh the costs of temporarily having a less skilled population. Therefore it can be concluded that migrants have proven to be essential in aiding the British economy as their aggregate 

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