1. AS Macro Revision
Migration and the Economy
Spring 2014

2. We add new resources / links / articles every day
to our Economics blogs
Follow this link for the AS Macro Blog on Tutor2u
www.tutor2u.net/blog/index.php/economics/categories/C59

3. The Scale of UK and Global Labour Migration
In the year to June 2013 - 503,000 people immigrated to the UK
whilst , 320,000 emigrants left the UK. Net migration = 183,000
• Labour migration between countries has become an increasingly
important feature of a globalising world
• Migration has an impact on sending and receiving countries
• Over 200-million people are now estimated to live in countries in
which they were not born
• The global stock of international migrants grew by 38 per cent
from 1990 to 2010. However, international migrants constitute a
small fraction of the world population, just 3.1% in 2010
• Migration is overwhelmingly from less developed to more
developed countries and regions

4. Economic Benefits of Net Inward Migration
The benefits of net inward migration depend in part on the human
capital of migrant workers and how long they stay in a country
1.
2.
3.
4.
5.
6.
7.
Migrants provide fresh skills and higher labour productivity
An increase in the size of the active labour supply –
boosting potential output
A driver of innovation and entrepreneurship
Positive multiplier effects if migrants find paid work
Reducing skilled-labour shortages in growing industries
Remittances sent home by migrants add to the gross
national income of home nations – creating potential for
rising exports
Tax revenues: Legal immigrants in work pay direct and
indirect taxes and are likely to be net contributors to the
government’s finances.

5. AD-AS Analysis & the Effects of Labour Migration
General
Price Level
LAS1
LAS2
AS1
AS2
AD1
AD2
GPL1
Y1
A rise in net
inward migration
will bring about an
increase in the size
of the active
labour supply and
also an increase in
aggregate
demand. There
might also be
positive effects on
long run aggregate
supply (LAS)
Yp1
Y2 Yp2
Real GDP

6. Risks / Costs from Net Inward Migration
Several pressure groups / parties campaign for tighter restrictions
on migration – remember to keep to economic arguments!
1.
Welfare costs: Increasing cost of providing public services
2.
Possible displacement of domestic workers
3.
Social tensions arising from the problems of integrating
thousands of extra workers into local areas and regions.
4.
Rising demand for housing which forces up property prices
and housing rents for many groups in the population
5.
Poverty risk: Migration may have the effect of worsening
the level of relative poverty in a society. And many migrant
workers have complained of exploitation by businesses that
have monopsony power in a local labour market.

7. Evaluating the Economic Effects of Labour Migration
The effects of migration are hard to quantify. Much depends on
1.
The types of people and their skills who choose to
migrate from one country to another i.e. The quality of
migrants may be more significant than the quantity
2.
The ease with which migrant workers settle into a new
country and whether they find regular jobs
3.
Whether a rise in labour migration stimulates capital
spending by firms and by government
4.
The dynamic effects of migration e.g. Gains in
innovation and research from migrant entrepreneurs,
scientists and other groups
5.
Whether migrants decide to stay in the longer term or
whether they regard it as temporary (e.g. to gain
qualifications, learn some English)

8. Longer Term Dynamic Effects of Migration
Waves of inward migration can have structural effects on a
country’s macroeconomic performance
Increase in the
labour supply
which might cause
lower unit labour
costs for host
country
• Increase in
population size
• Rising demand
for public services
• If housing stock
is fixed, can lead
to higher prices
and rising rents
Labour Market
Consumption
Fiscal Effects
Competitiveness
Inward migration
increases pressure
on govt spending
but will also lead
to rising tax
revenues
• Human capital
helps generate
new ideas
• Many migrants
start businesses –
possible exporters
• Knowledge
spillovers

9. Get help on the AS
macroeconomics course
using twitter
#econ2
@tutor2u_econ
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