CONTENTS

ABSTRACT .......................................................................................................... 3 iNTRODUCTION.................................................................................................. 4

OVERVIEW .............................................................................................................................. 4 KEY ISSUES .............................................................................................................................. 6 BACKGROUND INFORMATION ............................................................................................... 7

TOPIC DESCRIPTION ........................................................................................... 9 LITERATURE REVIEW ........................................................................................ 11

THEORY ................................................................................................................................. 11
BASICS ........................................................................................................................................... 11 POTENTIAL AND ACTUAL OUTPUT THEORY .................................................................................. 13 ECONOMIC GROWTH AND PRODUCTION POSSIBILTIY FRONTIER ............................................... 20 INFLATION AND IMMIGRATION .................................................................................................... 22 UNEMPLOYMENT AND IMMIGRATION ......................................................................................... 24

IMPERICAL RESEARCH........................................................................................................... 27
IMPACT OF IMMIGRATION ON NATIVES....................................................................................... 27 GDP PER CAPITA ............................................................................................................................ 29 WAGES .......................................................................................................................................... 30 UNEMPLOYMENT .......................................................................................................................... 31

METHODOLOGY ............................................................................................... 32
RESEARCH PROBLEM ............................................................................................................ 32 HYPOTHESIS .......................................................................................................................... 33 RESEARCH QUESTIONS THE SOURCES OF DATA ........................................................................................................ 34
AVAILABLE SOURCES OF DATA...................................................................................................... 34

ANALYSIS AND FINDING ................................................................................... 40

IMMIGRATION AND THE UK ECONOMY ............................................................................... 40

DETAILED ANALYSIS OF THE CONTRIBUTION OF IMMIGRATION TO THE GDP .................... 41 ANALYSIS OF THE FINDINGS ................................................................................................. 42
1 Immigration is positively related to economic growth .............................................................. 42 2 Immigrants performs important tasks in UK ............................................................................. 43 3 Immigration helps senior citizens .............................................................................................. 44 4 Immigrants play important role in Health services.................................................................... 44 5 Immigrants will perform the job which British will not ............................................................. 44 6 Immigration increases national output...................................................................................... 45 7 Immigration and effect on prices ............................................................................................... 46 8 Immigration and interest rates .................................................................................................. 46 9 Immigration helps exports ......................................................................................................... 47 10 Immigration and their fiscal contribution to host country ...................................................... 47

CONCLUSION ................................................................................................... 49 REFERENCES..................................................................................................... 51

ABSTRACT

For the economy of United Kingdom, Immigrants have become very crucial and irreplaceable part of its development. It is very surprising to notice that the eighth part of the British work force is comprised of immigration. Where city of London being even more flooded with immigrants. Many firms and even many sections of government operated public sector uses the efficient workforce of immigrants. But it is said that the excessive immigration over net emigration results into the high growth in the population of the UK. It is also not viable to support the claim that the sole purpose of immigration is just to fill the job vacancies of certain skill shortage. No wonder that such claims are not based on sound analysis and may contain errors, but Immgrants surely contribute to the expansion of the UK economy. There are more concerns of increasing population in the country as well as the population density. Such trends are characterised as the economic consequences of the rising immigration in the country. It is also considered that immigration also has high impact on the housing demands of the country, but with supporting in depth analysis, it can be drawn that immigration is not the only factor that causes the housing crysis over the country. Based on the overall conclusion, it can be said that immigration not only fills up the labour shortage on the UKs labour market but also contribute to the economic growth. Even though the economic effects of immigration is not considerably big on the native population of the UK but it has positive implication over the long period of time. Besides immigration has highly supported the commerce and industry of the UK economy.

INTRODUCTION

OVERVIEW

The issues related to immigration have become the most important aspect of the United Kingdom economy. Significant to notice, 12% of total labour force of UK consists of immigrants. This proportion is quite higher in London city. While various arguments hold an opinion that the immigration (less emigration) doesnt provide any considerable benefit to current native population. The most of the leading authorities has favoured the immigration in various ways, which highly supports that immigration brings the benefit to the host country. The supporting evidence could be statement on the Londons mayors London plan which indicated London being the most culturally diverse city in the world. Furthermore there is few more citation in mayors plan about immigration. Londons diversity is one of its great historical social, economic and cultural strengths. New arrivals moving to London from overseas will contribute further to it. London is already a highly diverse city, one of the most multi-racial in the world. Nearly one-third of Londoners are from black and minority ethnic communitiesand) a significant growth in (these) is projected over the next 15 years. International in-and out-migration has been high and is projected to remain so (Spatial Development Strategy for Greater London, February 2008) It is not only the city of London which has gained the benefit from the immigration, A few words below from the Mayor of New Yorks immigration department. If New York City is the capital of the world, it's because of the energy and vision of generations of immigrants. Immigrants are 36% of New York's population and 43% of the labor force. They continue a long history of spurring growth, fuelling our economy, and building dynamic communities. David miller the mayor of the Toronto, Canada; It happens that Toronto's two largest groups of immigrants are from China and South Asia. That means we have a natural advantage in this shifting global economy. We already have the cultural and business links to make Toronto a hub of trade and business between North America and Asia Thus, Immigration can be seen as the proof that the implication of its presence brings the cultural diversity and economic growth in major cities those are called The capitals of the

world. The key objective of this report is to gathering relevant data to strengthen the support to the fact that immigration has positive impact on the UKs economic growth. Since the early beginning of the 21st century, The UK has depicted the constant economic growth and financial strength over other European countries as well as the other countries in the world. One of the important reasons of such a concrete economic expansion can be traced down to the increase in international immigration in the UK since early 21 st century. But the considerable issue is can the country still sustain the expansion brought by the immigration. The current emerging trends of population rise in city area and the population density bringing down the standard of living with high cost of living is totally worth the concern. It has been very important to study the various impacts of immigration on UK economy to ensure that are leading to economic growth. The government has repeatedly emphasized on GDP as a measure of economic impact of immigration in the UK. This turned out to be irrelevant and misleading criteria. The center point of the analysis should be effect in resident income per head due to immigration. Looking at the demographic effects of rapidly rising immigration is definitely raising the public concerns. There is a strong need of an analysis of effects of immigration on economy, culture and society. Ignoring the other effects, which are highly subject to the personal point of view, economic effects are highly rationale to analyze .A critical analysis is based on certain arguments Immigration brings enormous benefits to the economy in the UK as it stimulates the growth in economy. Immigration is the additional labour force needed to do the work that residents wont do. Fiscal benefits gained by the UK economy from immigration are significant.

The public view about immigration:

23% 37%

Agree Disagree Nuetral 40%

As seen from the above chart, there is 37% of population who believes that Immigration has good effect on economy and stimulates economic growth. 40% of people suggests that Immigration has negative effect on the UK economy and should be reduced. While 23% of people are those who are neutral stating that it is necessary to have immigrants but for doing the job which residents wont do. It is not either beneficial or harmful. Besides, there are certain issues that require the priority of action by government Build an effective database of the extensive data and statistics of immigration in the UK. To review the economic effects of immigration on the country supported with firm evidences and implementing the policy tools to remove the negative impact rather than restricting immigration at all. Better implementation of the statutory employment conditions and minimum wage rates.

KEY ISSUES

The key issue of this report is to monitor the contribution of immigrants to the growth of the UK economy. The attempts are also made in light of understanding the economic implication of immigration on the native population of the UK. As this debate has a wide scope and confused many often it is crucial to clarify the boundaries of the debate. The economic implications are strictly based on anything related to economic scope of the impact. It includes impact of immigration on economic growth and its indicator, native populations income, unemployment, national health services, public services, the housing issues. It does not consider any social or cultural impact of immigration on the country and so not included in the discussion of the issue. Thus, this discussion only focuses on the impact of immigration on the UK as overall and disregarding regional differences. (Still it may exhibit certain important points those are highlighted on basis of regional diversity.) The central theme over the discussion is focused on certain issues The data available on the background information of recent immigration The concrete evidences of relation between immigration and unemployment The impact of immigration on income and standard of living of native population The scale of job skill shortage needed to fill out with immigration The fiscal benefits of immigration to the government of the UK

The economic impact on housing sector and population density Judgment of arguments that suggests negative impact of immigration on the economy.

BACKGROUND INFORMATION

It is crucial to review the main characteristics of the target population on the basis of scale, scope and demography. The above data is extremely essential to understand the implications of immigration. It is significant to notice that the data available on the immigration trends in the UK is not enough. According to Karen Dunnell from the National Statistics there is now broad recognition that available estimates of migrant numbers are Inadequate to meet all the purposes for which they are now required. They are the weakest component in population estimates and projections in the United Kingdom, both nationally and at local level (p 35). The Statistics Commission, which monitors official figures, described the available statistical information on immigration as weak (p 505).

Another major reason of data being inadequate is the illegal immigration. Just like the most of the other countries, there is very little data available on the scale and scope of illegal residence of immigrants and illegal employment as well. As per the Home Office records, the estimated illegal immigrants in the UK in 2001 were approximately around 430000.

Explanation for why it is difficult to gather data about illegal immigration - no country in the world knows how many people there are who are living or working illegally, with the probable exception of Australia where they count everybody in and they count everybody out-Prof. Salt (University college London).

In words of Dr Anderson from Oxford University center of migration the Home Office estimate excludes immigrants who are residing in the UK legally but breaching the conditions (including any employment restrictions) attached to their immigration status, a situation described as semi-compliance (Q 223). For example, some immigrants on student visas work more than the 20 hours legally allowed during term time (Q 223). It can be extremely difficult and contentious, in practice, to define and draw a clear line between legal and illegal in the employment of immigrants. (Migration Statistic 2008 Annual report, 2008) Population growth in the UK in last few years has also lead authorities to point out immigration responsible for it. Britain has been experiencing the fastest population growth rate earlier this decade and such growth have not been noticed since 1960s. Thus, it is
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significantly seen that proportion of immigrants to the resident population has increased due to net immigration. The net immigrants in the UK are estimated to be 10 % of total population. Immigrants have become 12 % of the total working age population in the UK in compare to only 8 % in 2001 and 6 % in 1981. But it is lot lower in United Kingdom rather than other countries in the world, such as Australia, Switzerland, and Canada being 24%, 23 % and 19% respectively.

The above chart from Total International Migration estimates shows the rise in immigration and emigration and net change in net immigration. The upward movement of the line chart definitely supports the argument of steadily high immigration in the UK. According to the Labour Force Survey, up to 3% of the total working age population of the UK is from Africa and Middle East, 2.5% from India and only 1% from A8 countries.

Immigration status is also significant for the economic analysis of the implication of immigrants. Determining the rights of immigrants in Britain labour rights, benefits and rights, including the use of Family reunification and the rights and benefits to remain permanently in British Columbia Citizenship. As Annex 8 different types of immigration status showed Associated with different rights and restrictions. For example, most immigrants who hold a work permit may only work for qualified Allows the employer. Instead, relevance, and non EEA domestic residents in the United Kingdom is free Employment in the United Kingdom. Immigrants authorized to work in unskilled jobs Right to family reunification, but the skilled and highly skilled are allowed. Distribution of job seekers "such as benefits, enter changes various types of law.

TOPIC DESCRIPTION

I have chosen this topic as a part of my dissertation as per my knowledge of the recent changes in the economy and the concern of government and society about it. The recent depression trend and economic downturn has made every government to reconsider their economic policies as well as fiscal policies. Sudden economic and financial crisis has forced all the governments and business organization to find the cure of this widespread disease , and the UK government is no exception. Majority of experts blamed excessive immigration to be the one of the reason causing this recession. My topic for the dissertation is immigration and economic growth in the UK. As the topic it suggests that it is highly debatable and self explanatory. It is highly discussed and analysed by various government authorities and statisticians. In order to see the importance of the topic I would like to consider the leading news paper articles as a scope of this topics public concern.
ANALYSIS: WHO GAINS FROM IMMIGRATION? (Schifferes, 2002)

There is a lot debate and controversial arguments on the immigration and the effects it has on the Britain and the European Union countries and political influences seen in the France, Denmark and Netherlands. Many people opposing the immigration suggested the fear of more crime and political instability due to the immigration whereas few arguments are being raised over the demolishing cultural identity of Britain. But most of the arguments related to the migration are about its economic costs and benefits. The arguments are often found that immigration has high suspect of creating unemployment in the economy and thus bringing down the minimum wage rates. Well, supporters of immigration argue that it brings positive impact on economy in a long run. Not only has that immigration provided the needed labour skill supply to boost the economic growth. One related argument to that is immigration mostly pay more taxes than they receive the benefits. Immigration has been the controversial issue for years in not only UK but several other countries. One major reason for their controversy is the assumed effect that immigration has on the labour market and wage rate regulation system of the economy. It is treated as the simple economic issue that the excessive immigration brings more supply of labour in the economy than rather needed. Excess supply in contrast to demand creates worst mismatch unemployment. As per the simple rule of demand and supply, excessive supply over demand brings down the prices and in this case the wage rates. But as per Prof. Borjas,

if immigration fills in the job that country has shortage of skills, it brings the real benefit to the economy. If country is experiencing skill shortage of the Doctors, immigrant doctors provide real benefit to the country. Talking about the immigration and unemployment, many experts believe that there nothing to do with immigration and unemployment. While others believe it has little to do with the unemployment situation due to costs of employing new workers. Despite of the argument that immigration brings the unemployment in the economy, the Germany is experiencing high level of unemployment and there is no evidence of highly dispersed immigration in the country. The most of the immigration in Germany is from Turkey. Analysing the data of work age distribution of immigrants, it can be stated that most of the immigrants are of working age and pay high taxes and even consume less of public welfare services such as NHS (National Health services).
RECORD LEVELS OF IMMIGRATION HAVE HAD "LITTLE OR NO IMPACT" ON THE ECONOMIC WELL-BEING OF BRITONS, AN INFLUENTIAL HOUSE OF LORDS COMMITTEE HAS SAID- BBC NEWS (APRIL 2008)

Another news report by the BBC News regarding immigration based on the concrete data from the House of Lords committee. according to the claims of the report if the net incoming immigration continues to stay the steady rate 190000 per year for next 20 years , it would impact on housing sector and lead to 10 % rise in house prices. Justifying the rationale of the comment, even if in the absence of immigration, the general level of price and effect of inflation and economic growth can also raise the prices of infrastructure in the economy.

Thus, immigration and its implication on economy have the high characteristics of concerns of public, government and society.

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LITERATURE REVIEW

THEORY

BASICS

Before we start the analysis it is necessary to go through the theoretical background and depth of the topic. The issue in light is Immigration and the economic growth, where few terms that needs to be clarified is Immigration Economic growth GDP(Gross Domestic Product) as a measure of economic growth Immigration is the movement of individuals from their native country to host country in order to engage in an economic activity or social and cultural activity . Economic growth is a measure of increase of decrease in the countrys GDP(Gross Domestic Porduct) . i.e. if countrys GDP was 100 billion last year and it increased to 125 billion this year, then it can be said that the economic growth of the country is 25%. GDP (gross domestic product) or GDI (gross domestic income) is the total figure of all output products and services produced in the country in monetary terms. It is the summation of the market value of all goods and services produced in the country. It is also considered
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close to the indicator of standard of living. GDP can be derived by three different methods, 1.Product method 2. Expenditure method 3.Income Method. Before we move further on immigration it is necessary to understand the Economic growth and what are economic effects of the economic growth. According to the UK government, A HEALTHY ECONOMY LEADS TO HIGHER LIVING STANDARDS AND GREATER PROSPERITY FOR INDIVIDUALS. IT ALSO HELPS BUSINESSES TO BE PROFITABLE, WHICH GENERATES EMPLOYMENT AND INCOME. The benefits from the ecomonic growth is as below : Better standard of living : Economic growth is very crucial for the nation through which we achieve higher standard of living and poverty levels can be minimised.For the countries , who regard growth as a tool of erasing poverty and bringing economic stability is economic growth is primary objective to achieve. Rising Employment : Evconomic growth brings more employment opportunities.From the given chart , the economic growth of the UK economy has rised consistently since 1993 and it has reflected to the employment figures. The total employment in the UK is increased from 2.5 million in 1993 to almost 30 million .

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Rise in the Capital stock investment : The economic growth bring more employment to the economy and it raises the income levels of the residents. More income results into more savings and it in turn grows the investment in the economy. The higher economic growth rate also substantially attract the foreign investment if the countrys economic growth is greater than the other. Tax revenue to Governmet: More economic activity and enormous growth increases the total tax revenue raised by the government. The more tax revenue in government treasury , the more would be the expenditure on public goods and services and social welfare.Government can handle more development projects. Less Pollution : More economic growth enables the nation to invest and sustain the technology to produce cleaner energy . More growth will allocate the expenditure for environment protection. Over last 30 years , energy consumption per head is reduced in the United Kingdom. We now expect to live on average 30 years longer, to work almost half the amount of time we used to every year, and to enjoy an array of new goods and services, including air travel, antibiotics, computers and televisions. Economic growth and rising living standards has also meant a cut in rates of carbon emissions and natural resource depletion never possible in the 20th century SOURCE: PROFESSOR NICK CRAFTS, 2002 Royal Economic Society PUBLIC LECTURE, DECEMBER 2002 Every coin has two sides , definitely economic growth has other side too.High growth rate and fast economy can cause lots of social and cultural damage to the nation as well. Inflation Risk : Inflation is the potential danger on the stable economy. It is normal to have nominal inflation in the economy with high growth rate, but it is feared that demand pull inflation and cost push inflation cna raise price level and hike in interest rates. Inequalities of Income and Wealth: The economic growth may not be the even distributed to the whole society and can cause large inequality of income & wealth. It is not only important to achieve high rate of economic growth contionously but also to sustain the same economic growth over time. The way worlds natural resources are extracted , it is highly doubtful to see long run sustainability through the rapid extraction of the limited resources. POTENTIAL AND ACTUAL OUTPUT THEORY :

It is very crucial to know what is the concept of Potential output capability of economy and actual output achieved . The analysis of this theory helps to understand how immigration

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helps to increase the actual output of the economy and how it is related to the economic growth . In our simple model we classified resources as capital goods and labour, although a more detailed classification would subdivide both these categories as (a) Capital Goods: Land: all natural resources including agricultural land, rivers, forests, climate and mineral deposits; Capital: all factories, offices, warehouses, shops, houses, machinery and equipment, stocks of materials, roads, railways, harbours, airports, vehicles, ships, schools, colleges, universities and similar assets produced in previous time periods; (b) Labour Force: Labour, which is that proportion of its population able and willing to work, the quality being dependent upon variables such as age, effort, hours of work, education, skills, aptitudes and attitudes; Enterprise, which consists of those individuals in the labour force with organisational and managerial ability or with financial skills, such individuals taking risks in starting new companies and launching innovative products sometimes with their own and sometimes with borrowed resources. (Keith G. Lumsden, 1990) Lets assume that the economy is stopped (paused) at certain point of time , theoretically it is possible to find out the value of all resources and maximum possible output that the

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economy can produce .

In above figure It is shown that how the population of the country contributs to the national output. The population includes all the workforce which includes the Immigrants which work for the economy.Thus the total output of the nation is depend on the 1.the Quality and the Quantity of the Labour (Resident population plus immigration) 2. The quality and the quantity of the Capital stock . Technology is also considered important in determining the national output of the economy but as we assume technology resources being stable in short term , we do not consider technology in separate to the capital stock . Captial stock consist of man made resources and natural resources that are used in production of goods and services. Natural capital stock is limited in nature and no one can do anything to move the resources. The analysis of the national output of different countries and the population of the country in proportion to its output contribution to the world economy.

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From the above pie chart , the highest contribution of GNP (Gross National Product) by 32.8% is Europe , United kingdom being the central hub of the economic activity in Europe. After that North America s economy being 29.7% output in total World GNP. Asia has 10.4% contribution in the total world GNP,while Japan contributing 7.9% of the total world output. But if we see the population distribution of these top contributing economies, Asia comes first followed by China and Africa. We can see the ratio of output and the population can bring the per capita GNP. Simple math can suggest that North America has highest per capita GNP . but Europe has the second highest Per capita GNP. Potential Output is the optimum output of goods and services produced when the full labour force and capital stock is employed . But in real terms the full employment of resources is not possible. There are certain factors in economy that leaves the economy below the potential output. The scenario with unemployed resources in the economy can be graphically presented as below.

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As we now come to the concept of the economic growth, the potential output of the nation is always depend on the quality and quantity of the labour and capital stock and existing technology. But positively the potential output doesnt stay stable and grows over time. This economic growth is caused by Growth in quality and quantity of the workforce Growth in quality and quantity of the capital investment Technology advancement

Another reason for the growth in GNP is the rise in the Gross National Product. Gross national product produced by the country is mainly used by four groups of individuals Consumers or households which include the Immigrants as well as they contribute to the expenditure on goods and services.

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Firms use the resources and product and the services , more economic expansion can lead more expenditure on products and services Government sector uses the resources for the the public goods and services and health and welfare services. International exports to foreign government , firms and households.

The above detailing stated the concept of the Potential output and its relation to the economic growth and Immigration. Lets say Potential output is an estimate of output that a country is going to have in the following year/s . The actual output of the economy is the GNP (Gross National Product) it is the sum of monetary value of all goods and services produced in a year in particular country. It is obtained by sum of all products and services multiplied by its market price. GNP = X (apa + bpb + . . . + zpz)

In such scenario , we would use here a simple economy model(For the sake of simplycity , we are assuming no government intervention in economy and the economy is running totally on market forces) to explain the relation between GNP , GNE and GNI GNP (Gross National Product) is the total value of goods and services produced in the economy in one year. GNE (Gross National Expenditure) is the total value of expenditure done by households and firms (Ignoring the Governement intervention).GNI (Grosss National Income) is the total value of the income flow to the resource owners (Land , Capital Labour and Entrepreneurship ).As the ultimate aim of all three concept is to evaluate the economic activity , the results are same and all three methods are identical. Simple economy model holds certain assumptions there are only firms and households. Households include all working age population including immigrants. As immigrants supply the labour and Capital (assuming investments from immigration ) and they receive the income for the resources supplied . The expenditure is also made to buy product and services to make their livings.

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GNP = C + I where C = consumer goods produced and I = investment (capital) goods.

GNI = C + S where C = consumer goods purchased and S = savings.

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The above illustration can graphically explain the concept of GNP , GNE and GNI in easy way and representing the equation that states that all three equation reach to the same conclusion.

ECONOMIC GROWTH AND PRODUCTION POSSIBILTIY FRONTIER

As we started the discussion , the simplified economic model was assumed to be shoet term where the quantity of labour and capital stock is limited and it cannot be increased substaintially. Such an assumption on the short term period is reasonable to certain extent. But in this case , introduction of the immigration in the economy , it is a short term increase in labour force. The supply of other factors of the production can be easily changed but the supply of labour force is quite limited to the native population and it s age structure . Looking at that perspective , it is just impossible to raise more labour force when you have all the resources of the country already employed in economic activity. Plus new workers can be trained but new skills and expertise is slow process of learning and involves huge amount of the time. Immigration is the best option to the economy to expand further. It benefits in two way. The host country economy , all the resources are fully employed and production capacity of the economy is reached to its production frontier (Maximum possible output level of the economy) .The additional labour supply through immigration gives the boost to the economic activity of the country and brings more economic growth The Native country from where the immigrants come from , typically seen as developing countries which have high levels of unemployment and abundant idle resources and factors of production. Excess labour supply causes unemployment and therefore it adversely affect the economy. The migration of the labour to the host country reduces the labour supply in native country leading to more job opportunities to fill up the vacant positions . Thus , unemployment is reduced in the home country and it leads to the economic growth.

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As we can see the above graphical presentation about how economic growth works in the economy , we can understand the positive implication of immigration to the economy.In simple model , Countrys capital and labour stock produces the output and earns the income on it. The income earned is not usually all spent and proportion of the income is saved by the households , which in turn is channelized to the investments in the economy. That increases the stock of capital investment in the economy. Thus , it is clearly seen as Savings and Investment performing the multiplier effect on the economic growth .

It is also important to understand the Savings and Investment multiplier effect for the firms in the economy . The possible choice on the firms point of view can be to contribute resources for improving the current assets i.e trainings of the employees , research and development projects; The economic phenomenon about the issue is described as below It can be three kind of economic possibility

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Prodigality: In the current year of the economy , economy chooses to consume all the resources to the production of goods and services , there are no resources employed for the additional capital formation . The economy experience the depreciation of the resources . Now the following period economy hasnot gained any additional capital which means economy grows negatively. Satiated : If the economic resources in the economy are forgone for the capital formation to the same extent as the depreciation , the economy would have the newer resoureces the following year to replace the wear and tear to the economy. The resultant effect would be the stable economy with no growth. Thriftland : The maximum possible retention of the resources to gain additional advantage of the newer resources the following year . Such economy experiences the high proportion of the growth rate.

INFLATION AND IMMIGRATION

The inflation rate is the percentage increase per year in the average price level from one time period to another. Thus if Pt is the average price level in period t and if Pt is the average price level in period t + 1, then the inflation rate in time period t is defined by INFt = Pt Pt

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Pt Expressed alternatively, the price level in period t + 1 is: Pt = Pt(1 + INFt) But what do we mean by the price level? The most commonly cited measure of the average level of prices is the Consumer Price Index. This index measures the average level of prices of the goods and services consumed by the typical household. In most market economies this index is calculated monthly. Several hundred goods and services regularly purchased each month by average households are selected, initially to establish a base period, and the quantities purchased and the prices paid are noted; an index is then constructed.

The problem of choosing the appropriate policy is compounded by the fact that society is composed of many members, who may differ as to whether inflation or unemployment is a worse problem. It is obvious that people such as construction workers, who are likely to become unemployed if aggregate demand is low, would regard a low-unemployment/high-inflation combination as relatively painless. Others, such as retired persons relying on their pensions for income, who would lose real income because of inflation if aggregate demand is high, would consider a high-unemployment/low-inflation combination to be relatively easy to bear. This is one reason why there is so much disagreement as to what constitutes the right policy for a government to undertake. Because the goals of policy are essentially subjective in nature, people can agree about how the economy works and how policy affects the economy, yet disagree sharply about what should be done. Thus, policy makers will usually be in the position of being unable to please everyone, and decision making remains a political as well as an economic process. Short-term policy making is also complicated by another factor: the short-run

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policy goal should not be decided without taking into account the long-run consequences of that policy. It might be possible, in normal situations, that high unemployment and low inflation today will permit certain preferred combinations of unemployment and inflation tomorrow that would be impossible otherwise. In such situations, the appropriate short-term policy goal might be to choose an aggregate demand target that is below potential GNP. Before the long-term implications of any policy can be analysed, however, it is desirable to understand fully the nature and short-run consequences of policies designed to control aggregate demand. This is the next topic to be tackled.

UNEMPLOYMENT AND IMMIGRATION

Immigration is blamed on the ground that the immigration bring unemployment in the host economy and affects the resident population income. To judge the effects of the immigration on the unemployment and the labour market . If an economy is undergoing constant change that could be positive or negative , it experiences certain degree of unemployment. As normally all the unemployment criteria are viewed in a same way and considered negative impact on the economy. It is quite crucial to understand the basic types and characteristics of the unemployment.

Frictional Unemployment : With the growing world with lot of new opportunities , it is not generally seen that people stick to the same jobs for a long time. People keep changing the job and searching new job takes time due to the information problems. As the person is just changing the job to one to another and not changing the occupation , overall economic status of unemployment remains unchanged . Such unemployment is called frictional unemployment. I.e. Lets say a manager of A ltd. Leaves the job in London and searches for another job for a manager in London. After few information and job search , he gets another job at manager at B ltd. The time he spent on shifting one job to the other is considered as a frictional unemployment. The Understanding of this concept brings to the conclusion that immigration has nothing to do with the frictional unemployment and it would be unchanged with or without the presence of the immigrants.

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Structural Unemployment : In such kind of unemployment , it occurs due to the mismatch between the the job vacancy and the qualification of the unemployed person. i.e. There might be 1000s of job vacancies for the Doctors in the economy , but there are unemployed engineers in the economy . Thus the occupational mismatch causes the unemployment . As the earlier type of the unemployment rises from the information error , it can be cured easily , but for structural unemployment , it is not easy to create more vacancies or raise the required work force. But in given example , we can not raise the vacancies for engineers but we can surely fill up the vacancies of Doctors by bringing in the immigrants . Thus it may seem that unemployment remained same as still those enginners are jobless, but infact immigration has filled in the vacancy for the doctors and economy is producing more output than before.Thus , Immigration has no effect on reducing the structural unemployment , but it doesnt negatively impact on the structural unemployment. But still as we saw through example , it bring economic growth by filling in vacancies that resident population cant .

Seasonal Unemployment : Easiest term to understand , as the term is self explanatory , it occurs due to production level of the related industry is affected by the seasonal condition such as weather , calendar or may be time period. Such occupation brings high employment for certain period of time and minimum or no employment for certain point of time. Apparently Immigration has no influence of such unemployment.

It is quite essential to notice that although it is widely claimed that immigration brings unemployment in the wide proportion to the economy , we saw the theoretical possibility of how immigration has no direct influence on any of the above three type of immigration. Nevertheless , it brings the essential need of finding out the real possible factors behind the stated unemployment.

Unemployment is affected by the general level of economic activity. When actual output is close to potential output, employment is high and there will be strong competition among employers to hire labour. Employers will be more active in advertising job opportunities and the improved flow of information will reduce frictional unemployment. Employers will also offer better retraining allowances and financial assistance to those moving home in order to attract people from other occupations and areas. These measures will reduce structural unemployment.

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When actual output is well below potential output there will be less competition among employers to hire labour and frictional and structural unemployment will increase. Unemployment is also affected by the quality of transmission of job information. Jobs cannot be filled unless employers and employees can be brought into touch with each other. Employers advertise jobs through the Internet, local and national newspapers, radio and TV, private agencies, shop windows, billboards at the factory or office gate, and word of mouth. Employees use some or all of these methods of looking for work. The better the methods of communicating information, the lower will be unemployment. There is always some structural change in an economy. Tastes change, new products emerge, goods produced domestically are displaced by imports, and technical change occurs. For example, the increased demand for holidays overseas has reduced the demand for domestic holidays; the development of man-made fibres has reduced the demand for natural fibres; Japanese cars have taken an increasing share of many domestic car markets; the railways displaced the stagecoach and canals, and the motor car has largely displaced the railways; the manual typewriter displaced the quill, the electric typewriter displaced the manual typewriter, and the PC displaced the electric typewriter. New economic activities expand and old ones contract. These changes require a redistribution in the skills and location of the workforce. The higher the rate of structural change, the higher will be the level of structural unemployment. Structural unemployment will be minimised where it is comparatively easy to acquire newskills and move from one home to another. This will depend on factors such as the availability and cost of retraining programmes, the cost of travel and moving home, suitable schools for children, and suitable hospitals for the infirms.

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The higher are these costs, the higher the level of structural unemployment.

Institutional restrictions and barriers also affect unemployment. These include any action by government, or by organisations of employers and employees that restrict the efficiency of the labour market. For example, unemployment will increase if the government imposes minimum-wage levels above the level that would be established in the marketplace; if organisations place undue restrictions on entry to certain jobs; if unions impose restrictive practices, restrict employment to union members, or impose unduly long periods of training; if local authorities discourage geographical mobility by favouring local residents in allocating houses; if pension arrangements impose heavy costs on those who change jobs. Anything that limits the ease of changing or taking employment will increase unemployment. Finally, unemployment is affected by seasonal industries. Economies that are dependent on farming, fishing, forestry and tourism will experience seasonal fluctuations in unemployment. Some economies have clear natural advantages in these industries. Hence, they continue to use many of their resources in them in the full understanding that unemployment will result at certain predictable periods of the yearly cycle.

EMPIRICAL RESEARCH

IMPACT OF IMMIGRATION ON NATIVES

The findings of Prof. Barry Chiswick from University of Illinois suggests that characteristics of immigrants is majot determinant for the consequent economic effects to the host

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country.Prof. Christian Dustmann from University College London noticed that effects of immigration on native population can be judged by portfolio of skills of both natives and immigrants . In addition to that it is also significant to trace how quickly immigrants can adjust in the host countrys economy.Most economic influences of immigration is divided in either Low skilled vs Highly skilled or Longrun vs shortrun . Analysing short run impact , economy in a short run supply of capital and technology cannot be increased.thus , the primary intention of immigration is to increase the supply of labour in economy . Wage rates are not lowered until labour is excess supply and therefore it raises the profit of employers and capital owners.It produces positive income effect to native population overall when the skills possessed by migrants differ from the native population,otherwise it creates competition between migrants and natives and therefore reduces the positive income effect. Considering the long term impact of immigration, in the long run economy , technology and capital is fully variable .Migration raises return on capital in short run, therefore investments are accerelated in the economy and profit margins are driven down. More investments in Mchinery and capital goods demand for more workforce . Wage rate rises more than normal fearing inflation in the economy . Immigration fills the shortage of labour and turns labour market into equilibrium in long run. If economy can absorb immigrants to significant level , it would not leave any impact on native populations income.Full international capital mobility can even attract more investments which in turn is beneficial to residents. (Borjas, 1995) The analysis done by professor Stephen Nickell notes that the monetary policy of the host country influences significantly on impact of immigration in long run.His work on the above issue is explained in the example : initially unemployment goes up, downward pressures on wages, downward pressure on inflation, monetary policy is loosened, some expansion in the economy absorbs the extra workers and at the end the thing [the economy] looks much the same as it did at the beginning except there are more people-Prof Stephen Nickell Most well known economists gave the findings that suggested the long run impact of immigration is to expand employment and the economy i.e. the economic growth with no effect on native populations income .It is been counter argued that the probability of dynamic and spillover effects arising from immigration is not taken into account.Such as , Professor Rowthorn argued that immigraition will increase population density and inturn it would reduce the productivity of native population. John Elliott, Chief Economist at the Home Office, suggested that: ... in the longer run we will expect more dynamic effects to come into play. We can think of migrants contributing to the productivity of native

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workers directly though spillover effects. One might imagine a migrant surgeon standing next to a domestic surgeon and them learning from each other

GDP PER CAPITA

There are few researches carried out on effect of immigration on GDP of the nation and GDP per capita. Home office reports reveals the effect of immigration on GDP being 6+ billion in 2006 but no data could be derived for GDP per capita.It says that there is no concrete proof gained stating the effect of immigration on GDP per head.Thus it is accepted that no research is carried out signifying the analysis of effect of immigration on native populations per capita income in the UK. It is quite surprising to monitor the absence of data in such important issue. I personally do think that GDP per capita is the key thing to focus onfew words from immigration minister Liam Byrne.

The organised body on research of demography of the UK The National Institute of Economic and Social Research (NIESR) estimated that migration in 7 years duration starting from 1998 has shown the effective results of increase by 3% in real term GDP. Still critics suggests that the time duration of research in question , only 3.8% of total population consisted of immigrants which is considerably lot lower than current scenario. Making a simple math , it suggests that 3.8 % of population contributing 3% to GDP wpuld turn the results into negative impact on GDP per capita.The only limitation of this survey is only labour supply increase has taken into account and capital supply increase due to immigration is consistently ignored leaving research finding inaccurate for finding per capita GDP.Probably adding up the potential increase in capital stock due to immigration can suggest the positive per capita GDP and immigration is favpourable to the nation once again.

Further research carried out by NIESR also undergone the analysis of A8 projected future immigration data using model of economy developed by them. Results are interesting when the time baseline is considered as 2005, the first few years negative effect on GDP per capita is seen.Gradually in long run positive effect on GDP per capita is achieved by 2015 being 0.3%.Relative short term negative impact is traced due to high rate of unemployment initially , difficulty in adjustment of capital stock in relation to the size of immigration.Whereas the positive effects are caused by high number of working class migrants and increase in capital investment in the economy in long run. As per the ITEM club suggests , the effect of recent immigration trends on GDP per head in negligible or slightly adverse. (Young, 2007)

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To conclude the current issue, it is said that Migrants have very negligible effect on GDP per head or native populations income. Ignoring the critics without any concrete evidences , even if the dynamic and spill over effects are taken into account , there would be very little difference caused in the original findings. Still it is possible in theory that above empirical evidences do not suggest the possibility of siginificant benefits caused by immigrants to resident population. But it also does not suggest any negative impacts which still leads to further research needs.

WAGES

Immigration has wider impact on the labour market and wage rate regulation in short term and long term to the host country economy . it is quite important undergo the analysis of labour market impact as immigrants directly fill in the workforce. But there are some fundamental difficulties experienced while analysing the effects of immigration on labour market. Most of the immigrants are attracted to the area of strong economic growth and major cities (London in current scenario) where employment opportunities are higher with higher wage rates.As shortage of labour can attract more immigration , potentially these economic areas are more affected with consequences which cannot actually represent the whole picture of the economy. If immigrants are scattered around the whole country , the research population needs to be covered becomes much wider and local labour market researchs are no more comprehensive . The current data on the immigration may be based on small sample sizes which causes considerable measurement errors when such data is used on wider terms. (Smith, 1997)

The recent studies in the UK by Profesor Dustmann and other co ordinates gives a conclusion that immigration has positive effect on the incomes of resident population, but it decreases the minimum wage of the low paid job workers.Which is further explained by the proportionate 1 % change in immigration and residents ratio results into 0.5% decline in low paid workers income and rises the top workers income by 0.6%. Thus, overall effect is considered positive as economists dont bother to address the issues of inequality of income

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in the economy.These effects are accepted on fair basis.Further explaination to these effects is given by Prof. Dustmann and Prof. Ian Preston immigrants appear to be most concentrated at precisely the same points where we find the most negative wage effects (al, March 2003)

All of the above empirical evidences suggest that immigration has negative effect on income of unskilled labour force.Contradicting arguments to that are raised by Professor Blanchflower that the income of low skilled workers is lowered by immigration ,but the resultant effect is negligible.Further to this , Prof. Blanchflower has stated that though the direct competition doesnt seem to exist , there is much effect of immigration on residents indirectly.Although, that can be solved by government intervention and decing the lower limit for the wage rates (National Minimum Wage that already is applied in the UK). In conclusion , it can be said that the immigration has very little negative effect on the low paid workers and have little positive impact on high skilled workers income.Effective measures should be taken to set up a law that fixes the minimum wage rate according to the standard of living criteria and concrete actions should be taken against illegal employment. UNEMPLOYMENT

Earlier we found the words from Professor Dustmann if there are any effects on unemployment is due to statistical error in data used for analysis or possibly a small population size targeted.Dr. Riley from NIESR had an argument that if a concrete conclusion can be reached or not from the DWP studies that emigration is considered on side by side to immigration. The simulation model analysis done by NIESR reveals that in a short run immigration has the negative effects that leads to unemployment but in long term this effect is neutralised to zero.The presented facts overall is sufficient to suggest that the impact of immigration on economy and unemployment is short term in nature in the UK . Quite possible but still it is not proved yet. (LORDS, 2008)

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METHODOLOGY

Research is a purposeful activity carried out for the search of knowledge and solutions to the particular problems. Research is a scientific activity based on facts , theory and principles used for the academic purposes. There are several definitions of the term research given by various experts , but it is quite impossible to reach an extensive definition to such a broad terminology. Research comprises defininig and redefining problems , formulating hypothesis or suggested solutions,collecting , organising and evaluating data, making deductions and reaching conclusions and at last carefully listing the conclusions to determine whether they fit the formulated hypothesis or not Clifford Woody The methodology of the research is described as a systematic approach for solving the research problems. The methodology is of this research is based on the aims and objective of the study .first of all , it is necessary to gather the background information about the subject of research problem. The facts and figures as well as the data about empirical research is gathered . the research problem is in critically evaluated on the basis of literature review and theoretical models. The crucial analysis of the data is carried out to reach the conclusions which are based on the hypothesis and the research questions formulated.

RESEARCH PROBLEM

Research problem is a crucial part of the research on which whole research is based. The research problem this study is quite straight forward and one of the biggest debate issue in curret UK economy. Immigration has been raising concerns to the UK government about its

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cost and benefits to the nation. While the government is trying to stop more immigration flow in the economy certainly suggests that immigration is considered to have an adverse effect of the economy. The supporting evidences to the government actions are the government reports outlining the rise of the immigration and the negative implication of that. The problem of research is to identify if immigration is beneficial to the UK economy or not if yes then to what extent ? Does immigration gives significant contribution to the economic growth ? if yes then government actions towards immigration are justifiable. Thus , the problem is to go beyond just the statistical data of the government reports and analyse the effect of immigration in economic point of view.

HYPOTHESIS

Developing the hypothesis is to develop a tentative statement that suggests the possible explaination to certain cause and effect relationship. The hypothesis may include the possible predicition of the outcome. As generally , though it should not ; hypothesis is often substituted as a theory. Hypothesis to this research study despite of the statistical data about the immigration, immigration is related to the economic growth of the UK in economic point of view For the above hypothesis immigration is a dependent variable , whereas economic growth is an independent variable.

RESEARCH QUESTIONS
The main research question of the study is WHAT IS THE ECONOMIC IMPLICATIONS OF THE IMMIGRATION ON THE UK ECONOMY ? The research question stated above is broad in a nature and has many sub questions to be followed WHAT IS THE POSSIBLE RELATION BETWEEN IMMIGRATION AND ECONOMIC GROWTH.?

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It is quite crucial to analyse the exact relationship between immigration and economic growth rather than just gathering data about demographic characteristics of the immigration WHAT IS THE ECONOMIC IMPORTANCE OF THE IMMIGRATION IN THE UK ECONOMY ? To find out the sole purpose of introduction of the immigration in economy and to analyse if immigration still holds the same economic importance WHAT IS THE EFFECTS OF IMMIGRATION ON THE NATIONAL OUT PUT AND GDP OF THE UK ECONOMY ? Immigration can affect the national output and the GDP of the nation but it is necessary to find out positively or negatively and to what extent. WHAT ARE THE IMPLICATIONS OF THE IMMIGRATION ON THE RESIDENT POPULATION? It is also important to analyse the implication of immigration on the resident population of the UK on its level of income , level of minimum wage rate and standard of living. WHAT ARE THE INFLUENCES OF THE IMMIGRATION ON THE LABOUR MARKET OF THE UK ECONOMY? As the immigration is part of the nations labour market , important to find out what extent it affects the regulation of the labour market in the nation TO WHAT EXTENT INTEREST RATES AND INFLATION IS RELATED TO IMMIGRATION IN THE UK ? To find out any relationship that immigration may possibly have on general price indices and monetary flow of the economy

THE SOURCES OF DATA

AVAILABLE SOURCES OF DATA

Immigration has increased at significant level since 1995 , from which incoming immigrants are decreasing since 2006 and total amount of the immigrants has also decreased. The arguments has raised that the recent decrease in immigration is due to the global recession and high unemployment rates in the UK since last few years. In 2009, 14% of the working population in the UK consist of immigration , the same figure was seen 8% in 1995. Today UK has 5 million immigrants of the working age .

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The UK experiences lower proportion of immigrants as compared to Australia which is 25%, Germany which is 12.9% or the United States which 13.6% in compare to 10% of the UK itself. In comparison to the resident population , immigrants are more educated . most of all immigrants are concentrated around London. Brent has 60 % of the working population as immigrants in compared to lowest being Knowsley by 3%.

There are few graphical presentation of data which are more easier to explain the difficult issue like immigration. As seen in the given chart supplied by Labour Force Survey, the figure

1 shows the proportion of immigrants in the UKs total working age population in a long run. The time scale taken into consideration is large 30 years. It is straightforward to see that till 1995 the immigrants proportion was stable between 7 % to 7.5% but since then , from last 15 years it rised to 13%.

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If we consider figure B for the short term analysis of the last decade immigrant population of the working age was 9% in 2000 , where the graph displayed its peak in 2009 being 13% ,since 2009 raising concerns and government policy actions it decreased little to 12.5%.

The country of origin of immigrants in the UK is worth analysing. It is interesting to see the top contributer countries of immigration in the UK. In 1985 16.5% of the immigrants were from Ireland , 13.5% of immigrants from india , 6.9% of immigrants from Pakistan , 5.1%

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from Jamaica 4.6% from germany . but in 2009 , india has been largest sender of immigrants being 10.7% , Poland being 7.9% , where as immigrants from Pakistan rised to 7.2% , 5.1% from germany and 3.5 % from Africa . If we analyse the country profile of latest new immigrants in the country , 11.4% immigrants are from india , 8.9 % immigrants from Poland, 5.6% immigrants from United States, 3.9% from South Africa and 3.5% of immigrants from france. As the immigration has rised in last few year in all over the country. It is more rised in the major city areas mostly in London , it is also important to notice that new immigrants are more and more disperse in case of geographical distribution. The issue is more clear in below graph.

Note: LO=London, WMM=West Midlands Met., GM=Greater Manchester, SE=South East, EA=East Anglia, WY=West Yorkshire, EM=East Midlands, SW=South West, TW=Tyne & Wear, NW=North West, SC=Scotland, SY=South Yorkshire, WM=Rest of West Midlands, NI=Northern Ireland, NY=North Yorkshire, WA=Wales, ME=Merseyside, NO=North of England. From the above graph, we can see the proportion of the working age population in various major city across the UK. The red bar indicated in the chart in all the data on year 1985 ,whereas the green bar in the chart indicated all the data of 2009. The maximum concerntration of immigrants is found in London in 2009 and minimum in north of England by 4% in 2009. Where as in 1995 the immigration was less dispersed and more concentrated in London and the least in South Yorkshire by 4%.
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To some extent, education is the key indicator of the occupation and education of the industry. Immigrants are more educated on an average than that of the residents. This education gap is rising over time and more and more immigration is educated only 20% of UK residents finish their Masters education by the age of 22 , where as 70 % of immigrants finished the education of Masters by the age of 22.

From the above chart we can see the education profile of resident is compared to existing and new immigrants. There are 53% of the residents who have left school under age of 16 , such ratio in immigrants is 24.8% and 15.4% in new immigrants. Whereas only 18.7% of the resident population has level of education till 21 or more years in compare to 38% of all the immigrants and 50% of all the new immigrants.

Education has a lot to do with the selection of occupation and industry by the immigrant. There are large number of the immigrants who are working for the professional occupations. The occupational distribution of the immigrants is as above. It can be seen from the above table that out of all immigrants in the UK majority of the immigrants are occupied in the restaurants and hotels. Whereas more of immigrants are living in London where there is no scope of agriculture , no employment is seen in agricultural sector. Analysing the data , 6.3% of immigrants are occupied in agriculture , 11.1% in manufacturing, 6.7% in energy, 8.3% in contruction, 11% in retail, 14% in transport, 13% in

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finance , 7.8% in public administration , 9.6% in education , 14.1% in health and 8.6% in other occupations. If the occupational statistics of the resident population is compared to the same of the immigration , the facts accumulated can be presented as below, in managerial occupation , there are 16.4% of the resident employees whereas 12.6% of immigrants. 13.1% of residents are engaged in professional occupations whereas 16.5% of the total immigrants are engaged in the same occupation.

Such data in Assistant professional job is 14.7 for residents and 14.2% for the immigrants.11.6% of residents are in administrative occupation whereas 8.3% of immigrants are in the same occupation. In Skilled trade 10.8% and 9.1% respectively for residents and immigrants. Personal services has 8.8% of residents and almost same proportion of immigrants. There are 7.4% of resident populations working age people employed in Sales jobs whereas same for the immigrants is 6.5% of its working age proportion.6.9% of the resident population and 8.5% of immigrants are engaged in Processing sector.the larger number of immigrants being 15.7% in compare to 10.4% of resident wok force.

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ANALYSIS AND FINDING

IMMIGRATION AND THE UK ECONOMY

The economic justification provided by the reports and findings of UK government , GDP is the primary concern about indicator of the immigration contribution to the groeth of the UK economy. There are mainly two arguments in major; one of that is , immigrants consist of 8% of the total UK population ,whereas their significant GDP (Gross Domestic Product) contribution to the UK economy is 10%. In another argument made by the prime minister of the UK in his speech , if the net immigration disappears all of a sudden, the growth rate that the UK economy is experiencing will be lowered by 0.5%. The reliable source about the information that is provided in this report is Migration Watch . It has scrutinized the claims in depth to reach the conclusions . It suggests that these arguments are highly based on the simple methodology which is not reasonable and as so both arguments are considered inaccurate and misleading. As we reviewed the first argument stating that the 8% of the immigration population contribute the overall GDP by 10 % , it is such a big statistical error. First of all, it doesnt consider the children of the immigrants those are born in the UK. If we add up them, the proportion of immigration to the total resident population reaches to 10% and their total contribution to the UK economy is revealed as 9.8% . According to this rationale , the argument being the contribution to GDP higher is consistently wrong.It is important to notice that only the immigration that falls under working age criteria is considered while calculation their contribution to the GDP. On the other side , focusing on the comment of the prime minister of the UK ; stating that immigration only symbolise 0.5% growth in economy quite exaggerated. In fact, the treasury officially claimed that the new incoming immigration contribute 0.4% of the total GDP alone. In this simple calculation of total migration , the existing immigration and its dependants are ignored. According to the recent estimates provided by the Government Actuarys Department (GAD) net immigration being 130000 per annum. The recent projections on net immigration trends till 2003-2031 , it will consist 5.2 million to the total and about 3.8 million to the working age population. Which is equal to 0.35% growth rate in total immigration. Such population increase by 0.3% each year so the per head benefit of the additional immigration is 7p per week. This amount of benefit doesnt add any significant growth per capita income of the resident population. In addition to the that the representative from the government department has claimed that immigration literally contributes more than 15% to the UK economy.

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DETAILED ANALYSIS OF THE CONTRIBUTION OF IMMIGRATION TO THE GDP

The government consistently stated that only 8% of the immigration population of the UK contributes the 10% growth in the economy and its GDP (Gross Domestic Product). The press release made by the Home Office suggested in November 2003 included the major speech by the Home secretary , David Blunkett saying ; Effectively managed legal migration is vital to Britains economic and social interests, the Home Secretary, David Blunkett, will argue in a speech this evening. Legal migrants make up eight per cent of the UKs population but generate 10 per cent of our gross domestic product. The similar argument has restated in the House of the lords in February 2004 by Baroness Scottland of Asthal saying ; Migrants make up 8 per cent of the population but generate 10 per cent of our total wealth. Migrants are substantial net contributors to the Exchequer. (Baroness Scotland of Asthal speaking in House of Lords , February 2004) In addition to this claims , this is very broad issue with the wider scope . First of all the definition and characteristics of immigrants is considered by government is any foreign born person even including the british citizens born overseas. Some of the interesting facts traced down in this analysis. The percentage of the working age population (working age population in the UK is considered as people between age of 16 to 60 women and 65- men) who were born in foreign countries were 10% of total UK population in 2001 Out of total 3.63 milion immigrants , 2.31 million immigration contributed to the labour market of the UK economy. The resident population born in the UK were 32.33 million people comprising 89.91% of the total population in 2001. Out of it 24.22 million people were considered under the working age population making it 74.5%. From the above data it can be said that in 2001, the total contribution of immigration in total working age population was 8.74% being 2.31 million out of the total working age population of 26.5 million Average earnings of the working age population differ from immigrants to the resident population. In reference to the statement of Russell Haque from the department of work and pensions, immigrants have 19% higher income than those of the resident population. The data compared of wages and earnings of residents and immigration population , immgrants perform better overall than the residents and and on an average immigrant receives 12% more than the resident population in the UK. (Russell Haque:, December 2002)1 As mentioned before Migration Watch
1

1.

The principal population projection shows the population rising from 59.554 million in 2003 to 65.700 million in 2031 based on

net migration of 130,000 a year a rise of 6.146 m. The natural change (no migration) projection shows the population rising to

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undergone the gross analysis of the weekly income of the native employee and immigrants and found out that on an average an immigrant earns 415 per week compared to 487 per week for the resident population. (Office for National Statistics: National accounts: GDP by category of income.) The demographic analysis of the age distribution of the population is as below.

From the above chart it can be said that the resident population according to their age group there are 21% of children and approximately 20% of retired senior citizens and leave the rest of the population as working age people. On the contrary it has , 8% of immigrant children 75% of working age population and 18% of senior citizens. Now it is quite transparent to see that immigrants have more working age population than the counterparts.

ANALYSIS OF THE FINDINGS

1 IMMIGRATION IS POSITIVELY RELATED TO ECONOMIC GROWTH It is very simple to understand for even a common man that immigration has positive relation with economic growth, it is just a simple math as the population increases, total output increases proportionately, other factors assuming constant. If the population of certain country rises by x% the economic growth of that nation would rise by X%, where basic assumption would be immigrants are equal productive as the native population. Even if it is assumed that the immigrant are just half productive than the native population, still

60.519m a rise of 0.965m. The rise due to migration is therefore 5.181m a compound annual growth rate of just over 0.3%. The corresponding comparison for the working age population shows that migration will cause this to grow by 3.793 million on a base population of 38.432 million an annual growth rate of 0.34%.

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economic growth can be achieved proportionately (it would not achieve any surplus economic per head). Economic growth is a positive effect to economy but not unless it produces additional output per head. We would be discussing supporting data and supporting evidences that immigration produces that in later sections. Measures of economic growth may be misleading in case of immigration statistics, where Government consistently considered GDP as indicator of economic growth. Whereas some advocates of immigrants just compare the output of immigrants with total output of nation and consider the resulting answer as the proportion of immigrants in economic growth. In another point of view, assuming two countries one being developed and another being less developed. There are 3 factors to economic growth, which are labour, capital and technical skills. Developed countries already having strong position on capital and technical skills, the only thing that can increase economic growth is increasing the size of labour force. Immigration is most feasible way to add up the labour force. Thus immigrants from less developed country can transfer some part of their income to their home country which can be turned into the additional capital resources in the less developed countrys economy. On counterpart the wastage of talent and resources in less developed country can be saved and unemployment can be reduced. Thus, it serves both purpose of growth in developed and less developed country A win-win approach. Even if immigration has its downsides, it should not be restricted entirely. If short term surplus or deficit specific skills can be solved by immigration, that is beneficial. That can resolve the issue of frictional unemployment. (Stewart, 2005)

2 IMMIGRANTS PERFORMS IMPORTANT TASKS IN UK

This issue cannot be proved just by theory but it needs concrete evidences as well. The empirical evidences are seen below. America has welcomed millions of immigrants every year from last twenty decades. Such a large immigration must have filled some vacancies at least, but surprisingly surveys revealed that the key job vacancies are constantly high and that suggests that more economic growth needs more labour to perform some of the vital jobs which can be facilitated by immigration. But still it is not true that immigration fills in every vacancy available and leads to unemployment. If logically considered, the income earned by immigrants still stays in the economy and circulates in the circle of income. They spend money on food, living and such more activities and such spending leads much more vacancies and employment.

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If we try to understand this in theoretical aspect, a simple economy has industry and households where industry provides employment and pays for the labour capital and entrepreneurship that households have provided and produces goods and services to the households. Households spend their income buying those good and services provided by industry .If immigration create an additional supply of labour, it doesnt mean it leads to unemployment; it also increases the spending and investments proportionately so that economy still stays in equilibrium. (leader, 2005)

3 IMMIGRATION HELPS SENIOR CITIZENS

Mostly immigrants are the young age population which indicates that they are one of the increased tax payers. It is a point that immigrants help pensioners indirect way. Immigrants, which are young tax payers, gradually they grow old and return to their own countries but their contribution to national pension fund stays in the country which actually adds up the pension fund for native citizens. Thus end of the day the native citizens are benefited from the pension fund that is raised by immigrant population.

4 IMMIGRANTS PLAY IMPORTANT ROLE IN HEALTH SERVICES

As seen in the UK economy the national health services NHS is run by considerable amount of immigrants who are technically skilled for the particular job. It has the same scenario for construction industry. It is feared that if immigrants disappear all of a sudden, Health system and construction industry functioning would be disrupted. However the replacement to that task in health service can take several years which is not acceptable in such a core aspect of nation. Thus, same criterion applies to all major industry as it would collapse if half of their skilled workers are gone.

5 IMMIGRANTS WILL PERFORM THE JOB WHICH BRITISH WILL NOT

There are certain numbers of jobs which are low paid and native citizens would not be comfortable to perform such jobs in such low wages but these jobs are performed by immigrants. There are some arguments against it the immigrants would also turn citizen after some time and they would not like to do such job which will need more immigrants

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and it will go on and on.In any economy where economic growth is rising, there would be lot more new career opportunities rising. Native population would grab those opportunities and leave the old job vacancies unfilled. But of course these jobs have primary importance which is filled by immigrants. Sooner or later the wages rise due to economic growth and employer has to decide about the vacancies. Let s say if an employer is getting an unskilled worker for 2 pounds per hour, he would create demand of lot more employees. Another important aspect is import and export in the country. If country produces all products even if its production costs are greater, Imports of such products should be beneficial, but it is not always feasible to import as it negatively affects the economy. The solution can be found by producing the product by using low wage immigrants to produce than importing it. (Dustmann, 2007)

6 IMMIGRATION INCREASES NATIONAL OUTPUT

The top expert on immigration, George Borjas mentions that immigration has very minor effect of national output per head, but so do the other factors. There is no total agreement on any particular issue in economics. There are certain experts who think that immigration raises national output per head by small proportion but it is not (G.Peri) According to economic theories, Labour shortages are the main reason for raising inflation and inflation forces government to take anti-inflationary measures .But if essential number of vacancies are filled with appropriate skilled labour, it can increase national output per head. But as seen in current scenario government is in shortage of such skilled labour and thus immigration of skilled labour is the only feasible option and lead to economic growth This effect never stays constant and surplus or deficit of certain labour skill keeps changing .Education and training facilities would create additional labour supply of particular skilled required and in long term, economy might not experience the short supply of particular skill. For example in 2002-2005, there was a relative shortage of plumbers in UK. Immigration from Poland helped as polish plumbers were imported but after increased number of natives acquiring the plumbing knowhow, shortage is vanished .Thus, Plumbers initially were paid more and then paid normally when shortage was no longer experienced. Such advantage sought from the immigration if temporary in nature under the assumption that immigrants remain in the host country. But if the skilled labours are sent back to their countries as soon as their services are no longer required, the situation turns to the favour of the country. Certainly the policy of sending them back after they no longer required is social and moral issue in Europe and North America.

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7 IMMIGRATION AND EFFECT ON PRICES

It is not obvious to see how immigration is related to price system of the host country. But it can have clearer picture when it is related with inflation. As we have seen in previous arguments that Immigration helps in economic growth and raises the national output per head by filling in the essential vacancies. Thus, in turn it also keeps the inflation down to the proportion of the output per head increase. If the employment is increased such as the level of acceptable level of unemployment will not accelerate the inflation. This can result into two scenarios which are beneficial to host country. Either country will reduce unemployment by filling in the vacancies, which will increase national output. Or employment stays constant; it will be able to reduce inflation to certain extent. But it has the same limitation as the above argument, the labour shortages keep changing and the resultant effects of immigration can be highly variable .If immigration at certain point is beneficial, it might not be after few years. The argument is that if we did not have low wage immigrant agricultural workers we would have to raise the pay for agricultural work (shock, horror), and this would mean importing more food. The Royal Society of Arts does not enlarge on exactly what is wrong with imports. Perhaps they are not aware of the fact that we import and export tens of billions of pounds of stuff every year and that the mix of stuff exported and imported is constantly changing. (Jenkins) 8 IMMIGRATION AND INTEREST RATES

It is sometimes seen in UK s newspapers the claims about immigration bringing the interest rates down .But the academic studies on which these articles are based do not mention the concrete information about immigration help reducing interest rates. Immigrants may cause the temporary decrease in interest rates, but it is not only beneficial for native population and it benefit whole population. Before we enter into this debate, there are certain factors needs to be analysed. A study done by The bank of England reveals that "immigrants are extra consumers....and they raise... demand" th (England).There are few references about French economist of 18 century J.B.Say , who gave Says Law which states that excess labour supply autonomously generates the demand that is required to create employment.

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Immigrants remit the certain extent of their earning to their home countries, which reduces the money supply circulation in current economy of host country. To extent to those earnings remitted to their home country, the interest rates decline than otherwise it would have. To understand how it cannot be any beneficial to the natives, following situation should be explained. The direct effect of interest rate decline would be on savings and borrowings .In a closed economy, the total amount of borrowings equals to total amount of savings. But in presence of immigration certain flow of savings is remitted to home country, the situation would not be the same anymore. Reduced interest rates are positive to economic growth and beneficial for economy as a whole, as it brings economic expansion and reduction in unemployment. Thus the consequent growth and jobs created are in proportion to the immigration, which leaves no extra benefit for natives.

9 IMMIGRATION HELPS EXPORTS

The speech made by Robin Cook, the UK former foreign minister in 2001 that many languages spoken in the UK boosts the exports and international business. The credit of that is given to the immigrants, which was not evidently true. UK has been the World premier financial and business centre even before world war II, after that the major immigrants arrived. Only 1% of immigrants work in a job which use their own language and involved in international business Germany has been successful in exports since last 50 years, which was no help by the immigrants as large immigrants in Germany are from Turkey. Immigrants lose their native language after two generations, cannot exploit that advantage for a long time. The UKs major exports are done in North America where medium of language is almost same.

Thus, it is obvious that immigration does not considerably help the exports of the country because of their language expertise. Moreover it is least relevant in the case of the UK.

10 IMMIGRATION AND THEIR FISCAL CONTRIBUTION TO HOST COUNTRY

The UK government has revealed that immigrants contribute about 250 million a year in total tax revenue than they withdraw from public services. The common case of Government intervention in an economy is dealt with raising tax revenue and providing

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public welfare. Immigrants pay tax on the earning they earn, VAT on the purchases they make, but usually they dont consume public welfare facilities which are long term. The surplus amount of tax paid to government creates extra welfare per head for natives.

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CONCLUSION

Immigration has always been the controversial issue for the government of several countries. I started with the research problem that what is the relation between immigration and economic growth. Many stastistical reports have suggested that immigration has very little or even nothing to do with the economic growth and therefore it should be reduced.but considering the importance of immigrants in day to day operation , commerce and business activity in the UK , the findings have led to a strong support to the fact that immigration has substantial contribution to the growth of economy.after analysing the basic fundamental economic concept about economic growth and how it is actually achieved, how the labour market and unemployment work, the picture of important role of immigration can be reached. After the analysis of the historic data and statistical reports , following answers to the research questions are derived What is the possible relation between immigration and economic growth.? Immigration fills in the gap of skills that economy doesnt have , this leads more benefits to the country than before in absence of immigration.immigration increases overall economic activity of the UK economy which contributes to the economic growth. What is the economic importance of the immigration in the UK economy ? To find out the sole purpose of introduction of the immigration in economy and to analyse if immigration still holds the same economic importance. Immigration fills in the tasks of daily lives of UK citizens. All of those crucial tasks that british workforce wont be ready to do. It is impossible to imagine such jobs done in absence of immigrants. Not only the basic level job , Immigrants have high technical and professional know how which can be utilised efficiently. What is the effects of immigration on the national out put and GDP of the UK economy ? Immigration can affect the national output and the GDP of the nation but it is necessary to find out positively or negatively and to what extent. National output of the UK is highly based on only two factors ; available capital stock and Labour forces.while immigration adds up into the effective labour supply of the UK economy, their consumption and spending patterns also bring growth to the National output and GDP. What are the implications of the immigration on the resident population?

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It is also important to analyse the implication of immigration on the resident population of the UK on its level of income , level of minimum wage rate and standard of living. From the analysis of the data immigration bring more benefit than the cost to the UK economy , apparently the surplus contribution raises the per capita income of the resident population. There are many tasks performed by immigrants because of that resident population can gain the high standard of living, and the wage rate decrease can be stopped by government regulations which is already applied in the UK . What are the influences of the immigration on the labour market of the UK economy? As the immigration is part of the nations labour market , important to find out what extent it affects the regulation of the labour market in the nation.A detailed analysis of labour market mechanism in the UK economy suggested that immigration has very little to do with the frictional , structural or seasonal unemployment and not only that but it also provides the efficient workforce to fill of the shortage of skills make the labour market of UK run smoothly. To what extent interest rates and inflation is related to immigration in the UK ? To find out any relationship that immigration may possibly have on general price indices and monetary flow of the economy. As analysis suggested , inflation and unemployment go hand in hand and has no relation with immigration. Considering all the points , Immigration has very little negative impact on the UK economy and it brings economic growth in the UK.

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(ROWTHORN, APRIL 2004)

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