Economic considerations about immigration

Since the mainstream political-economic doctrine argues immigration is an important resource, if not essential, for developed and population declining economies in Europe, I think it is necessary to explain, especially to those who have never studied the issue or doesn’t have the knowledge to do it properly, the senselessness of these assumptions on a theoretical level as well as to clarify some issue in the light of reality in which our continent is found.

Let’s consider the best known of justifications about immigration, that “immigrants are needed because they are available to do jobs we don’t want to do anymore.”

This is a pretty ridiculous excuse because the reason why certain jobs are not wanted to be done anymore is because they are not adequately remunerated: we could simply let law of supply and demand act in order to increase the reward and then find people willing to work!

Many then try to climb up on the mirrors and start to say that “immigration is needed to fill shortage of labour supply in rich countries and to reduce excess of labour supply in poor countries, thus leading to a convergence of real wages in the long term and so to improve welfare for all”.

Putting aside the fact that appealing to shortage of workers when youth unemployment in Europe is over 20% would be quite ridiculous, we must recognize that immigrants actually increase labour supply.

However, are we sure that this is really good for indigenous population?

What kind of effects could have the increase in the labour supply on indigenous population?

By the law of supply and demand, an increase in labour supply caused by immigrants leads to a reduction in real wages (i.e. wages adjusted for the actual purchasing power) that, on one hand, causes increase of welfare because immigrants rise production by reducing prices (due to economies of scale) but, on other hand, decrease welfare because immigrants make up aggregate demand thereby increasing the level of prices.

According to economic theory, the positive effect should be greater than the negative, and then immigration would seem actually a resource (also a native population increase would be, since it rises the labor supply), but we must remember that economic models are simplistic assumptions that can get opposite results than reality.

A first simplification is that immigrants have the same impact on a social level of indigenous individuals, taking also belied by the fact that immigrants tend to receive substantial social benefits (because with their big families often consume more than they produce), as well as to reduce social welfare because of their negative externalities (increased crime, reduced average education, etc.).

A second unrealistic assumption is that factors of production, such as energy, land, raw materials, are available in unlimited quantities, absolutely ridiculous on a territory on verge of urban collapse, now almost devoid of raw materials and abundant sustainable energy sources such as Lombardy (and to a lesser extent as Europe).

Here it should be added that some economists (as famous Solow model) argue that we could make a more efficient use of resources (best available technologies), but in case of limited resources, this assumption can only be valid in the short or medium term because once it has reached maximum energy efficiency it can no longer improved.

This simplification also relates to justification that “immigrants are used to compensate dangerous population decline we are experiencing and then reduce aging of population”.

Of course, the argument is based on ingenuous assumption that population growth would lead to an improvement in the welfare thanks to exploitation of economies of scale allowed by a growing demand.

Seeing that, in presence of limited resources, returns to scale are however increasing, only up to a certain point, it actually confirms Malthus thesis, that in the long term an increase in population leads to a reduction in real wages.

Some economist argue that long period of population growth and real wage growth started from the second half of the nineteenth century has invalidated the Malthusian model.

Too bad this long period of economic and population growth has been enabled thanks to incredible availability of cheap energy from fossil fuels and, with current knowledge, it seems it will end once it reaches peak of production of the latter.

Adding the problem of an aging population as justification of immigration also leads to even greater level of absurdity: since the current population of Europe is not sustainable in the long run, immigrants would only delay the aging population problem, moreover increasing the size, and therefore making the solution even more difficult!

Then there is a third ridiculous simplification to mention, that labor productivity of immigrants is the same as the native population, as it is particularly funny because that hypothesis has been disproved, not only from reality but also from previous justification “immigrants are needed because they are available to do jobs we don’t want to do anymore.” (i.e. those with low productivity).

This last point must be investigated even as regard the impact of immigrants on income redistribution within indigenous population: immigration should in fact increase inequality between the rich and the poor.

This is because, on one hand, an increase in labor supply caused by immigrants leads to a reduction in real wages, a reduction which affects the welfare of indigenous workers (who are generally the poorest class), while at the other side increased demand for resources, such as land and capital, caused by immigrants leads to an increase of their prices (i.e. rents and interest rates) favoring those who receive these annuities (which are typically the richest class).

As science and mass media are often manipulated by the financial lobbies, it should therefore not be difficult to understand why immigration is often presented to the public as a resource.