Demystifying the impact of migrants on public finances and labor markets
Thursday, 31 October 2024
Migration is fuelling heated political debates in host countries. To shed light on the reality of its economic impact, Future is Blue podcast host Carlos Carnicero Urabayen interviewed Ana Damas de Matos, a senior policy analyst at the Organisation for Economic Co-operation and Development (OECD). Drawing on years of research, Damas de Matos provided insight into the fiscal contribution of migrants, effects on the labor market and related policy responses.
You can listen to the podcast here.
Migrants’ fiscal contributions: more than they take
One of the central debates regarding migration is whether immigrants are a financial burden on public finances or if they contribute more than they receive in services. Using a consistent methodology across 25 OECD countries from 2006 to 2018, the OECD analyzed the net fiscal contribution of migrants — comparing their taxes and social security contributions against the costs of their health, education, and social protection.
“In all countries, migrants contribute more in taxes and social security than the state spends on them,” said Damas de Matos. This positive contribution includes costs often attributed to shared public goods such as infrastructure and transport. “Even when accounting for these shared costs, migrants’ fiscal contributions remain positive in almost all OECD countries,” she explained.
While the net fiscal contribution of migrants remains modest, the findings challenge the perception that migrants drain public finances. On the contrary, migrants help fund public services, contributing a combined $547 billion toward public goods in 2017 alone across the countries studied.
Migration and jobs: the labor market puzzle
The impact of migration on local labor markets is another contentious issue. There is a perception that migrants take the jobs of native populations, especially in lower-skilled sectors. However, the research shows that the effects of migration on jobs and wages tend to be small.
“The idea that migrants steal jobs or lower wages for native-born workers is overly simplistic,” Damas de Matos said. Migrants often occupy different roles in the labor market, and the dynamics of labor supply and demand are more complex than a fixed number of jobs. “In cases where migrants do compete directly with native workers, particularly in specific sectors like construction, there may be short-term displacement. But in the long run, economies tend to adapt.”
Overall, the impact of migrants on wages has been small, with wages adjusting to accommodate new workers over time. Additionally, certain native workers, particularly those in managerial or technical roles, may benefit from an influx of migrant labor, as it creates more opportunities for them.
Supporting social protection: a demographic lifeline
One of the most significant contributions of migrants to host countries comes from the demographic impulse. Migrants tend to be younger and are overrepresented in the working-age population — the group that contributes the most to public finances. This demographic advantage allows migrants to provide critical support to aging populations in many OECD countries.
“Migrants are key to sustaining public finances in the short term, especially in countries with aging populations,” Damas de Matos noted. However, she cautioned that relying on migration alone is not a long-term solution to the sustainability of social protection systems. “Migrants, like the native-born, will eventually age and require pensions, so migration cannot fully offset the fiscal pressures created by aging populations.”
The role of migration policy
Policies designed to integrate migrants into the labor market play a vital role in maximizing their economic contributions. The key to improving migrants' fiscal contributions is increasing their employment rates and ensuring they work in jobs that match their skills.
“The fiscal contribution of migrants would significantly increase if they had the same employment rates as native-born workers of the same education level,” she said. In countries like Belgium and Sweden, closing this employment gap could boost fiscal contributions by up to half a percentage point of GDP.
Countries with targeted policies to improve labor market integration, such as language training and recognition of foreign qualifications, tend to see better outcomes. Damas de Matos pointed to Denmark and Germany as examples of countries that have implemented effective policies, particularly for refugees and lower-skilled migrants. Both countries have introduced vocational training programs aimed at filling labor shortages in specific sectors, a strategy that benefits both migrants and the host country’s economy.
“In countries like Denmark, refugees who receive targeted language training and are placed in areas with strong labor markets have much higher integration rates,” Damas de Matos said. Meanwhile, countries like Spain are creating pathways for migrants training for occupations where there are labor shortages, ensuring they can integrate more quickly.
The future of migration and economic impact
As the global economy faces ongoing challenges, the role of migrants in economic recovery remains crucial. Investments in migrant labor market integration will yield high returns.
“If countries continue to invest in policies that promote migrant employment, the fiscal and economic contributions of migrants will remain an important asset to host countries,” she said.
In conclusion, the data reveals that migrants are not the financial burden they are often perceived to be. Instead, they are essential contributors to public finances and help meet labor market demands. As host countries continue to navigate the complexities of migration policy, fostering inclusive and effective integration strategies will ensure that migrants can contribute to the fullest extent possible.
You can access the podcast here.
Carlos Carnicero Urabayen