Last year, 1.2 million people moved to Britain, a number that is almost certainly the highest ever. In Australia, the net migratory balance (that is, immigrants minus emigrants) today doubles the figure prior to the covid-19 pandemic. The equivalent figure in Spain recently reached an all-time high. It is estimated that almost 1.4 million people net will move to the United States this year, a third more than before the pandemic. In 2022, net migration to Canada was more than double the previous record. In Germany it was even higher than during the “migration crisis” of 2015. The rich world as a whole is in the midst of an unprecedented migration boom. Its foreign-born population is growing faster than at any time in history (see chart 1).
What does that mean for the world economy? It seemed not long ago that a good number of rich countries had turned outright against mass migration. In 2016, the British voted in favor of Brexit and then the Americans voted in favor of Donald Trump, two political projects with a strong anti-immigration component. In the subsequent global wave of populism, politicians in a number of countries, from Australia to Hungary, have vowed to crack down on immigration. Then the covid closed the borders. Migration came to a standstill, or even went backwards, as many decided to return to their country. Between 2019 and 2021, the population of Kuwait and Singapore, countries that usually receive many emigrants, fell by 4%. In 2021, the number of emigrants from Australia exceeded that of immigrants for the first time since the 1940s.
In some places, the increase in immigrants has restored a sense of normality. Singapore's foreign labor force has recently returned to its pre-pandemic level. In others, the impression is that of a drastic change. Consider the case of Newfoundland and Labrador, the second smallest province in Canada by population. Long home to people of Irish Catholic descent, net migration to the province is now more than 20 times the pre-pandemic norm. St. John's, Newfoundland, the capital, once a fairly homogeneous town, is looking more and more like Toronto. The small rural town of Heart's Delight now has a Ukrainian bakery, Borsch. The provincial government has opened an office in Bangalore to recruit nurses.
Newcomers to Newfoundland are a microcosm of those found elsewhere in the rich world. Many hundreds of Ukrainians have arrived on the island, a tiny fraction of the millions who have left the country since Russia invaded. Indians and Nigerians also arrive in large numbers. Many speak English. And many already have family connections in rich countries; in particular Great Britain and Canada.
Part of that immigration growth is due to making up for lost time. Many emigrants obtained visas in 2020 or 2021, but were unable to travel until restrictions due to the pandemic were relaxed. Still, the foreign-born population in the rich world, more than 100 million, is now above its pre-crisis trend, suggesting that something else is going on.
The nature of the post-pandemic economy makes up a large part of the explanation. Unemployment in the rich world, at 4.8%, had not been this low in decades. Employers are desperate to find staff, and job vacancies are near all-time highs. So there are good reasons to emigrate. Currency movements may be another factor. One pound sterling buys more than 100 Indian rupees, up from 90 in 2019. Since early 2021, the mid-size emerging market currency has depreciated by around 4% against the dollar. That allows migrants to send home more money than before.
There are also many governments trying to attract more people. Canada has an explicit goal of welcoming 1.5 million new residents in 2023-2025. Germany and India recently signed an agreement to allow more Indians to work and study in Germany. Australia is increasing the period during which some students can work after graduation from two to four years. Britain has welcomed Hong Kongers fleeing Chinese oppression: more than 100,000 have already arrived. Many countries have made it easier for Ukrainians to enter. Even countries hitherto hostile to immigration, such as Japan and South Korea, look more favorably on outsiders because they are trying to counteract the consequences of aging populations.
Economies that welcome many immigrants tend to benefit in the long run. Just look at the case of the United States. Foreigners bring new ideas. In the United States, immigrants are 80% more likely than natives to start a business, according to a recent study by Pierre Azoulay of the Massachusetts Institute of Technology and colleagues. The research indicates that immigrants also help create trade and investment links between the country of origin and the host country. A flood of young workers also helps generate more tax revenue.
Some economists estimate that the migration wave will have more immediate benefits. “High immigration is helpful to the Fed as it tries to cool the job market and curb inflation,” says (expressing a common view) Torsten Slok of asset manager Apollo Global Management. These arguments may be too optimistic. Having more people increases the supply of labor, which, other things being equal, reduces wage growth. However, the effect is quite small. There is little evidence that the countries that receive the most immigrants have the most lax labor markets. In Canada, for example, wages continue to rise by around 5% year-on-year (see Chart 2).
Immigrants also increase the demand for goods and services, which can raise inflation. In Britain, new arrivals appear to be driving up rents in London, which already had limited housing supply. A similar effect is observed in Australia. Estimates published by Goldman Sachs bank indicate that, in Australia, the current annualized rate of net migration of 500,000 people is raising rents by around 5%. The increase in rents translates into an increase in the general consumer price index. Demand from migrants may also explain why, despite rising mortgage rates, house prices have not fallen much in many rich countries.
Emigration may slow down a bit next year. Post-pandemic “catch-up” will come to an end; labor markets in rich countries are slowly easing. However, there are reasons to believe that the historically high levels of new arrivals will continue for some time. More welcoming government policy is one factor. More importantly, emigration today begets emigration tomorrow, as newcomers bring children and partners. Before long, the rich world's anti-immigration turn in the late 2010s will seem like an aberration.
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Translation: Juan Gabriel López Guix
