Immigration isn’t, in fact, necessary

Now we are in favour of the free movement of people. We’re also aware of Milton’s point that free movement and also a welfare state that incomers gain access to doesn’t really work. Only ever trade offs and all that.

But there’s an insistence that immigration is actually necessary. As here:

The birthrate is unfixable, your options are to live in a country with declining standards of living where 50% of the population is elderly like Germany or Italy or to have immigration.

There are no other choices.

This isn’t true. Not just because of what is said in response:

Solow model wisely says the opposite:

Shrinking population means fewer people share the bigger capital of the past.

Fewer people - say, just an example - enjoying London, or St Paul’s, might make each one better off: richer.

But there’s another way. Productivity growth.

To construct a model - and note that numbers in a model are only to show the moving parts of the model, not an attempt to reflect reality.

Say we have 66% of the population working and 33% not. Then, some decades later - and this always does work in decades, that being how humans age - we have 50% of the population working and 50% not. We go from 2 people supporting each non-retiree to 1 person desperately trying to do so under that burden. It takes 35 years to move from one state to the other - ageing ain’t fast however swift it feels to those doing it.

Hmm, OK. In a static economy the living standards of those working are going to fall, considerably. And Solow will be scant comfort.

But now add in increasing productivity. We chose 35 years simply so we can use the rule of 70. If productivity increases at 1% a year (above recent numbers we think) then the increased burden of caring is greater than the growth in general wealth on offer to the worker. If productivity rises at 2% then output per hour worked has doubled in the 35 years. Our worker will now be richer, even though she is caring for a greater retiree burden.

We can look up historical productivity. If we had the productivity growth of 1986, or 87 (2.2%, 3.3%) then our worker will be richer. If the growth of 82 and 83 (4.3, 4.9) then considerably richer. If of 2002 (0.7%) then not richer, considerably not. So, don’t make Brown. G, Chancellor again. Works for us.

That is, if we have labour productivity growth then we can indeed still have rising living standards alongside a static, ageing, even shrinking population. For the increase in output can, at a certain rate of growth, be greater than the increased burden of caring.

And the lovely thing is that we know how to increase productivity. More competition, more markets red in tooth and claw. Less or no trade protection, throw ourselves open to the produce of the world - something that makes us richer anyway. But something that also creates that very competition that increases our own productivity. This must be simple to understand, even the Treasury under Osborne grasped this.

Immigration could be a good thing. Could be moral and all that. But it absolutely is not necessary to maintain living standards.

As so often we can deal with this problem merely by more markets. Lots, lots, more lovely markets.

Tim Worstall