Sharp fall in global migration threatens economic recovery

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Countries that have weathered the pandemic well face a lasting economic drag from the global collapse in skilled migration which will stunt the growth of their working-age population, economists have warned.

The coronavirus crisis ended a decade’s steady growth in flows of migrants around the world, according to data collated by the OECD.

Although few countries have published figures for 2020 as a whole, Jean-Christophe Dumont, who leads research on migration at the Paris-based organisation, said the year-on-year drop in inward flows to rich countries ranged from 30 per cent up to 70 or 80 per cent in those such as Australia and New Zealand that closed their borders almost completely.

With many countries now tightening border controls, migration in 2021 will be “far from normal”, he said, and “could well be similar to 2020 if things don’t get better quickly”. 

Migrants bear the brunt of this, from workers unable to take up jobs and family members kept apart, to students forced to defer courses and refugees stuck in camps.

There will also be lasting effects for countries which have in recent years relied on a steady influx of newcomers to fill jobs, sustain growth in the labour force, boost the education sector and offset the fiscal burden of an ageing population, economists say.

For example, in Australia and New Zealand gross domestic product growth has been fuelled by an expanding population, largely owing to high levels of net immigration.

But even if net migration returns to pre-pandemic levels by 2024, their respective working age populations will be 2 per cent and 2.8 per cent smaller in the medium term, according to IMF estimates — equivalent to a loss of potential output of between 1.2 and 1.7 per cent.

Marcel Thieliant of consultancy Capital Economics said migration was the main reason Australia’s economy was unlikely to return to its pre-virus path, calling this “the price they are paying for very successful management of the virus”.

Philip Lowe, governor of Australia’s central bank, said in a recent speech that population growth had shaped the country’s economy — driving GDP growth, offsetting the ageing domestic population, boosting the education sector and straining housing and infrastructure.

But in 2020-21, population growth will be the lowest since 1916 “when many Australians left our shores to fight in the first world war”.

“If population growth is to be noticeably slower in a post-Covid world, the trajectory for our economy will look different too,” he said.

Meanwhile Canada — which has a longstanding policy of pursuing population growth at a similar rate to Australia — has increased its targets for net immigration. It previously aimed to bring in 1m people between 2020 and 2022. Now, to address the shortfall, it aims to bring in 400,000 permanent residents in each of the next three years — which would be the highest level of net immigration in its history.

Line chart of Index, January = 100 showing Residence permits granted by OECD countries plummeted as virus hit

Other governments do not see the fall in migration as an immediate problem, given that overall levels of unemployment are rising in most countries. An exception is in key areas such as healthcare and agriculture; last year some countries imported seasonal workers even during lockdowns.

“In the long run, with exceptions, there is no optimal population size for any country . . . In the short term and medium term, it could be a good thing that fewer people are coming now,” said Madeleine Sumption, a member of the Migration Advisory Committee which advises the UK government.

Migrants who arrived during recessions were more likely to compete directly with domestic workers and to struggle to find a foothold in the labour market, she added.

But a lasting drop in cross-border mobility could hit countries where migration has offset the fiscal pressures of ageing populations.

Without net immigration, the natural rate of decline in Germany’s population was around 150,000 per year before the pandemic, while Italy’s population was shrinking by more than 200,000 per year.

The pandemic’s combination of lower immigration, higher mortality and fewer births meant the German population shrank in 2020 for the first time in a decade.

Bar chart of Permanent inflows as % of population (2019) showing Net immigration boosted many countries' populations before virus

“If you have a few years with very limited net immigration . . . you don’t catch up these numbers,” Dumont said.

International migration is likely to pick up once borders reopen but economists do not expect it to reach pre-pandemic levels for some time. Employers are not yet hiring, students may not risk enrolling in courses this year and existing migrants may delay plans to bring relatives to join them.

The experience of the pandemic has made governments realise the value of low-skilled migration in sectors such as care, transport and food supply, where many workers are foreign born.

“Some migrant groups are even more important than before,” said Carlos Vargas-Silva, a professor in migration studies at Oxford university.

But he also argued that lockdowns had accelerated automation and technology could erode demand for low-skilled labour: people who previously employed cleaners now own vacuum cleaning robots, and older people could to some extent use gadgets to help them manage daily tasks or call for help in an emergency.

Meanwhile, demand for high-skilled migration could ease sharply. Multinational companies see less need to send employees on short-term assignments that can be done using videoconferencing, or to pay relocation costs as the rise of remote working has made it easier to hire across borders.

A long-term shift of this nature could cut the working-age population — and so the tax base — of some developed countries, Vargas-Silva said. But it could also bring opportunities for skilled workers in the developing world, who had previously had to uproot to pursue their careers.

So in future remote working could make labour shortages in developed countries less likely, while alleviating brain drain from the developing world. “Not everything is negative,” he said. “The impact of having less migration may be smaller than people would have predicted two years ago.”

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