The Economic Effects of Immigration. A Review of the Literature

The opening of the East and the proposed integration of the countries of Central and Eastern Europe into the EU has focused attention on the economic and social effects of immigration to Europe. This literature review draws on U.S. and German studies to outline the impact of immigration on various groups in the economy. In a flexible labour market, the overall macroeconomic effects typically turn out to be minimal. A 10 percent increase in the supply of labour due to immigration brings about a net gain to the native population of around 0.1 percent of national income. This figure masks large redistribution effects, however. The main beneficiary of immigration is native-owned capital, which experiences a net gain of 2.0 percent of income, while workers suffer losses (1.9 percent), with unskilled workers being particularly hard hit. If wages are not flexible downward, immigration may lead to a substantial rise in unemployment and sizeable income losses, with the results depending on the mix between skilled and unskilled workers. Of course, in both cases (flexible as well as inflexible labour markets) immigrants experience substantial income gains. In addition to labour market effects, the literature has also considered the effects of immigration on the fiscal burden imposed by immigrants on native tax payers (social costs and costs of the public infrastructure), and compared the overall benefits of immigration to those derived from international trade.