Many of the immigration debates now raging around the world reflect the faulty assumption that admitting immigrants is an act of largesse — and a costly one, at that. But, far from being an economic burden, immigrants represent a major economic opportunity for destination countries. Those countries that take a thoughtful, long-term approach to immigration can capture large and tangible benefits.
New research from the McKinsey Global Institute (MGI) shows that cross-border migrants — more than 90 percent of whom have moved for economic reasons — comprise just 3.4 percent of the world’s population, but contribute nearly 10 percent of global GDP. Because roughly two-thirds of these migrants reside in developed countries, where productivity tends to be highest, they are maximizing the impact of their work, with far-reaching economic benefits. Migrants of all skill levels contribute to this effect.
Migrants added roughly $6.7 trillion to global GDP in 2015 — some $3 trillion more than they are projected to have produced had they stayed in their countries of origin. Because flows from developing to developed countries generate the largest productivity increases, these destinations account for more than 90 percent of migrants’ total contribution to global GDP. MGI estimates that, in 2015, immigrants generated some $2 trillion in the United States, $550 billion in Germany, $390 billion in the United Kingdom, $330 billion in Australia, and $320 billion in Canada.
Even those estimates are probably too modest, given that immigrants are also an important source of innovation and entrepreneurship. They can play a particularly important role in countries with rapidly aging populations, as they support much-needed labor-force growth, improve old-age dependency ratios, and contribute tax revenues.
Contrary to popular belief, immigrants typically do not take jobs that would otherwise be filled by native-born workers. Many gain a foothold in a new community by taking jobs that are available precisely because locals do not want them. A large body of research shows that immigrants have a negligible negative impact on the wages and employment of native-born workers, not to mention on the fiscal resources of destination countries.
Yet studies also suggest that, in Europe and North America, immigrants may earn 20-30 percent less than native-born workers of similar education levels, even within the same occupations. With immigrants less able to negotiate wages effectively — owing to, say, language barriers or unrecognized credentials — countries end up with a two-track job market.
This inequality extends beyond economics. MGI found that, of 18 major destinations, none has achieved strong integration outcomes across the board, though some have done better than others. In all top destinations, immigrants not only face more economic obstacles than their native-born counterparts; they also have difficulty obtaining quality housing and health care, and their children face educational attainment gaps. Many report experiencing discrimination and mistrust. All of this undermines immigrants’ capacity to contribute to their new countries.
The problem is that, in many countries, the immigration debate begins and ends with the question of how many people to admit and what their profile should be. It rarely extends to creating real pathways for those immigrants to assimilate fully and maximize their economic contributions.
Focusing more attention and resources on integration can help new arrivals reach their full productive potential – an outcome that is in every destination country’s best interests. Such efforts can transform immigrants’ lives and those of the second- and third-generation immigrants who will shape the labor force of the future.
To this end, short-term initiatives aimed simply at linking immigrants to employment are inadequate. After all, a group that is disadvantaged in education, housing, health care, and social and civic life will always be at a disadvantage in the labor market, even if efforts are made to connect that group to jobs.
If immigrants are to meet their full potential, destination countries must pursue economic, social, and civic interventions in a holistic manner. Moreover, because immigrant populations change over time, these must be long-term initiatives. Their ultimate success requires the involvement of immigrants and host communities alike.
Local organizations and gateway cities like New York, London, and Berlin are already pioneering effective approaches to immigrant integration. They have the depth of experience and the sense of accountability that is needed to seize the opportunity that immigration presents.
The scale of that opportunity is huge. According to MGI research, narrowing the wage gap between immigrants and native-born workers to 5-10 percent would generate an additional $800 billion to $1 trillion per year in global output. It would also bring additional societal benefits, including lower poverty rates and higher productivity for destinations that take the lead.
Of course, immigration does imply short-term challenges and costs for destination countries, particularly when it takes the form of a large and sudden influx of refugees. But these costs are far outweighed by immigration’s medium- and long-term benefits – as long as governments work actively to support integration.
In today’s interconnected world, migration is inevitable. The question is whether we will create isolated, disaffected, and dependent populations of immigrants, or a powerful engine of growth and dynamism.
Ian Goldin and Jonathan Woetzel
Ian Goldin is Professor of Globalization and Development and Director of the Oxford Martin Program on Technological and Economic Change at the University of Oxford. Jonathan Woetzel is a director of the McKinsey Global Institute and a senior partner of McKinsey & Company, based in Shanghai, China. This article first appeared under the title ‘The Migrant Boon’.