Is immigration good for the economy?

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Immigration and the economy

1. Short-run labour-market effects

  • Newcomers usually earn less than comparable native workers during their first years in the host country, but wage gaps narrow markedly within a generation as language proficiency, credentials recognition and social networks improve [1].  
  • Large empirical exercises for the EU find only “minor and often statistically insignificant” impacts—positive or negative—on the wages of incumbent workers in the short run; the main variable is whether immigrants obtain work quickly and at skill levels that match their education [2].

1. Growth, productivity and entrepreneurship

  • Historical data for the United States show that immigrant participation was central to industrial expansion in the late-19th and early-20th centuries, supplying both labour for factories and founders for new firms; similar patterns are visible today in high-growth sectors such as technology and health services [1].  
  • In the EU, model projections to 2060 show that higher migration rates raise aggregate output by expanding the working-age population and slowing workforce ageing; the positive effect varies from 0.5 % to 2 % of GDP depending on the skills mix and labour-market integration speed [2].

1. Fiscal balance

  • Because immigrants arrive disproportionately in their prime working years, they pay taxes sooner and draw on pensions later, producing a “demographic dividend” that partially offsets the fiscal pressures of population ageing [2].  
  • Simulations for the EU27 suggest that, under baseline integration assumptions, the average net fiscal contribution of a recent migrant cohort remains positive for two decades and turns slightly negative only as the cohort reaches retirement; in an optimistic scenario of rapid labour-market convergence the net contribution stays positive throughout the projection horizon [2].  
  • The same studies warn that slow integration or very low participation rates can wipe out the dividend, producing small but persistent deficits in countries with rigid labour markets [2].

1. Assimilation and long-run convergence

  • Cultural and economic assimilation generally occurs faster than public perception allows: after roughly thirty years, rates of English use at home, inter-marriage, income and educational attainment among U.S. immigrants’ children approach or surpass native averages [1].  
  • Successful assimilation reinforces economic gains by boosting mobility and entrepreneurship; conversely, segregation or legal barriers that keep migrants in low-productivity jobs limit overall benefits [1][2].

1. Points of agreement and disagreement in the literature

  • Both sources concur that immigration is not automatically good or bad for the economy; outcomes hinge on policy choices that affect speed of labour-market entry, skills recognition and language acquisition [1][2].  
  • The U.S.-centred analysis stresses long-run dynamism and inter-generational mobility [1], whereas the EU fiscal study highlights short- to medium-term budgetary effects and scenarios in which poor integration generates modest costs [2].  
  • No direct contradiction exists between the two; rather, they frame the same mechanisms—age structure, skills and assimilation—at different time horizons.

Timeline of public discourse

1880-1924 • “New immigration” from Southern and Eastern Europe fuels U.S. industrial boom and sparks first large-scale economic worries about wage competition. 1965-1986 • Post-1965 immigration wave and studies of wage impacts launch modern debate; early econometric work finds small negative effects for low-skilled natives, slight gains for others. 1990s-2000s • Growing empirical consensus in the U.S. that aggregate gains outweigh distributional costs; EU discussion remains limited owing to lower migration levels. 2015 • Refugee inflows during the Syrian crisis push immigration to the top of the EU policy agenda; questions arise over fiscal sustainability. 2018 • Publication of “Projecting the net fiscal impact of immigration in the EU” provides first union-wide long-horizon estimates, showing mostly positive effects under realistic assumptions [2]. 2023 • “The Assimilation Myth” article argues that U.S. immigrants still assimilate rapidly and that fears of perpetual cultural or economic separation are unfounded [1].

Conclusion

Across both American historical data and forward-looking EU fiscal models, the balance of evidence shows that immigration tends to be economically beneficial when newcomers integrate into the labour market within a reasonable time frame and when host-country policies facilitate skill use and language acquisition. The gains are not automatic; they depend on policy design, market flexibility and the demographic profile of arrivals.

Sources

1. https://inquisitivebird.xyz/p/the-assimilation-myth-america
2. https://migrant-integration.ec.europa.eu/library-document/projecting-net-fiscal-impact-immigration-eu_en
3. https://www.lorenzofromoz.net/p/taking-in-palestinian-refugees-is

Question

Is immigration good for the economy?