May 8, 2024
International migration is partly driven by relative incomes. This means it could still accelerate in coming decades, despite the political tensions it sometimes creates. Without net inward migration, working age populations in rich countries would shrink massively.
In our previous post we wrote about our simple growth model and projections far into the future (link). In this post we would like to focus on how migration and GDP growth are related, and shed light on the reality of the UN migration assumptions. We conclude that our alternative scenario for international migration (which feeds into our long-term growth estimates) is more plausible. However, if we believe in the more constrained UN scenario of worldwide labor mobility, the reversal of fortune could be even more pronounced: rich countries would fall back even more in relative terms.
The UN forecasts assume a dramatic drop in net international migration (see chart below). That seems counter-intuitive: rich countries are facing a decline in working age populations without net immigration, and there is plenty of “supply” of potential migrants in poorer countries who are eager to move, given the chance.
The mainstream theory on migration is that the relationship between how rich a country is and its net immigration should show a U-shaped relationship. In general, the very poorest countries don’t have a large net outmigration because the population is too poor and liquidity constrained to “invest” in migration. Slightly better off countries do have the resources, and income differences are still large to induce outward migration. Finally, as incomes get closer to the rich country levels, outmigration stops and turns into an increasingly positive net inward migration.
The data bears this broad relationship out: the chart below shows the past relationship between net immigration and GDP per worker, for the 1999-2019 period. The U shape is present: at around 50% of USA GDP per worker, net migration is about zero on average, and at higher incomes turns increasingly positive but seems to level off at around 0.4% per annum. Of course, there is a lot of variation around this broad pattern.
So we estimated a new net immigration and population numbers for the future based on the empirical relationship between relative GDP per worker and net immigration depicted above. We assumed that the limiting factor between migration demand and supply is the demand side in rich countries. We assume a convergence to this average relationship over time.
This way we can arrive at new migration projections compared to the UN forecasts, which show significantly larger populations for rich countries. For the US for example, population is projected at 366.6 million in 2040, while our model suggests 374.2 million for the same year. For the EU, the respective numbers are 435.7 million and 446.1 million – more than 10 million people higher!
If anything, we may underestimate net migration: for the EU as a whole, our migration numbers would still mean a more than 20 million decline in the working age population from now to 2040, which may open the way to higher net immigration than the average relationship would suggest. In general, we are in uncharted territory in terms of demographics in rich countries: without substantial immigration, the working age population would decline steeply.
Migration is also a political, and not just economic issue, and we should be cautious drawing conclusion, but it is entirely plausible, given the demographic trends in rich countries, that there is going to be an increasingly fierce competition for skilled immigrants in coming years, despite the political rhetoric (see also this FT article).
