Do immigrants increase economic inequality?

What is economic inequality?

In order to discover if immigrants increase ‘economic inequality’ it’s useful to understand how inequality is defined and measured.

Simply, economic inequality is the unequal distribution of income, wealth, and opportunity across different groups within a society. There are a number of metrics used for measuring economic inequality, these include: the Gini Coefficient, and the Palma Ratio.

Let’s look at these in a little more detail:

The Gini Coefficient

This metric measures economic inequality across the whole of society, rather than comparing income groups alone – but how does it work?

A Gini value ranges from 0 to 1; the lower the value, the more equal a society. If, hypothetically speaking, all income went to a single person and everybody else received nothing, the Gini value would be: 1.

To give some context: the UK scores 0.35 on the Gini scale, and the US scores 0.38. Both scores suggest a fairly unequal society. Denmark, however, a country hailed for its economic equality scores 0.25.

The Palma Ratio

The Palma Ratio is often used in international development discourse; it looks at how the income of the top 10% within a society corresponds to the income of the bottom 40%.

South Africa has one of the highest rates of income inequality, with a Palma Ratio of 6.89; while Norway, at the other end of the spectrum, has a ratio of 0.9.

Some economists favour the Palma Ratio over the Gini Coefficient, as it more accurately highlights the difference between the richest and the poorest.

What is socioeconomic inequality?

Socioeconomic inequality is driven by the difference between people on an individual, family, institutional and community level – often linked to social class. Groups and demographics that face discrimination – for gender, race, sexuality or disability – are also often, sadly, among the most socioeconomically disadvantaged.

Immigration and inequality: the politics

In spite of far-right anti-immigration sentiment, most economic studies looking for a correlation between migrant arrival and economic inequality have found little proof of causal effect.

However, immigration can have a significant indirect economic effect, depending on how it is politicised – or, moreover, weaponised, by candidates or parties seeking political office. Unfortunate trends in democracy reveal that politicians can pander to the degree to which the public perceive immigration as a problem – adapting their policy accordingly.

What’s more, anti-immigration policies – often endorsed by far-right groups – tend, broadly speaking, to go hand-in-hand with isolationism and welfare-chauvinism. And these ideologies can certainly damage economic inequality.

So, although shocking, it seems immigrants are often harnessed to indirectly drive inequality – without actually perpetuating it themselves.

The economic impact of immigration

In the last few decades, the share of immigrants in the total population of advanced economies has increased significantly. Rising from 7% in 1990 to over 12% today. But what is the economic impact of this movement? And how are immigrants affecting their new home? Naturally, more prosperous countries attract more immigrants, particularly from countries with younger populations. But the youthfulness of migrants is key. Many emigrate to work – and bring to the labour market new talent, new skills, and new ideas. All of which works to diversify industries, encourage dialogue, and drive both innovation and growth. In fact, many studies show that immigrants living and working in advanced economies increase output and productivity in both the short and medium term.

To put this in figures: on average, a 10% increase in migrant population drives a 0.15% higher regional income per capita. Unsurprisingly, migration also works to improve trade connections, on both a small and larger scale. Regions that observe a 10% increase in the number of migrants also experience a 3.2% rise in imports, and a 1.2% rise in exports. Migration is also instrumental in driving trade relations with destinations outside the EU.

While, historically, people in some regions have expressed fear over immigrants taking their jobs, studies show that overtime these regional markets adjust. Of course, it’s true that more economically stable regions can absorb migrants faster, with little effect on the native workforce.

Do immigrants increase economic inequality?

So, as we can see, immigration is a force for good. One that drives innovation, collaboration and growth – all of which positively impacts a country’s economy. Although some labour markets are initially affected, trends suggest they do improve in the long term. Immigration, then, is not responsible for driving economic inequality; for broadening the gap between rich and poor, and adversely affecting any Palma Ratio or Genii Coefficient.

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