A World Without Migration

Inward migration will prevent declines in working-age populations.

Political pressures associated with international migration are evident in many advanced economies. They risk leading to policy changes that could have unfavourable medium-term economic consequences. Politically expedient protective measures undertaken ostensibly for the retention of jobs and the promotion of better economic opportunities for residents are more likely to result in weaker growth and lower national income levels over time. A number of advanced economies, including the US and UK, will be reliant on continued immigration in the years ahead to avoid declines in working-age populations and slower growth.

Migration: A Potential Win-Win

If countries’ demographic conditions were aligned, with similar age distributions as well as birth and death rates, migration trends would be of much less economic importance. But global demographics are heavily skewed. In the five-year period 2015–2020, for example, India alone will account for nearly 30% of the global increase in the working-age (15–64 years old) population, according to United Nations’ projections. Taking a longer view, the working-age population of African countries is forecast to increase by 780 million between 2020 and 2050, representing most of the global increase of 1.04 billion.

Many advanced economies face an unfavourable future, with ageing societies resulting in declining working-age populations and rising dependency ratios (the population of those up to 14 years and over 65 years relative to those of working age). A number of emerging markets — but certainly not all — face the opposite trends, with high fertility rates that will lead to rapidly growing working-age populations.

International migration is an important way for countries’ divergent demographic futures to become somewhat more aligned. This can be helpful to both policymakers that are confronting rapidly growing working age populations and those with working-age populations in decline. At both ends of the demographic spectrum, there are policy challenges that can be difficult to manage otherwise.

One of the biggest risks with a rapidly growing working-age population is that job creation may be unable to keep pace, resulting in an increasingly idle labour force that can be a source of social or political instability. Net outward migration might contribute to a reduction in such risks, though it could also lead to lower economic growth if more highly skilled labour leaves the country or emigration is too high.

For countries with working-age populations in decline, the biggest risk is that economic growth slows — though maybe not on a per capita basis — in tandem with the shrinking labour force. Higher dependency ratios would also mean pay-as-you-go pension systems could become financially stressed. Net inward migration would help to bolster the labour force, support economic growth and raise the number of those making contributions to the public revenues that pay pensions.

Dramatic Long-Term Effects of Immigration

One of the foundations of long-term economic forecasting is estimating changes in the labour force, which can be derived from population forecasts broken down by age cohort. UN population projections provide this breakdown, and offer several alternatives to their median variant (base-case) outlook, including one in which there is no international migration. The median variant is based on the assumption that current migration levels are maintained until 2045- 2050, and then decline gradually by a total of 50% by 2095–2100. The zero-migration projections are based on no migration taking place in any years.

The effects of migration are apparent when comparing the median variant with the zero-migration projections, as in charts 1 and 2 for G7 countries’ working-age populations. The most dramatic differences by 2100 are in Canada (an increase of 11% in the working-age population versus a 43% decline), the US (a 20% increase versus a 16% decline) and the UK (a 9% increase versus a 20% decline). Denmark, Norway, Sweden and Switzerland would experience similar changes. The implication is that long-term economic growth rates in these countries are likely to be dramatically lower in the absence of immigration.

For Italy, Germany and Japan, where immigration rates are projected to be very low in the base case, and insufficient to offset trend declines in working age populations, switching to the zero-migration case makes less difference.

The charts also make clear that advanced economies can be divided into two broad categories in the years ahead: those with unresolved demographic challenges, and those with demographic challenges that are avoided based on current immigration trends. Most advanced economies fall into the former category.

By 2050, the world’s working-age population is projected to increase by 26%. In the advanced economies (“high-income countries” in UN terms), the working-age population declines by 5% with immigration, and 15% without. Base-case long-term growth prospects are already challenging, and would be even weaker if immigration declines.

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