Ireland is experiencing a surge in immigration. Last year, the total population rose by 66,900, bringing it to 5,525,600 – the highest level in the Republic since the Famine. In terms of who was coming and going, 110,600 immigrants arrived and 62,500 emigrants left, putting net migration at 48,100. The natural increase in the population, which is births minus deaths, was 18,800, implying that immigrants accounted for 72 per cent of the increase in the Irish population last year. This is not an insignificant shift in the composition of the population.
Talking about immigration numbers is tricky, partly because many people take an emotional and often entrenched position. There are those who think that any number of immigrants is always too much, while there are those who believe any number of migrants can be accommodated. Most people are somewhere in the middle.
In opinion polls, immigration comes third on a list of citizens’ top concerns. Housing is the second and, obviously, net immigration affects the availability of housing. Therefore, the number of new people coming into the country has significant political and economic implications.
One of the major issues concerns the welfare state and the question of whether large-scale immigration and Western welfare states are compatible. For example, was the success of the Irish in America related to the absence of a welfare state, where Irish immigrants worked hard and, ultimately, pulled themselves up, thus attracting admiration rather than suspicion - eventually at least?
READ MORE
Given that so many of the political positions around immigration are rhetorical, it is helpful to be guided by the numbers rather than the loudest voices. Fortunately, we are beginning to see some more granular research, not only on immigration in the aggregate, but on the economic status of new immigrants and, importantly, the type of welfare state in the host country.
Until recently, most economic/fiscal research into immigration largely assumes all immigrants are the same, and that all welfare states are the same. When you adapt these assumptions, the data is more revealing. A recent Financial Times article, Unpacking the real fiscal costs of immigration, argues that the exchequer position depends as much on the tax and welfare system that migrants arrive into, as on who they are. This might need a bit of explaining. Here goes.
If a country has a very progressive tax system, meaning that low-wage workers pay very little income tax and a worker gets taxed more as they earn more, like Ireland, it will affect the overall lifetime contribution an immigrant will make, particularly a low-wage immigrant.
In addition, in a country that provides a flat state pension to everyone, like Ireland (irrespective of how much tax that person has paid over their working life), the retired migrant will take out more than they have paid into the system. The Financial Times draws on a new working paper by Usama Polani (Stanford Institute for Economic Policy Research), which builds a 60-year life cycle fiscal model for the UK, Germany, France and Spain.
The model distinguishes between two types of migrants. The first is the “average” foreign-born migrant family, where both mother and father go out to work. The second is the low-skilled/waged migrant who comes from a culture where women don’t do paid work. This is called a “female seclusion” society and typically refers to migrants from parts of central/south Asia, the Middle East and north Africa, which have very low female employment, even after they arrive in the new country. The model then estimates how much money the migrant would have to earn to pay their way in both scenarios.
In countries such as France, Germany and Spain, where income taxes are flatter and pensions are linked to the amount of tax you pay over your lifetime, immigrants need to earn less to pay their way than in other systems. In countries such as the UK, migrants need to earn more to pay their way.
According to the Financial Times, an average immigrant couple arriving in the UK at age 30 needs the primary earner to have a salary at the 55th percentile of the overall earnings distribution, compared to the 45th in France and 28th in Germany. Or, to put it another way, ”for immigration to be financially beneficial to the state, the UK needs to attract migrants with much higher pay and rates of employment than its peers, because low-wage or inactive families – whether native or immigrant – exert a much greater net fiscal cost in Britain than elsewhere". This is a significant piece of information.
What is the position in Ireland?
I’ve tried to replicate this model for Ireland. The figures should be seen as indicative rather than absolutely precise, but they track the UK broadly because we have a similar system – except the Irish welfare system is far more generous as well as open-ended, plus the Irish income-tax system is even more progressive than the UK’s, meaning low-wage workers pay less income tax here.
On this basis, these “back of the envelope” figures reveal that for the average immigrant couple who arrive here at age 30 and go to work, the main breadwinner must be in the 65th percentile, meaning earning at least €62,000 a year, in order to pay their way over their lifetime. For immigrants from female seclusion societies where the culture means women don’t go to work, the primary earner in that scenario must be in the 85th percentile, meaning that man has to earn over €95,000 for that couple to pay their way.
The Irish tax and welfare system has been designed to ease the burden on single low-wage families, so a family – migrant or native – with one earner making half the average salary (€27,000) receives around €11,151 per year from this State, in effect a support from the rest of society. This compares with average earners (€52,200) who, when tax and welfare are taken into account, pay into the State €8,294 per year. If you earn twice the average salary (€104,000), you will pay €40,362.
In addition, because we are paid a flat pension, unrelated to the amount of tax paid, someone on the minimum wage for 40 years, paying no tax, gets the same €299.30 per week as someone who earned €150,000 for 40 years and contributed an enormous amount of tax.
This is the system that Ireland has designed. What does it tell us about immigration and the cost or benefit to society? As the debate about immigration gathers pace, this tells us unless we change our tax and welfare system, Ireland can really only afford highly skilled migrants. If we want to take in lots of low-skilled migrants we must change our system.
Could this be the big policy debate of the next decade?
