#Immigration #Europe #WelfareState #Economics #PublicFinance
Immigration is one of those topics where people tend to pick a side first and look for numbers later. What I got from this video was refreshing: an economist who went in with an open mind and followed the evidence where it led, even when it made both sides a little uncomfortable.
Dr. Joeri Schasfoort starts with a puzzle. Two European prime ministers from the same center-left political family see immigration in opposite ways. Spain’s Pedro Sánchez says migrants work in Spanish companies, contribute to public finances, and sustain the welfare state. Denmark’s Mette Frederiksen warns that her country is paying the price for uncontrolled migration. Her view rests on a Danish Finance Ministry estimate that immigrants from the Middle East, North Africa, Pakistan, and Turkey, together with their children, cost the state about 1% of GDP a year.
So who’s right? According to Schasfoort, possibly both of them.
He explains how economists calculate the “fiscal cost” of immigration: the taxes a person pays minus the benefits and services they receive. Some parts are easy to measure, like income tax and unemployment payments. Others, like putting a price on every doctor’s visit, school day, and bus ride, are much harder. Those estimates can swing the final answer from positive to negative, depending on the assumptions. The more honest approach looks at a person’s whole life, from childhood schooling through working years to retirement, but that means guessing future earnings, careers, and pensions.
The studies disagree on whether immigration helps or hurts public budgets overall. They do broadly agree that the average effect is small. That small average hides big differences, though. High-earning immigrants often pay far more than they receive, while some low-earning groups cost a good deal more than they contribute. Employment among women plays a major role, and so does each country’s welfare system. The same low-skilled immigrant family can cost British taxpayers roughly four times as much as Spanish taxpayers, mainly because of how each country taxes low earners and pays pensions.
Schasfoort closes with three paths Europe could take if it wants immigration to help sustain its aging welfare states: get much better at integration, become more selective about who comes in, or redesign welfare systems so that low earners pay more in exchange for generous benefits. Whatever your politics, this is one of the clearest, most balanced explanations of the issue you’ll find.
Key Takeaways
- Two leaders, two opposite stories, and both may be true. Spain’s prime minister says migrants sustain the welfare state, while Denmark’s says they burden it. The difference may come down to who immigrates to each country and how each welfare system is built.
- The cost of immigration comes down to one number, at least in theory. Researchers subtract the public benefits and services an immigrant receives from the taxes they pay. A positive result means a net contribution, and a negative one means taxpayers make up the difference.
- Assumptions can flip the answer. A 2021 OECD study of 25 wealthy countries found immigrants contributed a surplus of 1.56% of GDP when only direct costs were counted. That fell to 0.88% once shared services like policing and roads were included, and to -0.6% after adding defense and interest on national debt.
- Snapshots miss the full life cycle. Most immigrants arrive as working-age adults, their highest-paying and lowest-cost years. A fair estimate has to account for a person’s whole life, including retirement, and that requires difficult guesses about future earnings and pensions.
- On average, the net effect is small. Studies disagree on whether immigration is a net gain or loss for taxpayers, but most agree it neither saves nor sinks Europe’s welfare states. The average conceals large differences between groups.
- Origin is not destiny. Many Syrian doctors in Germany and Indian tech workers in the UK contribute far more than many native-born residents. Still, research finds that country of origin is strongly linked, on average, to employment and earnings.
- Women’s employment is a major factor. In almost every European country, fewer than half of foreign-born Muslim women are in the workforce, nearly half the rate of native-born women.
- Discrimination and culture both play a role. Blind-resume studies show real hiring bias. In France, Muslim applicants are two and a half times less likely to get a callback than Christian applicants with identical résumés. Yet female employment is also low in Muslim-majority countries, and the work patterns of a mother’s home country even predict how much her European-born daughters work.
- Earnings gaps among men matter too. Men from Central Asia, South Asia, the Middle East, and North Africa earn well below average in Germany and Spain, largely because of language barriers and lower education levels. In the UK, only 39% of working-age Pakistani and Bangladeshi men hold full-time jobs.
- Denmark’s lifetime study revealed a sharp divide. It found non-Western immigrants cost the state about €2,200 a year, plus about €1,000 more for their children, while Western immigrants contributed about €2,500 a year. Without the Western group, the cost would reach roughly 1% of GDP, more than Denmark spends on all roads, railways, and public transport combined.
- Those numbers are likely outdated. The Danish study used older data. Employment among non-Western immigrant women in Denmark has since risen faster than almost anywhere in Europe, so a new study would probably show a much smaller cost.
- Spain and Denmark differ for two reasons. Most of Spain’s non-Western immigrants come from Latin America, and Latin American women there work at rates similar to Spanish women. Spain also has little social housing and a pay-as-you-go pension system, so working immigrants start funding current retirees right away.
- Welfare-state design changes everything. In one economist’s thought experiment, a family arriving with two children where the mother rarely works needs the father to out-earn 62% of workers in Spain to break even. In Germany it’s 70%, in France 73%, and in Britain 77%.
- Britain’s generosity to low earners raises the cost. The first £12,000 or so of income is free of income tax and employee National Insurance, and the state pension is largely flat. Low earners pay in little but still receive nearly the full pension.
- Germany and France tie pensions to contributions. Social contributions start early and hit harder, and pensions reflect what people paid in. That makes low-earning immigrants far less costly there than in Britain.
- The studies leave some things out. They don’t capture the taxes locals pay on money immigrants spend, or the lower prices that low-wage labor can bring. Immigration also involves cultural questions that economics alone can’t settle.
- Europe has three main options. Countries can improve integration to raise wages and employment, especially for women. They can be more selective about skills. Or they can redesign welfare systems so low earners pay more to receive generous benefits. A mix of all three is also possible.
