(This blog comprises part of the presentation that we will be giving at the International Conference on the Economics of Constitutional Change at Dalmahoy on the 19th and 20th of September – Twitter #icecc)
Migration has a pervasive effect on economic performance, on the demand for public services and on the diversity of culture and identity. It is rightly central to the constitutional change debate in Scotland. Emigration was a common feature of Scotland’s history. However, in recent decades, the net flow of people has been into, rather than out of, Scotland.
In relation to constitutional change, one key question about is how migration flows between Scotland and the rest of the UK (rUK) might be affected. We know that such flows have become less important relative to international flows in recent years. For example, in 2010-11, the net inflow to Scotland from overseas was 25,400 while the net flow from rUK was only 2,900. A decade earlier, in 2000-10, the net flow from rUK was 4,700 while there was a net outflow of 6000 to overseas destinations.
Figure 1 shows the age distribution of net migration flows from Scotland to rUK and overseas for the ten-year period from 2001-02 to 2010-11. These indicate that (1) movement of young adults dominate migration flows and (2) overseas migration dominates rUK migration over this period.
Figure 1: Age Distribution of Net Migration to Scotland 2001-02 to 2010-11
Source: Registers of Scotland
Figure 1 illustrates clearly that there has not been a massive inflow of older individuals from rUK in response to what is widely perceived as more generous support for older people in Scotland. The net inflow of those aged 65+ comprises only 2.5 per cent of the total net inflow of migrants to Scotland between 2001-02 and 2010-11. There is a small net outflow of older Scots overseas.
Though net immigration from rUK to Scotland has slowed in recent years, there are still substantial cross-border movements. The gross flows of migrants substantially exceed the net flows. Between 1992 and 2011 there was a net flow of 88,000 people from rUK to Scotland: however, over the same period, 2 million individuals moved to, or from, Scotland and were sufficiently committed to the move to decide to change their doctor. Many of these might subsequently decide to return to their point of origin. Nevertheless, it is clear that these gross flows are consistent with a relatively flexible labour market with few administrative or cultural costs associated with cross-border movement.
One side effect of these movements is that there are substantial stocks of Scots-born people living in rUK and rUK-born people living in Scotland. Using the Annual Population Survey, our estimates of the size of these stocks are 680,000 and 480,000 respectively. The larger numbers of Scots-born living in rUK reflects historic patterns of migration when the net flow of migrants was from Scotland to rUK, rather than vice-versa.
In considering the economic impact of such migration, there are two possible effects at work. First, if the market provides incentives to potential migrants to move to more productive jobs, then migration is likely to produce a net increase in aggregate UK production. Second, it is possible that one or other part of the UK might be disadvantaged by the loss of human capital, even though overall production is increased. Thus the movement of someone in the Scottish financial services sector to a job in the City of London might increase UK GDP, but have a negative effect on the financial services industry in Scotland.
One approach to analysing the economic impact of these flows is to compare the characteristics of migrants with the resident population. Because migration is a selective process, migrants typically earn more than residents. Higher earners are more likely to be able to offset the costs of migration. Thus, the Scots-born living in England earn 25 per cent more per hour than do the native English, while the English-born living in Scotland earn 20 per cent more per hour than native Scots. The difference in the “migrant premium” is relatively small.
The difference might be explained by differences in the characteristics of those who have moved across the border in one direction of the other. On average Scots-born employees in England are older than their English counterparts by 3.8 years, while the English-born in Scotland are only 1.8 years older than native Scottish workers. The Scots-born in England are also likely to have been longer in their jobs than natives and to have a degree, though interestingly less likely to be graduates than the English-born working in Scotland. Detailed statistical analysis shows that the relatively small differences in hourly wages between those born in Scotland and those born in rUK are largely explained by a somewhat stronger labour market in rUK. The characteristics of the Scots born (such as being older, and having somewhat better qualifications) would lead one to expect a wage differential in favour of Scotland, rather than vice versa.
At an aggregate level, we can also compare outcomes which might indicate that migration was having a significant beneficial or negative impact on the labour market. However, over the last two decades, indicators such as weekly earnings (Figure 2) and the unemployment rate (Figure 3) for Scotland have closely tracked those for the UK as a whole, or for England. Migration does not appear to have reduced relative earnings by, for example, resulting in a net skills flow from Scotland.
Figure 2: Median Weekly Earnings in UK and Scotland 1997-2012
Source: Annual Survey of Hours and Earnings, Office of National Statistics
Figure 3: Unemployment Rate Scotland and England 1992-2013
Source: Office of National Statistics
This analysis suggests that recent migration patterns between rUK and Scotland have been reasonably balanced, without any obvious detriment to either labour market. Migration is a process that tends to support increased aggregate growth. Therefore one might take a positive view of its effects on the UK economy as a whole.
Would constitutional change alter that outcome? One might speculate whether there might be border effects in relation to migration just as others have argued that there are border effects in relation to trade. The argument would be that, for whatever reason, the establishment of an international boundary between Scotland and rUK would reduce migration flows. One point to make is that clearly intra-UK flows have clearly become less important to the Scottish economy in recent years than have flows of overseas migrants. However, one possible exemplar is Ireland, which has many similarities to Scotland, including its close proximity to a much larger economy. However, one major difference is the existence of an international boundary between Eire and the UK. Has this boundary inhibited migration compared with that between Scotland and rUK? At first pass, there would seem to be some substance in this argument. The number of Irish-born living in England and the number of English-born living in Ireland is smaller than the comparable numbers for Scotland, after taking account of Scotland’s somewhat larger population. However, there are complicating factors, such as the effect that the troubles may have had on migration across the Irish Sea. And an independent Scotland might not be too concerned if independence did not result in higher aggregate output for rUK and Scotland combined, so long as migration flows enhanced Scottish economic growth. However, this implies the establishment of a Scottish immigration policy which succeeds in raising productivity levels in Scotland.
And this begs a number of questions:
- Is constitutional change a necessary condition to establish a Scottish immigration policy? Sub-national governments, for example the provinces in Canada, have different immigration policies from those established at the federal level
- How would EU membership affect Scotland’s immigration policy? Wright argues that Scotland would be forced to accept the Schengen agreement, which would involve the establishment of border controls with rUK
- How would immigration policy interact with welfare policy? It is difficult to combine a generous welfare policy with open immigration, a point made first by Milton Friedman.
- This argument also neglects the impact that migration may have on particular groups within society. Dustman (2009) argues that A8 migrants (who make a large proportion of recent overseas immigrants to Scotland) have had a positive effect on public finances and been less likely to claim benefits or live in social housing. Recent survey work that we have carried out with employers, particularly in health and social care, hospitality and tourism suggests a strong preference for hiring migrants because of their strong work ethic and high quality skills. Nevertheless, this may have had a negative effect on the young unemployed.
Our work with employers also shows that these sectors are particularly concerned about the effects of constitutional change on immigration law, which in turn is associated with uncertainty about EU status.
To conclude, immigration has had a substantial effect in shaping the post-war Scottish economy. In recent years, it has largely been in balance with the rUK and Scotland has seen an unprecedented increase in migration from overseas, principally the A8 countries. In recent years, migration between Scotland and rUK has not lead to substantial distortion of the Scottish labour market. Nevertheless, the prospect of constitutional change raises some important questions regarding the establishment of an immigration policy for Scotland, and its interaction with other facets of the independence debate.
 As part our ESRC research on constitutional change and in conjunction with the Scottish Chambers of Commerce, we carried out an online survey of employers information requirements in relation to constitutional change