Why immigration matters for the economy

Immigration is often cast as a political or social issue, but its economic implications are profound and far-reaching. Policymakers, researchers, and businesses have long debated whether immigrants stimulate growth, strain resources, or have little impact. The evidence, accumulated over decades of research, paints a nuanced picture: immigration generally supports economic growth, but the scale and nature of its impact depend on migrants’ skills, local labour markets, and integration policies.

At the most basic level, immigration expands the labour force, which in turn boosts economic activity. More workers mean more production, greater consumption, and increased tax revenues. For countries with ageing populations, such as Japan, Germany, and Italy, immigrants are essential in offsetting demographic decline. Without an influx of younger workers, these economies risk labour shortages, rising dependency ratios, and slower long-term growth. Even modest increases in population through immigration can counteract the stagnation associated with shrinking workforces.

Immigration also affects the economy through innovation and entrepreneurship. High-skilled immigrants disproportionately contribute to technological advancement, research, and business creation. In the United States, foreign-born individuals have founded or co-founded a significant percentage of tech startups and contributed to a large share of patents, particularly in STEM fields. Similarly, in Canada and Australia, immigration policies explicitly prioritise skilled workers, which has translated into measurable gains in productivity, innovation, and GDP growth. Migrants often bring not only technical skills but also different perspectives and professional networks that can lead to new business models and market opportunities.

Lower-skilled immigration also has economic benefits, though in different ways. Many sectors—agriculture, construction, hospitality, healthcare, and personal services—rely on migrant labour to function efficiently. These workers fill gaps in markets where domestic labour is insufficient or unwilling to work. While critics argue this may depress wages locally, studies show that the effects are usually modest and concentrated and that immigrants often complement rather than directly compete with native workers. By providing reliable labour, migrants allow businesses to scale, maintain output, and keep consumer prices stable.

Beyond labour supply, immigration can enhance productivity indirectly. Population growth expands urban centres and local markets, enabling businesses to benefit from economies of scale. New migrants create demand for housing, goods, and services, which fuels entrepreneurship and investment. This chain reaction, more workers leading to larger markets, more demand, and increased business activity, demonstrates that immigration’s economic impact extends far beyond simply adding more people to the workforce. (OECD and International Labour Organization)

Concerns about fiscal costs are common, particularly regarding healthcare, education, and social services. Research indicates that these costs exist but are generally offset by the economic contributions of immigrants over their lifetimes. For example, a 2016 report by the National Academies of Sciences, Engineering, and Medicine found that immigrants in the United States contribute more in taxes than they consume in public services, especially in countries where immigrants are efficiently integrated into the labour market.

History provides concrete evidence of the economic benefits of migration. During the 19th and early 20th centuries, the United States experienced rapid industrialisation fuelled in large part by waves of European immigrants. More recently, Canada and Australia have used targeted immigration policies to attract skilled workers, linking migration directly to national economic planning. Both nations report higher GDP growth and innovation rates in industries with significant foreign-born participation, demonstrating the long-term payoff of strategic migration policies.

Globalisation has intensified the link between immigration and growth. Skilled workers increasingly move across borders to fill specific labour gaps, while remittances sent to their countries of origin generate economic activity worldwide. Migration, therefore, is not solely a domestic issue; it plays a critical role in the global economy, enabling talent mobility and financial flows that benefit multiple countries simultaneously.

The economic impact of immigration is not uniform. Regions that successfully integrate migrants, through language training, recognition of qualifications, and access to employment opportunities, experience stronger positive outcomes. Conversely, areas where migrants face barriers to participation may see slower gains. Evidence suggests that well-managed immigration can drive economic dynamism, while poorly managed migration may exacerbate inequality or social tension.

Ultimately, the evidence shows that immigration contributes positively to economic growth, productivity, and innovation. While cultural and social debates continue, ignoring the economic dimension risks missing a crucial part of the story. Migration is a powerful driver of labour market efficiency, entrepreneurial activity, and long-term prosperity.

Countries facing demographic pressures, labour shortages, or stagnating productivity can harness immigration strategically. By combining thoughtful policy design with effective integration measures, societies can benefit from a more dynamic, innovative, and resilient economy. In an interconnected world where talent and opportunity flow across borders, immigration is not merely a demographic phenomenon; it is an essential engine of economic growth. (Di Martino)