9 - The economic effects of immigration

Summary

The estimation of the effect of immigration on the growth of an economy is not easy. Put in the simplest possible terms, the effect depends on the relative abundance of other factors of production (capital and resources), and whether the economy is open or closed – i.e. whether the economy has a high level of exports and imports. If there were no countervailing factors, immigration would increase the income of the actual immigrants but would be expected to lower average incomes in those areas of the economy that immigrants were entering. Hence average incomes in the economy would fall, or would not rise as fast as they would have done if there had been no immigration (Greenwood and McDowell, 1986, 1745–50; Spengler, 1958, 37–44). This is the most commonly used argument in favour of restricting immigration, particularly if the immigrants were likely to come from a country with a lower standard of living. The American quota system which was introduced in the 1920s and the ‘White Australia Policy’ which was the dominant principle of Australian legislation until the 1960s were, in part, reactions of this fear.

The balance of evidence suggests that immigration did not reduce the rate of growth of income in the regions of recent settlement in the nineteenth century and possibly as late as the First World War. There were a number of reasons for this. Periods of immigration were usually associated with an increase in the demand for exports which meant that output could expand rapidly.