This post was written by John McHale
The ESRI’s new emigration forecasts are sobering (see here for QEC Press Release). For the year to April 2011, net emigration is forecast to be 60,000, falling to 40,000 for the year to April 2012. The gross emigration forecasts are 75,000 for 2011 and 60,000 for 2012. The numbers are consistent with anecdotal evidence of a resurgence of interest in the emigration option. It is also worrying that significant outflows are forecast in the context of a relatively depressed UK labour market, and despite quite restrictive and skill-biased immigration policies in the destinations of choice: Australia, Canada and the US.
The numbers are a reflection of how limited opportunities are at home for young people, though it would be even worse for those who leave if outside opportunities were not available. The unemployment rate for those aged 20-24 is 25.5 percent. And this is despite a fall in the participation rate from roughly two-thirds in 2008Q3 to half in 2010Q3.
We must also worry about the implications of large-scale emigration for economic recovery. In a thought-provoking post back in November, Kevin O’Rourke drew attention to the danger of an adverse fiscal feedback loop given the large fixed cost of the national debt. We get a form of fiscal increasing returns: the more people leave the greater the tax burden (and indeed the poorer provision of State services) for those who stay, further increasing the incentive to leave.
Drawing on Ireland’s past experience with emigration, Kevin believes that working in the opposite direction will be wage and productivity increases given decreasing returns to labour. While I have tended to be somewhat more optimistic than Kevin on Ireland’s chances of pulling out of the crisis, I am actually more pessimistic on this point. City-level evidence from the US suggests that increasing returns – or agglomeration economies – are the norm in modern knowledge based economies (see the work of Ed Glaeser – in particular the “Wealth of Cities” paper with Joshua Gottlieb). Out migration makes those who remain less productive. Spatial equilibrium then comes about through changing house prices (and thus real consumption wages) rather than through the equalisation of real product wages. But further falls in house prices would deepen the banking woes and make it more difficult to pull out of the crisis.
There aren’t any easy solutions. Although it is difficult for a government to avoid a harsh squeeze on immigrant visas at times of high unemployment, the importance of scale economies suggests the enlightened policy is to continue to attract skilled immigrants, especially when they have pre-arranged job offers. Crude “lump of labour” thinking should be avoided. Within the limits of budget constraints, it is also important to prioritise training and education opportunities, to give young people the option of waiting out the recession while developing skills. As cynicism about politicians and institutions builds, leaders also have a special responsibility to focus on the national interest rather than narrow political advantage.