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Immigration can create externalities – unintended costs or benefits for people other than the migrants themselves or their employers. These external effects can be positive or negative, and they span economic, fiscal, social, and political dimensions (openborders.info). Below are some key externalities of immigration for both receiving countries and countries of origin:
Labor Market Impacts: Immigration affects the labor supply, which can influence wages and employment for native-born workers. Economic theory suggests that an influx of workers who directly substitute for certain native skill groups may put downward pressure on those workers’ wages (www.stlouisfed.org). For example, studies have found that an increase in low-skilled immigrant workers can temporarily depress wages for low-skilled natives in the short run (www.stlouisfed.org). Likewise, new high-skilled immigrants can create competition for some high-skilled native professionals in specific fields. These are often cited as negative externalities of immigration, as they represent costs to third parties (native workers) not involved in the migration decision.
However, many immigrants have skill sets that complement rather than replace those of natives. By filling labor shortages and taking jobs that natives often do not want or are not available for, immigrants can boost productivity and create new opportunities. For instance, an influx of workers in sectors like agriculture or construction can lower production costs and lead to cheaper goods and services for consumers – a positive externality benefiting the general public (www.stlouisfed.org). Immigration has also been linked to greater economic vibrancy: high-skilled immigrants tend to be highly innovative and entrepreneurial, contributing disproportionately to new patents, technologies, and businesses (www.stlouisfed.org). In the United States, immigrants obtain patents at roughly twice the rate of comparably educated natives and have founded a significant share of tech startups (www.stlouisfed.org). These contributions represent positive spillovers that can boost overall productivity and job creation.
Net Effect on the Economy: Empirical research finds that the aggregate economic impact of immigration is small but positive in the long run. A comprehensive U.S. study by the National Academies of Sciences (2017) concluded that immigration has an overall positive effect on long-term economic growth, and that any minor wage declines are mostly confined to earlier immigrants or native workers without a high school diploma (nap.nationalacademies.org). In other words, for the vast majority of native-born workers, the presence of immigrants has little to no negative impact on wages or employment opportunities (nap.nationalacademies.org). At the same time, immigration expands the economy by increasing the labor force and can increase efficiency – for example, by enabling labor to move to regions or industries where it’s most needed (www.stlouisfed.org). Many economists note that when weighing all the gains and losses, immigration yields a net economic benefit for the receiving country’s populace (www.stlouisfed.org). The “winners” include consumers (who enjoy lower prices) and businesses and skilled workers (who gain from complementary immigrant labor), while the main “losers” are workers who directly compete with immigrants and may see lower wages, as well as taxpayers in some cases (www.stlouisfed.org).
Immigrants also impact government budgets and public services. These fiscal externalities depend on immigrants’ incomes, education levels, and use of public benefits. High-skilled immigrants typically earn higher wages, pay more in taxes, and use fewer social services – tending to be a net fiscal benefit for the government (www.stlouisfed.org) (www.stlouisfed.org). In contrast, some low-skilled immigrants with modest incomes pay relatively little tax and may qualify for public benefits (such as education, health care, or income support). In the short run, this can create a net cost to taxpayers if the public expenditures on these immigrants exceed the taxes they contribute (www.stlouisfed.org) (www.stlouisfed.org). In essence, the general taxpayer base might shoulder some costs (for schools, healthcare, etc.) associated with low-income immigrant families – a negative externality from the host community’s perspective.
Importantly, these fiscal effects change over time and across generations. Immigrant workers tend to arrive when they are young and working, contributing labor and taxes, and many eventually improve their earnings. Their children (the second generation) often achieve higher education and incomes, contributing strongly to the tax base. The National Academies study found that while the first generation of immigrants in the U.S. might impose a slight net cost, their children are among the strongest fiscal contributors, paying more in taxes on average than other groups (nap.nationalacademies.org). This means that over the long term and across generations, immigration can strengthen public finances. Policymakers also note that immigration can help address demographic challenges – for example, young immigrants can help support an aging native population by contributing to pension systems and filling labor shortages in healthcare and other vital services, yielding broader societal benefits.
Large-scale immigration changes the social fabric of communities in both positive and challenging ways. Cultural enrichment is a frequently cited positive externality: immigrants bring new cuisines, languages, arts, and perspectives that can enhance the cultural dynamism of the host society. Cities with diverse immigrant communities often benefit from a more cosmopolitan culture and innovation stemming from mixing of ideas and viewpoints. Studies also suggest diversity in the workplace can improve creativity and problem-solving, which benefits organizations and the economy indirectly.
On the other hand, rapid increases in diversity can sometimes strain social cohesion in the short run. Research in some countries has found that neighborhoods with higher ethnic diversity tend to have lower levels of interpersonal trust and social capital (at least initially) (migrationobservatory.ox.ac.uk). For example, early studies in the United States noted a correlation between ethnic diversity and reduced trust or civic participation in communities (migrationobservatory.ox.ac.uk). However, evidence from Europe is more mixed – some European studies find little to no negative effect of diversity on cohesion once factors like economic inequality are accounted for (migrationobservatory.ox.ac.uk). This suggests that what might appear as a “diversity externality” could partly be due to other issues (such as poverty or segregation). Over time, as communities adjust and immigrants become integrated (learning the language, norms, and forging social ties), social cohesion can improve. In summary, social externalities of immigration may include initial frictions or feelings of estrangement in communities, but these effects are context-dependent and often diminish over time as integration progresses (migrationobservatory.ox.ac.uk).
Another social concern is whether immigration leads to higher crime rates – a negative externality often feared by the public. Extensive empirical evidence across various countries finds no consistent link between immigration and higher crime overall (wol.iza.org). Immigrants, especially when gainfully employed, are generally no more likely to commit crime than natives; in fact, many studies show immigrants have lower rates of violent crime than the native-born population (wol.iza.org) (wol.iza.org). Some research indicates that when immigrants face barriers to legal employment (such as asylum seekers or unauthorized immigrants), there can be a slight uptick in minor property crimes out of economic desperation (wol.iza.org) (wol.iza.org). But by and large, rising immigration has not caused a crime wave – for instance, the foreign-born share of a population has been found unrelated to violent crime rates in major studies (migrationobservatory.ox.ac.uk) (wol.iza.org). In many places, crime rates have fallen even as immigration increased, suggesting that fears of a crime externality are overstated. Thus, while public safety is often mentioned in debates, the consensus of research is that immigration does not impose a significant crime cost on host communities and may even be associated with modest crime reductions in some cases.
Immigration can have indirect effects on the political climate and institutions of the host country. The concept of political externalities refers to how changing the composition of a population (through migration) might influence collective decisions, voting outcomes, or social norms in ways that affect everyone (openborders.info). One common concern is that immigrants may hold different political values or preferences that, if they become voters, could shift policies. For example, critics worry that large immigrant inflows from countries with illiberal or authoritarian norms could lead to pressure on liberal democratic institutions or support for policies unfamiliar to the host country’s traditions – potentially a negative externality for natives who prefer the status quo (www.econlib.org) (www.econlib.org). In the words of one economist, if immigrants “shift the majority opinion towards an unwanted outcome,” it can be seen as a form of political “pollution” in a democracy (www.econlib.org). This argument has been used to justify restrictive immigration policies on the grounds of “preserving” existing political or institutional conditions.
It’s important to note, however, that these fears are largely speculative and subject to debate. Empirical evidence shows that many immigrants’ political attitudes evolve to resemble those of native citizens over time, especially by the second generation. In some cases, immigrants can also bring positive political externalities – such as renewed civic participation, entrepreneurship in civil society, or even influencing their home country’s politics in constructive ways. Whether the political external effects of immigration are good or bad often depends on one’s viewpoint: for instance, newcomers voting for expanded social services could be seen as positive by some and negative by others. Ultimately, most scholars agree that political externalities exist (because immigrants and their children eventually become part of the electorate and policy discourse), but the direction and magnitude of these effects vary. In democratic societies with robust institutions, there is evidence that over time immigrant communities integrate politically in ways that do not undermine core institutions. Thus, while political externalities are a theoretical concern, they are not straightforward, and historical experience in immigrant-receiving nations generally shows political adaptation rather than radical change.
Migration doesn’t only affect destination countries – it also creates significant externalities (both positive and negative) for the countries migrants come from. When skilled or educated people emigrate in large numbers (often called “brain drain”), their home country loses human capital and expertise that can be hard to replace. For example, if many doctors, engineers, or academics leave a developing country, the people left behind may experience worse services and slower growth – a negative externality on the origin society (blogs.worldbank.org). Small or poor countries are especially vulnerable if a high fraction of their talent pool moves abroad. Economist Paul Collier has argued that emigration can drain sending countries of skills and even hamper nation-building, suggesting that if too many people leave, some countries could be “emptied out” of their most enterprising citizens (blogs.worldbank.org). This perspective worries that emigration, while benefiting the migrants, might set back those remaining at home.
On the other hand, emigration also generates positive externalities for origin countries through diaspora networks. Migrants often send back substantial remittances – money transfers that support their families and communities. These remittances, which globally exceeded $400 billion per year (several times larger than all foreign aid) as of the mid-2010s, have been a powerful force in reducing poverty and boosting development in many low-income nations (blogs.worldbank.org). Beyond direct cash flows, diaspora communities frequently facilitate trade, investment, and knowledge transfer between countries. For instance, emigrants who settle and succeed abroad can help their home country businesses by opening export markets or investing in local enterprises. They can also return with new skills or spread new ideas and norms (e.g. entrepreneurial know-how or democratic values) to their homeland (blogs.worldbank.org). These “diaspora externalities” mean that origin countries can benefit from having a contingent of citizens abroad. Some researchers even talk about a “brain gain”: the possibility that the prospect of emigration incentivizes more people in the origin country to pursue education or skills, potentially raising the overall human capital (since not everyone will leave). In sum, immigration (viewed as emigration from the sending side) produces a mix of external effects: loss of human capital and potential depopulation on one side, but gains through remittances, investment, and knowledge networks on the other (blogs.worldbank.org).
Sources:
Open Borders: “Political Externalities.” OpenBorders.info. Provides an overview of the concept of political externalities in immigration, defining externalities as costs or benefits imposed on others outside a market transaction (openborders.info). It explains that adding new migrants to the polity can change collective outcomes (voting, institutions) and notes these changes can be viewed as positive or negative depending on one’s perspective (openborders.info).
National Academies of Sciences (2017): The Economic and Fiscal Consequences of Immigration. Consensus report examining U.S. immigration’s impacts. Concludes that overall effects on native wages and employment are very small, with any slight negative impact concentrated among prior immigrants and native high-school dropouts (nap.nationalacademies.org). Finds first-generation immigrants may cost more in public benefits than they pay in taxes, but the second generation contributes strongly to public finances, and immigration has a net positive effect on long-run economic growth (nap.nationalacademies.org).
Wolla, Scott (2014): “The Economics of Immigration: A Story of Substitutes and Complements.” Federal Reserve Bank of St. Louis – Page One Economics. Summarizes economic research on immigration’s winners and losers. Notes that immigration creates winners (employers, consumers, complementary native workers) and losers (natives who directly compete for jobs, and taxpayers funding safety nets for low-income immigrants) (www.stlouisfed.org). Emphasizes that many immigrants complement native skills, lowering prices and boosting productivity. Also highlights positive spillovers: high-skilled immigrants drive innovation (e.g. twice the patenting rate of natives and outsized entrepreneurship) which benefits the broader economy (www.stlouisfed.org).
Migration Observatory (2019): “Immigration, Diversity and Social Cohesion.” Migration Observatory at University of Oxford. Reviews research on how immigration-driven ethnic diversity relates to social cohesion. Reports that U.S. studies often find higher diversity correlates with lower trust or social capital in communities (migrationobservatory.ox.ac.uk), whereas European findings are mixed and context-dependent (migrationobservatory.ox.ac.uk). It suggests that factors like poverty and inequality can confound the relationship, and that diversity per se is not universally destabilizing (migrationobservatory.ox.ac.uk). Overall, it provides a nuanced view that immigration’s social externalities on cohesion vary by setting.
Bell, Brian (2015): “Crime and Immigration.” IZA World of Labor. Analyzes empirical evidence on immigration and crime across countries. Concludes there is no evidence that immigrants increase overall crime rates – most studies find no association with higher violent crime, and only weak effects on property crime (wol.iza.org). Indicates that immigrants with good job opportunities have crime rates similar to natives, and that legalizing immigrants’ status reduces crime (wol.iza.org) (wol.iza.org). This source debunks the notion of a large negative externality of immigration on public safety.
Ratha, Dilip (2014): “Collier’s Exodus: Reckless Recommendations.” World Bank Blogs (People Move). A critical response to Paul Collier’s pessimistic view of immigration. Ratha summarizes Collier’s arguments – e.g. that diasporas can erode social trust in receiving countries and that emigration may drain poor countries of talent (blogs.worldbank.org) – but argues these fears are overstated. He highlights positive externalities of migration for origin countries: massive remittances (over $400 billion annually, greatly exceeding foreign aid) that cut poverty, plus boosts from diaspora-facilitated trade, investment, philanthropy, and skill transfers (blogs.worldbank.org). Ratha’s viewpoint is that migration largely benefits development and that concerns about countries “emptying out” are not supported by evidence.