Developed countries across the world, specifically the G20 economies, are undergoing major demographic shifts on account of the increasing ageing population, declining fertility rate, and longer life expectancies. This is causing a strain on government spending, especially when countries are looking to recover economically from the COVID-19 pandemic. Against this backdrop, governments should consider the opportunity cost of welcoming migrants, particularly those migrating for labour purposes since they provide positive fiscal benefits. Whilst migrants may not be the sole solution to economic recovery, they can be an accessory to alleviate the impact of declining labour forces and contribute to improving fiscal sustainability and balancing the population ratio.
The problem with the G20 demographic landscape
G20 countries host more than 70 percent of the world's
older population.
<1> As of 2019, the number of aged population, i.e. 65 and above, was 501 million which is projected to grow to 1 billion or 21 percent of the world population by 2050. G20 countries specifically are expected to have 10 percent of their population composed of ageing individuals. Within the same period, there is also expected to be a shift from high fertility
to low fertility rates. From a 4.9 rate in 1955, projections estimate that by 2050
fertility rate will decline to 2.3. To add to the demographic burden, life expectancy is also simultaneously increasing. From 46.9 years in 1955, the number is said to increase to 76.9 years by 2050. With all this in mind, the median age is projected to increase from 32.9 to 42.4 years from 2015 to 2050. The consequences of this demographic change can slow down economic recovery.
Against this backdrop, governments should consider the opportunity cost of welcoming migrants, particularly those migrating for labour purposes since they provide positive fiscal benefits.
To begin with, government spending on age-related programmes as a share of GDP will increase. Developed countries are predicted to increase their spending from 16.4 percent in 2015 to 21.4
percent by 2050. Less developed countries that cannot afford to increase spending will end up facing unsustainable public debts. This, in turn, will necessitate acute cuts in other spending such as infrastructure or education or it could also result in a spike in taxes making it even more difficult for governments to reduce their public debt. Thus, the economic pressure of an ageing and low-fertility rate population is a barrier for countries looking to recover from the pandemic. Migrants can be a pivotal solution in relieving this strain and contribute to long-term gains for G20 countries.
Migrants as an Opportunity
From the above figure, it can be seen that G20 countries are at the centre of global migration governance due to the pandemic. As of mid-2020, there was an estimate of 281 million migrants worldwide and 64 percent of them
resided in G20 countries. Given the large number, there are concerns about the adverse economic impact of migrations on natives’ wages and employment opportunities. However, the economic implications of migration are often overshadowed by the humanitarian narrative. Analysing these patterns through an economic lens will allow stakeholders to identify an actionable and pragmatic response.
The large majority of migrants (86.5 percent) are within the working-age group, i.e. 25
–64 years. However, within the migration category, only labour immigrants are taken as economic actors. Albeit deemed as a voluntary movement, recent events show that external factors blur the lines between economic migrants and humanitarian ones. The key difference is that labour migrants provide larger fiscal contributions as opposed to humanitarian immigrants. The net fiscal contribution of labour immigrants is positive only as long as they are below the age of 49. In contrast,
the net fiscal contribution of refugees is negative. While the fiscal ratio of migrants is lower than that of native-born working-age individuals, it is equal to or greater than the ageing population. Thus, when making a case for migrants as a solution for G20 economic recovery, it primarily includes labour migrants who arrive with the necessary skills and can supplement the stock of human capital of the host country.
Hiring migrants at a lower wage for these positions allows domestic firms to reduce labour costs while creating new job opportunities for locals which require better skills and offer higher pay.
Around 66.2 percent of labour migrants are concentrated in the service sector, while 26.7 percent are in the industry and 7.1 percent in agriculture. These sectors require basic skills, those which migrants possess. Hiring migrants at a lower wage for these positions allows domestic firms to reduce labour costs while creating new job opportunities for locals which require better skills and offer higher pay. This crowding-out effect can lead to long-term stable economic gains. However, the benefits of migrants’ participation in the economy are not limited to workforce participation. G20 countries also recognise the participation of migrants in cross-border remittance flows as a major source of income.
During the G20 Saudi Arabia Summit, members viewed remittance as a solution to alleviate poverty, improve economic infrastructure, and be an integral player to promote digital financial inclusion.
For host countries, it can help prevent sudden current account reversals, improve credit rating, and facilitate the inflow of new investments. At times of unprecedented crises, remittance brought in by migrants offers a key source of money flow for host countries without slipping into a trade deficit. It is important to note here that migrants are not the sole answer to economic recovery. Instead, their efforts and characteristics can complement existing development plans by filling in the gaps left by the local population. Thus, there is an alternate economics-based way to view migration. One that does not fixate on security and humanitarian concerns, but rather aids sustainable reconstruction of host countries.
During the G20 Saudi Arabia Summit, members viewed remittance as a solution to alleviate poverty, improve economic infrastructure, and be an integral player to promote digital financial inclusion.
Conclusion
The case for considering migrants as a solution for G20 economic recovery comes at a time when these countries are experiencing a demographic shift. In the current post-pandemic recovery phase, labour market shortages cannot be met locally due to the large elderly population. On account of this, migrants, specifically labour migrants, have a favourable fiscal position. They belong to the working-age demography possessing the necessary skillset, thereby, having a positive impact. Thus, the aim is to move away from analysing them as a partial equilibrium change to a homogeneous labour market and to consider their capabilities within a general equilibrium framework to a heterogenous labour supply. Against the backdrop of a changing G20 demographic landscape, migrants are promising players in economic growth.
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