Net migration and GDP per person

Net inward migration has been a significant driver of real GDP growth in recent years. While the level of net migration has a significant impact on the level of real GDP, the size and direction of the impact on real GDP per person, an indicator of living standards, is much more uncertain.

Estimates in the economics literature tend to suggest that the impacts of different levels of net inward migration on real GDP per person are relatively small in either a positive or negative direction and depend on a number of uncertain factors.^aWe previously explored this in Box 2.3 of the March 2024 EFO, with scenarios in which annual net migration is higher or lower by 200,000 in the medium term. In these scenarios, higher net inward migration raised the aggregate level of real GDP by around 1 to 2 per cent after five years. However, the impact on real GDP per person was either slightly positive or slightly negative, depending on the assumptions made about the labour supply and average productivity of new migrants and the effect on economy-wide productivity and participation.

This reflects the wide range of factors that will drive the impact of net migration on real GDP per person, including: migrants’ age; education and skills level on arrival; the likelihood of migrants working compared to the wider population; how well migrants are matched to jobs and how this evolves over time; the effect that migration has on the performance of resident workers and firms; and how businesses and government respond to changes in the population. These factors together determine migration’s effect on economy-wide participation and productivity – the key determinants of real GDP per person.^b In this box, we examine participation first, then turn to the components of productivity – capital deepening and total factor productivity (TFP).

The evidence suggests that migrants coming to the UK over the five-year forecast period will have slightly higher average participation than the adult UK resident population. This is largely because migrants are significantly more likely to be of working age (16-64) (Chart A, left panel). This is partly offset by migrants tending to initially have a lower rate of participation at a given age, than those already in the UK.^c But this gap narrows the longer migrants remain in the UK.^d

The impact of net migration on productivity will depend on how the capital stock adjusts to changes in the total population, how efficiently migrants use the capital stock, and whether migration affects the efficiency of other domestic workers.

In the medium term, the capital stock may not fully adjust in response to increases in net inward migration. Around three-quarters of the capital stock is in long-lived asset types such as transport infrastructure and housing. In addition, a significant proportion of public investment is fixed in nominal terms up to the end of a Spending Review period, so does not respond immediately to changes in the size of the population. Therefore, higher inward migration could initially make less capital available per worker and reduce productivity. Over the longer term, private and public investment flows may rise to offset the dilution of capital per person, but there is limited evidence on the extent to which this happens, or if it does at all.

The relationship between migration and TFP is unclear and will depend on both the efficiency of the migrants themselves and any effect that migration has on the efficiency of the resident population. Evaluating these impacts is difficult because the empirical evidence is limited due to a lack of quality longitudinal data on migrants’ outcomes. One key factor is the composition of jobs and skills among migrants. Occupation data provides some evidence that, despite notable concentrations in some occupations, the overall distribution of job skills appears broadly similar between UK and non-UK born workers (Chart A, right panel). But there is some evidence that migrants are often overqualified for the jobs to which they are initially matched.^e Pay data could provide an indication of migrants’ productivity, as workers’ pay is likely to be closely related to the marginal product of their labour. Some data sources suggest that migrants’ earnings rise the longer they stay in the country and to levels above the resident population.^f However, the evolution of migrants’ earnings relative to the overall workforce may reflect both improvements in matching efficiency but also potentially changes in the number of hours worked, which could arise from migrants moving from part-time to full-time work.

Chart A: Age and job skill distribution

Note: Left panel uses estimates from ONS 2022-based National Population Projections and reflects the average over 2026 to 2030. Right panel is based on Migration Observatory analysis of 2024 ONS Annual Population Survey, see Migration Observatory, Migrants in the UK labour market: an overview, June 2025.

Source: Migration Observatory, ONS, OBR

The impact of net migration on resident workers and firms is also uncertain and depends, among other things, on whether migrants are complements or substitutes to domestic workers. These effects are difficult to separate from other aspects of economic openness, such as trade and foreign direct investment. Empirical findings are mixed, with some studies finding positive effects through ‘dynamic’ channels such as knowledge transfers and innovation.^g But econometric studies face several challenges, including the degree to which migrants are ‘sorted’ into high-productivity regions, industries or occupations.^h

Migrants’ labour market outcomes are not predetermined and are influenced by external factors. Government policy decisions in the design of the migration regime play a major role in determining migrants’ rights to work, including in which occupations and at what pay levels. And investment decisions made by firms are central to the productivity of workers – including migrants – and respond to a wide range of drivers alongside the size of the workforce.

Overall, in the medium term, net inward migration is likely to boost participation given migrants’ younger age composition. But the impact on productivity is much more uncertain. Capital dilution would tend to reduce productivity, at least initially, because the capital stock is likely to adjust gradually, if at all. We intend to explore the long-term implications of net migration in more depth in our upcoming Fiscal risks and sustainability report.