Net migration can directly affect the economy’s trend growth rate by affecting potential labour supply growth. All else equal, a reduction in 16+ net migration of 50,000 per annum would reduce 16+ population growth by around 0.1 per cent each year. The effect would be approximately symmetrical, so that an increase in net migration of 50,000 per year would raise 16+ population growth by around 0.1 per cent per annum. The impact on trend growth will partly depend on the characteristics of migrants. If migrants have a similar employment rate and level of productivity to the existing average, a reduction or increase in population growth of 0.1 per cent would translate one-for-one to a reduction or increase in trend growth of 0.1 per cent respectively.
On the other hand, if migrants have higher or lower employment rates or productivity relative to the UK average, then this would tend to scale up or down the impact of a given change in net migration on potential growth.a Similarly, if net migration is associated with wider “spillover” effects on the existing workforce then this would also affect potential growth. However, existing analysis suggest little evidence of a significant effect from immigration on earnings or employment, although there is some evidence of a small effect in the low-skilled sector.b
Such considerations are important when assessing the impact of net migration on trend output per capita: if migrants have similar employment rates and productivity levels to the existing workforce then we might expect output per capita to be largely unaffected if potential output moves proportionately with the 16+ population. By contrast if migrants have different characteristics, or if net migration yields spillovers to the rest of the workforce, then output per capita may change in response to changes in net inflows.