July 6, 2018

News in Charts: Explaining UK Migration

by Fathom Consulting.

by Fathom Consulting.

In recent years, several migratory trends have emerged. In Europe, the most notable development is the emergence of flows from southern and eastern countries to northern and western states. It is noticeable that the southern nations tended to be worse effected by the euro area crisis and that eastern nations tend, on average to have lower per capita incomes.

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But, how far can economics go towards explaining these trends? In an attempt to identify the factors driving intra-EU migration Fathom has developed its own model. According to the model, a country’s relative economic performance can explain roughly one-third of the variation in net migration changes across EU countries. The model predicts that, following a change in relative economic performance, migration adjusts relatively quickly with around one-third of the adjustment taking place within a year.

The model provides some key findings in relation to the UK, where migration has slowed substantially since the result of the Brexit referendum was announced. Interestingly, the Brexit vote does not appear to have had any direct significant impact on net migration. Instead, the model finds that 95% of the reduction in net migration into the UK since the Brexit vote was as a result of economic factors — namely the slowdown in UK growth relative to the EU average.

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However, the deterioration in the UK’s economic performance is not entirely unrelated to country’s decision to leave the EU, especially given the uncertain outlook for business. Indeed, the outlook for growth could easily have deteriorated further, had UK consumers not substantially reduced their levels of saving.

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But, just as Fathom’s model predicts lower net migration into the UK, it is equally adept at predicting higher migration into countries such as Luxembourg where GDP per capita is significantly above the EU average. And, it can also be repurposed for a number of other exercises. For instance, in a recent note to clients, Fathom’s model was used to demonstrate the impact that net migration had on Greek potential GDP.

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