What does a world with 'zero migration' look like?

Oxford Economics has hypothesised an extreme scenario of "zero migration" globally and found while destination economies, mostly advanced, would see significant declines in output per capita, origin economies would have modest gains as retained labour is diluted across larger domestic populations.

Senior economist Benjamin Trevis and economist Marco Santaniello said output per capita which speaks to living standards would fall in most destination economies as productivity gains from improved labour market allocation would be lost.

The report highlighted the size of the hit would vary based on the working-age share of each country's migrant inflows.

"Output per capita falls by around 12% by 2060 in Spain, reflecting heavy reliance on working-age migrants, while there is a more modest decline of around 1% in the US as its inflows are more mixed in age composition," the report read.

Australia and Canada stood out as exceptions, with output per capita rising around 1% and 4% respectively.

"Both countries receive a high share of inflows that are largely outside the labour force; removing these inflows reduces population more than it reduces the workforce, so the capital stock is shared among a workforce that is only slightly smaller, lifting capital per worker and pushing output per capita above our baseline," the report read.

The report noted in the near-term, no migration would have an impact on demand as migrants are "first and foremost consumers".

"Removing future inflows to destination economies forgoes would-be migrant spending on housing, goods, and services, dampening aggregate demand and weighing on inflation in the early years of the scenario," the report read.

"The drag on demand is partly cushioned by the fact that, although earnings vary across the skill distribution, migrants typically earn below the host-country average and are concentrated in lower-earning sectors."

In the long-run, however, the productivity hit would compound the labour supply shock.

The report states the productivity impact would be seen through two channels: high-skilled migrants generating knowledge transfer and innovation spillovers and migrants at all skill levels who fill structural gaps and free domestic workers to move into more productive roles.

"Total factor productivity is smaller in the near term but builds over time, becoming a material drag from the 2030s onwards as the loss of knowledge transfer and labour market allocation gains compounds," the report read.

Origin countries would have a positive outcome in this scenario, particularly those that have historically seen large numbers of workers move abroad such as Pakistan, the Philippines, and parts of Eastern Europe as migrants stay back and lift aggregate output.

Output gains, however, are limited as the productivity channels are markedly weaker than in destination economies, where larger inflows and a higher concentration of high skilled migrants amplify the uplift.

The report noted ageing economies will face sharper fiscal challenges without migration as immigrants tend to arrive at prime working age, contributing more to taxes and social contributions than they receive in social protection, housing, health, and education spending.

The "zero migration" scenario is an extreme, the report said, and its value lies in quantifying the contribution that migration makes to long-run growth, against which actual outcomes and policy responses can be benchmarked.