Annex A
HOW IMMIGRATION
IS REFLECTED
IN THE
NATIONAL ACCOUNTS
1. The National Accounts provide a systematic
statistical framework for summarising and understanding economic
events and the wealth of an economy, building on its various components.
This section explains how immigration and related phenomena are
reflected in the UK National Accounts and what are the main measurement
challenges.
2. Gross Domestic Product (GDP) is the headline
summary indicator of economic activity in the UK. There are three
approaches to producing one measure of GDP, namely the production,
income and expenditure approaches.
(1) The production approach
3. The production approach measures the
flow of goods and services that are produced in the UK economy.
Estimates are based on business surveys that capture output and
purchases of goods and services used as intermediate consumption,
valued whenever possible at market prices. In principle, migration
should not pose specific problems to the direct measurement of
output as business surveys gathering data on outputs and inputs
should capture the activity of all demographic groups, including
migrants. The output of both legal and illegal immigrants working
on legal activities is within the scope of business inquiries.
For example, if they are working for a company in the catering
sector their output will contribute to the turnover and employment
figures provided by the caterer to ONS. Furthermore, the National
Accounts are meant to capture all economic transactions (monetary
or not) between consenting parties, independently of their legality.
4. Adjustments are implemented to correct
biases induced by some illegal activities such as smuggling using
HMRC intelligence sources. ONS and other countries have undertaken
research to provide illustrative estimates of illegal activity.
ONS reports that illegal activity could amount to 1% of GDP in
the UK.[13]
However, these estimates are not sufficiently developed to be
incorporated into the National Accounts in full. Although illegal
immigrants, in the light of their particular position, may be
more likely to be involved in some of these activities, it is
not possible to identify a specific migration component of total
output or estimate its contribution to its measurement bias.
5. Some sectors have larger shares of "irregular"
value added because of informal activity that is concealed from
public authorities, for example to avoid complying with tax or
employment regulations. Such activities also fall within the production
boundary. ONS makes specific adjustments for tips and income in
kind and uses expenditure data to estimate certain types of informal
activities.
(2) The income approach
6. The income approach measures the income
generated by the production of these goods and services. Broadly
speaking, this approach adds up estimates for the remuneration
of the various factors of production, namely adding up the compensation
of employees, business profits (operating surplus) and the income
of the self-employed. The major source for this approach is income,
corporation and other tax data from HMRC, alongside data from
business inquiries. An estimate is made to allow for certain factor
incomes not being declared to the HMRC. ONS does not publish a
separate series with the compensation of migrant employees or
specific demographic groups.[14]
7. For illegal immigrants working legally,
their income will be included in the annual benchmarking process
in which HMRC income data are used although there is a potential
for misreporting if part of the activity and remuneration are
concealed from the authorities. This may also affect the reporting
to ONS quarterly and annual surveys despite their not being used
for enforcement purposes. If illegal immigrants are working illegally
their income will be missing from income tax records and therefore
are unlikely to be captured using the income approach unless covered
by the adjustments for evasion and smuggling explained above.
(3) The expenditure approach
8. The expenditure approach measures the
final expenditures on the goods and services that are produced.
This broadly consists of final consumption by households and non
profit institutions, government final consumption, investment
and exports net of imports.
9. Migrant households will account for a
share of the estimated household final consumption. Final consumption
is estimated from the Expenditure and Food Survey (a household
survey)[15]
and from the Retail Sales Inquiry, while travel expenditures are
estimated from the ONS International Passenger Survey. This is
complemented by sales data for the distribution and service trades.
This implies that legal and illegal immigrants should be captured
in the expenditure approach. Potential exceptions may arise if
immigrants are less likely to be part of household surveys, particularly
those living in communal establishments.
10. Immigrants are probably more likely
to be involved in goods and services transactions with residents
abroad, including barter, but no specific information is available
on this.
11. Government final consumption expenditure
data is obtained from administrative sources. This figure can
be split between social transfers in kind (individual consumption)
and collective consumption, namely services delivered to the whole
community. The former could in principle be attributed to different
demographic groups although information to conduct such an analysis
is not available. The latter, by definition, cannot be conceptually
decomposed into specific demographic groups.
Other macroeconomic aggregates—National
Income and Balance of Payments
12. Although GDP is the headline indicator
of economic activity, the UK National Accounts also report indicators
of national income that ultimately reflect how much residents
can use of final consumption and saving. The adjustments required
to transform GDP into Gross National Disposable Income require
accounting for wages and salaries earned by individuals from economies
other than those in which they are resident and other transfers
where migrants play a key role.
13. Remittances received from UK emigrants
abroad and paid by immigrants in the UK are an important component
of current transfers between the UK and the rest of the world.[16]
The UK does not publish separate data for workers' remittances
within current transfers debits and credits for quality reasons.
Workers' remittances are based on projections of counterparty
data from IMF and key country reports. Compensation of employment
and migrant transfer data are mainly based on the ONS frontier
survey. Current efforts are focused on improving the quality of
information collected on expenditures on money sent abroad collected
through household surveys.
14. The International Investment position
is also affected. Imputations are performed to account for the
fact that when a person's status changes from non-resident to
resident (or vice versa) the property owned by the migrant becomes
the property of a resident. For example, any financial assets
held abroad by the migrant become claims by the UK on the rest
of the world.
Conclusions
15. The national accounts framework allows
the capture of immigrants' production, income and expenditure.
While there may be issues of under-recording when activity is
illegal or informal, the use of Supply-Use balancing to bring
together the three measures of GDP into a single measure of growth
is thought to minimise the problem.
16. Because data collection, estimation
and reporting are not structured according to demographic groups,
the national accounts framework does not enable to identify the
direct contribution of immigrants to the measured levels of economic
activity.
13 Office of National Statistics (ONS), "Developing
a Methodology for Measuring Illegal Activity for the UK National
Accounts", 1998. Back
14
Certain sources can in principle be used to estimate immigrants'
contribution to specific components of GDP, for example employment
compensation, by estimating the number of migrant employees and
their average wage. Because of the way in which workforce jobs,
employee numbers and income data from various sources are triangulated
at the aggregate level, such an exercise should be undertaken
with particular caution and its output sufficiently caveated. Back
15
The grossing of expenditures recorded through household surveys
will be affected by the measurement of the total population, including
immigrants. Back
16
The balance in social security payments between the UK and the
rest of the world also reflects credits and debits for payments
to migrants. Back
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