Economic benefits of immigration

After having arguably been one of the most powerful fear factors exploited by the Leave campaign during the EU referendum, the debate on immigration is continuing apace during the UK general election campaign.

Given its central role in the campaign thus far, immigration will clearly continue to shape Brexit policy after June 8 – and free movement is likely to remain one of the UK government’s red lines in the forthcoming negotiations with the EU.

Anti-immigrant politicians often say they simply want a “debate” on migration. Yet targets around net migration are being proposed without a rational debate about the country’s future economic needs.

As we have seen in countries such as Germany and France over the past year, “political sentiment” is not a given – courageous political leadership can help shape that sentiment. Angela Merkel and Emmanuel Macron have both argued against hard immigration quotas as part of their election bids. As far as the UK is concerned, the facts are absolutely clear. Those of us who believe in the economic and social benefits of an open, welcoming society should not be shy about using them.

First, there is no evidence that EU immigration has damaged the living standards of UK workers. Jonathan Wadsworth and colleagues at the London School of Economics showed convincingly that across UK local authorities from 2008-15, EU immigrants had no statistically significant impact on the real wages of UK-born workers. Neither did it affect the job prospects of low-skilled UK-born workers.

Second, the reduction in immigration will undoubtedly hit the country hard. The UK economy is effectively at full employment. What unemployment remains is mainly structural due to mismatches in both skills and demand and supply in different regions. It can only be reduced gradually through training and greater investment in areas of higher unemployment.

Indeed, this is why EU immigration, particularly in low and medium-skills jobs, has increased over time: EU migrants are, by definition, more geographically mobile within the UK and prepared to move to where jobs are available or match the available skills. The hospitality and agricultural sectors are cases in point.

Cutting immigration will therefore hold back the economy, as most economic commentators agree. This was an important part of predictions that GDP growth would be lower after Brexit. Lower growth will in turn mean fewer resources for public spending. The Office for Budget Responsibility in November 2016, on a reasonably benign interpretation of Brexit, duly projected a shortfall in the UK’s public finances totalling about £5.9bn per year by 2020-21.

Third, these negative economic effects could be magnified for some parts of the UK. For many years Scotland’s weaker population growth relative to the UK has been a source of serious concern, affecting its ability to grow the economy.

In 2015 there were 181,000 non-UK EU nationals living in Scotland, which is 3.4% of the total population. Yet the 115,000 non-UK EU nationals aged 16 and over who were in employment in Scotland accounted for 4.5% of total employment. The upshot is that EU nationals have higher employment rates in Scotland compared to UK nationals for all age groups, except those aged 35 to 49 years old.

This means that if Scotland sees a significant decline in the number of EU nationals post-Brexit, it could hit the tax base severely and greatly limit the resources the Scottish parliament has at its disposal. The impact on the NHS, education and other core services might be profound.

For London, the problem could be even greater. Its workforce has grown from 4.3m people in 2005 to just under 5.2m over the past ten years. Of these, 682,300 workers were born in the EU (13% of London’s total workforce). This has more than doubled over the past ten years from 326,700, with a further 12% of London’s workforce made up of migrants from outside the EU.

In both places, despite the rhetoric in some of the popular press, EU migrants are economically very active – with around 65% in total in employment or studying. Financial services are obviously a major part of London’s economic strength, and 15% of people in the sector are EU nationals. Meanwhile, 13% of NHS doctors in London are EU nationals – and London has more than the UK average of 10% of NHS staff posts unfilled, so EU workers’ importance can’t be minimised.

Blame the others

Undoubtedly, immigration has been the scapegoat for a feeling of alienation in UK society. Again, the data offers a clear explanation. Despite GDP recovering since the 2008 financial crisis, median real wages and living standards have declined – performing poorly even compared to other European countries. As Rui Costa and Stephen Machin at the LSE note:

Since the global financial crisis of 2007/08, workers’ real wages and family living standards in the UK have suffered to an extent unprecedented in modern history … 

What is therefore incumbent on politicians during this election campaign is to address the issues which have caused this to happen: low productivity growth, a shift in the distribution of GDP from real wages to profits and the lack of a culture of investment (including in skills). Regrettably, the debate on how to boost productivity growth has been far less visible in the campaign so far.

As for immigration, there are two immediate conclusions. A clampdown on immigration with arbitrary targets that do not recognise our labour supply and skills needs is likely to reduce economic growth and thus will exacerbate, not heal, social tensions.

Second, there are different needs in the various parts of the UK. A different approach to the post-Brexit immigration regime for certain sectors and economies such as Scotland and London is therefore going to be essential. The Scottish Parliament’s Culture, Tourism, Europe and External Relations Committee pointed out that other countries such as Canada, Australia and Switzerland have run differentiated systems of immigration. We should consider this seriously.

Image by Ian Kirk/Border Agency via Wikimedia Commons

First published by The Conversation