Friday, 22 June 2012

Why Ed Miliband shouldn't apologise for making the right decision on Eastern European migration

[This is slightly updated version of an article that appeared first last September in the Independent here. For a discussion of some other immigration related issues, see here (on immigration and labour markets more broadly), here (immigrants and schools) and here (immigrants, public services and benefits)]

It appears to have become conventional wisdom in the Westminster village that the previous Labour government was wrong to give immediate access to the UK labour market to citizens of the new Member States of East and Central Europe that joined in 2004. The argument is that the decision was based on flawed analysis, in particular misleading forecasts of the numbers who were likely to come; and that influx of new workers from those countries damaged the employment prospects of British workers, especially the young and low-skilled.


This has long been the Conservative view; now most of the Labour leadership appears to have conceded the point,.  In advance of Ed Miliband's speech today, John Denham was the latest, saying
on the Today programme this morning:
"It became clear that the estimates that we had relied on were vastly wrong..There was an impact on wages and public services.."
Yvette Cooper, Ed Miliband and John Denham are wrong, and the government of the time was right. A myth has grown up, bolstered again by comments like that of Mr Denhan, that the main reason the government granted immediate access was because of the supposed “Home Office forecast” (actually, not a forecast, and not the work of the Home Office) that only 13,000 migrants would arrive. In fact, there were three far more important arguments for the decision.

First, the broader geopolitical one. The UK had long been the most vigorous proponent of membership for the countries of the former Eastern bloc; they were seen (correctly) as likely allies for the UK’s generally liberal positions in EU debates. So the decision was seen as a way of cementing our relationship with them, and in particular the Polish government.

Second, the economics. The UK labour market was in good shape; and all the analysis suggested that immigrant workers – particularly the reasonably well educated and motivated ones likely to arrive from the new Member States – were likely to boost the UK’s economy without doing much if any damage to the prospects of native workers.

And third, the practicalities. Free movement is an absolute right within the EU, so we couldn’t stop the new citizens coming here; we could only stop them (for a while) working legally. The assumption was that if we did so, they’d still come, and still work, just not legally. This hardly seemed like an attractive alternative.

All of these arguments were correct at the time. And on the economics in particular, the analysis has been vindicated. There have been three major studies looking at the aspects of the economic and labour market impact of the migrants from the new Member States:
  • One by me, with Sara Lemos at the University of Leicester, found no impacts on native unemployment, either overall, or specifically for the young or low-skilled. Nor did we find any significant impact on wages, although the data is less conclusive.
  • One by researchers at UCL, which found that the new migrants made a substantial and disproportionately positive contribution to the public finances, because “they have a higher labour force participation rate, pay proportionately more in indirect taxes, and make much lower use of benefits and public services”.
  • One by my colleagues at the National Institute of Economic and Social Research, which found relatively small, but positive, macroeconomic impacts.
As an example of this analysis, this chart (click to enlarge) shows the correlation between wage growth at the 10th percentile (ie very low paid workers) and the proportion of migrants from the new Member States, at local authority level.

JPCHART USE1 300x211 Labour is wrong to apologise for its record on immigration

It is clear that there isn’t one; ie wage growth for the low paid and immigrant inflows don’t appear to be related at all. Numerous other ways of looking at the data tell the same story.
In addition, of course, there have been many other studies of the impact of immigration more generally, which tells pretty much the same story. As Jonathan Wadsworth, of Royal Holloway College and the government’s independent Migration Advisory Committee, summarises:
“It is hard to find evidence of much displacement of UK workers or lower wages, on average.”
So; the new migrants get jobs, contribute to the economy, pay taxes, don’t use many public services, and don’t take jobs from natives. What, exactly, is the problem? The decision was correct at the time, and the UK should be proud that, unlike most of the existing Member States, it was prepared to take that decision on the basis of rational argument and good analysis, rather than fear and prejudice.
It is, of course, true that the UK has a persistent problem with youth unemployment and inactivity – and that this was true even before the recession. But research suggests that this has little or nothing to do with immigration; it is about educational underperformance among disadvantaged young people while at school, the poor quality of much post-16 education for those who are not going to university, and our neglect of the school-to-work transition. And it is just as bad (often worse) in areas where there are few immigrants as in areas where there are many.

In this respect, the previous government does indeed have much to apologise for, as does the current one; the economic evidence is very clear that the cancellation of the Educational Maintenance Allowance will do far more damage to the future prospects of disadvantaged young people than migration ever did.

But what does this mean going forward? There have been calls – not yet from the government or the Labour leadership, but from influential voices in both main parties – to renegotiate the EU Treaties. Of particular note is Maurice Glasman’s: statement that:
“We’ve got to reinterrogate our relationship with the EU on the movement of labour…The EU has gone from being a sort of pig farm subsidised bloc to the free movement of labour and capital.”
Coming from anybody involved in politics, this statement shows a surprising level of ignorance. Coming from an academic who lectures on political theory, it is astonishing; it gets the history of the EU completely wrong. Free movement of workers was one of the key principles (the “four freedoms”) set out in the 1957 Treaty of Rome establishing the (then) EEC; as such it predated the Common Agricultural Policy. So when the UK joined the EU in 1973, it was entirely understood on all sides that free movement was a fundamental part of the deal.

Leaving aside the (non) negotiability of this fundamental pillar of the EU, both the Conservative and Labour should surely support free movement of workers. Why would anyone from a party which seeks to represent the interests of workers choose this of the “four freedoms” to seek to undermine; do they really want an EU where goods, capital, and services (the other three) can move freely, but workers can’t?

On the Conservative side, it seems equally odd that representatives of a party which often (and often rightly) criticises the EU for imposing unnecessary regulatory restrictions on business should seek to restrict the right of EU businesses to employ whichever EU citizens are best suited for the available jobs. And why would anyone in either party prefer an EU which concentrated, in Glasman’s words, on featherbedding pig farmers rather than promoting a more efficient and dynamic labour market?
Finally, and more broadly, it is depressing to see politicians of both parties implicitly presenting immigration as a problem to be managed, controlled and if possible reduced, rather than an opportunity. David Cameron recently argued:
“Trade is the biggest wealth creator we’ve ever known. And it us the biggest stimulus we can give our economies right now. A completed trade round could add $170 billion dollars to the world economy.”
$170 billion sounds like a big number – but it’s about a quarter of one percent of world GDP. In fact, estimates from the benefits of liberalizing immigration policy are considerably bigger. So if you buy Cameron’s argument on free trade (as I do), you should also support a more liberal approach to immigration policy, at least globally.

But the deeper point is that these static estimates are not the whole story or even the main point. Following Adam Smith, we believe that the dynamic benefits of competition and specialization far outweigh the static ones.For trade, the benefits are not just that we can buy cheaper cars from the EU or US than we can produce here (the static benefit) but that the much greater competitive pressures, and opportunities for specialization that result from a global car industry mean that all countries produce better and cheaper cars, and companies face continual incentives to make their cars even better and cheaper (the dynamic benefits). For migration, the benefits are not just that we get cheap and willing Eastern European workers, but that we get students, some of whom will stay and set up businesses; researchers who will both collaborate and compete with natives; refugees whose children will invent things that none of us have yet thought of; and so on.

These benefits, both from trade and migration, are not just marginal or “nice-to-have”. For a small (in global terms), open, service-based economy like the UK, they are essential to any growth strategy worthy of the name.

8 comments:

  1. Not disagreeing with anything you've said-- quite the contrary on the whole--, there is an argument regarding 'security'. I don't mean terrorism. In a world where the supply of food is insecure going forward across time, and where population growth rates correlate with poverty, there is a risk that high population states will produce considerable emigration to high wealth states, whose arable land (and in the short term social and health services) will be increasingly pressured.

    A similar problem was emphasised by keynes on the justifications of tariffs if I remember rightly, both in terms of ensuring sufficient infrastructure and security to allow advantages to be accrued in domestic sectors, and to produce positive path-dependent results (such as the advantages enjoyed in the US because of silicon valley, hollywood, etc, or those advantages we gain via an established chemical engineering industry, or the great universities), but also to avoid a sudden loss of critical imports, specifically food. In Keynes's time, the 'enigma code' problem of submarines destroying food convoys enroute to besieged britain, and the common agricultural policy in the wake of the Iron curtain, were both firmly in mind.

    In modern times, the problem may be global warming, and the deterioration of both the oceans, and of arable land and water supplies.

    Britain does have a right to be concerned about its own population growth, and the strains produced on the basis of these arguments, both in terms of the rate / pace, and the end destination, surely?

    Again, I'm not disagreeing with the main thrust, or the argument over the analysis of EU migration at the time. However, as the EU expands, the borders of the EU both expand and extend ever closer to increasingly impoverished states. These questions are very much live.

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  2. At the Touchstone blog, Owen Tudor of the TUC presents a more nuanced view of what Ed Miliband was actually saying (as opposed to "what everyone thinks he meant by it").

    "Miliband’s speech was mostly – and he was explicit about this – about labour market policy, and the implications that would have for immigration.

    "So, on the substance, the speech marks an acceptance of a key union demand: stronger regulation of the labour market, especially to protect the vulnerable and the low paid. There is still more to say (again, as he was at pains to stress) over issues like housing policy, but on the labour market, this speech was a positive move."

    Tudor notes that "the ‘lump of labour fallacy’ was also deployed" at the New Statesman,"Why Miliband is wrong to apologise over immigration."

    This touches on a point you raised back in January about how explaining the lump-of-labour fallacy to Secretaries of State for Work and Pensions was "probably the most useful thing I did, from a public policy perspective, in my six years as Chief Economist at Department for Work and Pensions."

    I've written an open letter to you suggesting that perhaps a more useful thing, from a public policy perspective, would be if you could reconsider your view of the fallacy claim, in light of the overwhelming evidence against it.

    I look forward to hearing your reply!

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  3. Jonathon,

    Reading Ed Miliband’s speech (available online at his website), it’s clear that he is discussing immigration in general. Here you seem to have narrowed the argument considerably, to one of EU migration alone. This then sets the scene for your coup de grace: you’ve checked and A8 migration doesn’t seem to have had a significant effect on wages.

    If we take immigration generally, then it’s hard to see why a constantly increasing supply of low skilled labour shouldn’t contribute to downwards pressure on wages at that end of the income distribution. (As an example of the sort of numbers we’re talking about here, according to the ONS, the number of foreign-born low skilled workers in the UK more than doubled between 2002 and 2011). I want to note, for your other readers, that this isn’t the same as saying that immigration reduced wages. We can only imagine a potential outcome, a counter-factual that is unobservable in practice. It’s also worth mentioning that many of the losers under this scenario will be workers who arrived here as a result of prior migratory flows.

    My understanding is that the evidence is consistent with this story: immigration has had little effect on average but has tended to increase inequality, reducing the speed of wage growth at the bottom of the pile and increasing it at the top.

    In terms of the government’s fiscal balance (I’m recalling here Robert Rowthorn’s 2007 report for the House of Lords), immigration’s effect appears to be negligible.

    So what we are left with is the impression that immigration hasn’t changed the economic picture very much overall, with costs and benefits more or less in balance, although there are winners and losers (the rich and the poor, respectively).

    Okay, fine. Say we forget about all that. Say we just look at immigration from Eastern Europe. Let’s say that it has no effect on native wages or employment anywhere on the income distribution. Is this an argument for immigration from Eastern Europe? No! It isn’t an argument at all—it’s smoke.

    The first thing that strikes me about it is that it’s completely one dimensional. All we need to think about are the economic ramifications, and nothing else. (I suppose that’s what it means to be “rational” as opposed to motivated by “fear and prejudice”, i.e. rationality describes Wilde’s Englishmen: people who the price of everything and the value of nothing).

    The second thing that strikes me is that there’s no there there. It is an argument that is supposed to appeal to our economic self-interest, yet immigration doesn’t actually benefit us in an appreciable way. The decisive factor is supposed to be the fact that it doesn’t cost anything, not that the benefits outweigh the costs. In other words, we’re simply assuming that immigration is ipso facto a good. Since it is a good, we would like more of it, if we can afford it. Happily, we can—therefore, throw the borders open and welcome in the World.

    Unfortunately for economists, there’s no reason why the rest of us should accept that the economic argument (such as it is) is decisive. There are a myriad of effects that simply can’t be measured, even with the most cutting edge econometric study using IV, discrete choice methods, VAR, or whatever. Some problems don’t even have solutions in the sense that maths problems have right and wrong answers. For instance, what does immigration do to common experience, common values, common history, culture and loyalties? What weight should we give each of these in our calculus? These are all the essential, intangible, immeasurable, ingredients for the good life, i.e., these are the stuff that society is made of. If they are damaged, society suffers. If they don’t exist, society doesn’t exist—except maybe in name. Economics won’t help us with this, so we must look beyond the narrow confines of the discipline, and, indeed, the sort of blinkered view that sees everything as nothing more than a technocratic problem with a technocratic solution.

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    1. "yet immigration doesn’t actually benefit us in an appreciable way"

      Erm, immigrants do jobs we don't want to do, leaving us to do things we'd like to do instead? That's an appreciable way that immigration helps us.

      "There are a myriad of effects that simply can’t be measured, even with the most cutting edge econometric study using IV, discrete choice methods, VAR... what does immigration do to common experience, common values, common history, culture and loyalties?"

      First of all, IV, DCM and VARs are not about measurement, they are about modelling.

      Second, surveys can allow us to get some grip on all these things and if done at a regular interval, can be included in said IV (models), discrete choice models or even VAR models.

      "Economics won’t help us with this, so we must look beyond the narrow confines of the discipline, and, indeed, the sort of blinkered view that sees everything as nothing more than a technocratic problem with a technocratic solution."

      This is where, as a result of your earlier errors, you're completely wrong. Economics precisely can help us because it is much more broad and flexible than your narrow and misguided understanding of it. It provides tools to analyse all the things you claim it doesn't.

      Great post, by the way, Jonathan!

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    2. Actually, Vimothy makes a very clear and well-argued point. It is hard to understand why you dismiss it as 'completely wrong' or 'narrow and misguided'.

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  4. For instance, what does immigration do to common experience, common values, common history, culture and loyalties?

    Changes them, sometimes. Other times, not so much. So?

    For someone who makes a lot of hay out of the ispo facto of immigration as a good, you seem to be riding rather roughshod over the idea that the "common values" of an insular nation are also good. This assumes rather bluntly that there are no values the English have which might be slightly iffy, and no values that can be brought in from abroad which would benefit us. If we don't make that blanket, black and white assumption, none of your conclusions hold any water. Was society damaged when the Hugenots arrived? The blacks from the Carribbean? The Chinese? The Jews? Hells, to my recollection, Britain has come out with advantages from being forcibly invaded by pillaging rapists with swords. I rather suspect that we will survive people with marginally different ways of viewing the world and preparing lentil stew moving in next door.

    Perhaps, if anything, the traditional English value of assuming that nothing that isn't English can be any good might take a bit of a kicking, making us, in general, rather nicer to be around than is often the case.

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    1. Vimothy's point is that the economic arguments around immigration are not decisive. In the end it is a political issue.

      My experience of the politics of immigration goes like this:

      All of the immigrants to the UK that I know are highly educated and talented people who contribute wonderfully to this country.

      But my anecdotal view is not representative. Ipsos Mori has found that 76% of people think immigration is a big problem in Britain. 76% is not a number you can ignore if you are a politician.

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  5. It seems to me that most of conclusion are based on data and studies from London and the South East. For example the study that concludes that immigrants do not displace British people from jobs is so far from the truth in many UK areas. Try a study in the North East and West, also Cornwall and see what emerges. I suggest a different conclusion.
    Also the effect of 'immigrants pinching our jobs' has produced a dependency culture among large numbers of families, and I suggest brought about a society where ambition is reduced. Hence the difference in skills between the British and immigrant youngsters.
    Society needs desperately to face up to that situation, not in the way that the Coalition policies are facing but in a more positive way by ensuring that jobs are provided for the youngsters, using discrimination if necessary.
    If the previous post is accurate then 76% of people dissatisfied with immigration will eventually find a way to restore the balance and that will not be a situation for delight

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