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.

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