Wednesday 27 February 2013

Immigration and the UK labour market

Tomorrow's immigration statistics (Thursday 28 February) will be pored over for evidence of whether the government is making progress towards its "target" of reducing net migration to the "tens of thousands". The contradiction between the government's claims that the UK is "open for business" and the policy measures required to meet the target - essentially, measures to reduce the number of skilled workers from outside the EU and foreign students - has been highlighted elsewhere (for example, by the Conservative MP Gavin Barwell in the Telegraph).  For a longer explanation of why a flexible immigration policy is an essential part of any serious growth strategy, see my article here

However, when looking at immigration and the labour market, the most relevant statistics are not tomorrow's but the quarterly Labour Force Survey data on employment of the foreign born.  And the Home Office took the opportunity to claim last week that these figures showed that migration policy was ""working":
"New figures released today show the number of UK nationals in employment in the three months to December 2012 had risen by 521,000 compared to the same period in the previous year - a rise of two per cent, compared to 0.6 per cent between 2010 and 2011...over the same period, employment for non-UK nationals was 2.64 million, up 75,000 on the previous year. This represents an increase of 2.9 per cent compared to a 6.8 per cent rise between 2010 and 2011.  Immigration Minister Mark Harper said: 'These figures show we are building a better immigration system that works in the national interest and is supporting growth. The rise in numbers in employment has benefited British citizens first, but our system is still allowing skilled migrants to come to the UK where they are needed by British businesses."

Let's leave aside the rather odd claim that the "better immigration system" is supporting growth.  Growth over the last two years has been almost non-existent.  What about the assertion that the rise in employment is benefiting British citizens first? This chart shows the proportion of the working age population, and the proportion of those in employment, who were born abroad 

[Note: most analysts prefer to use foreign born, rather than foreign nationals, to analyse migration in the labour market, because while an individual can change their nationality, they can't change their country of birth. Apparently this government, like the previous one, prefers to look at nationality, presumably because it makes the number of "immigrants" in the labour market look smaller.]

What does it show? Perhaps the most striking feature here is the degree of continuity: a gentle but fairly steady upward trend in the share of those born abroad both in the potential workforce and those in employment. This trend accelerated somewhat after the accession of new EU member states in 2004 and came to a brief halt in 2008-09 as a result of the recession, but now appears to have returned roughly to the pre-recession trend.  Over the past year, the number of those in work born abroad rose by about 200,000, as did the number of residents of working age; this is pretty much the average for the last fifteen years. It is difficult - or at least certainly far too early - to see any significant change in the long run trend here. It is therefore difficult to see how changes to the immigration system could have had any substantial impact, as yet, on the employment of the UK born. 

What is certainly true is that despite continued significant immigration, there has been a substantial increase in the number of UK born workers.  As I argue here, this mostly reflects the remarkable flexibility of the UK labour market. But two other factors may explain why the employment of the UK born has risen over the past year: first, the continued increase in the number of older workers, and second, as I argue here, the impact of welfare reforms, which have required - for better or worse - a large number of  those who were previously claiming either lone parent or incapacity benefits to look for work. Both groups are much more likely to be born in the UK than the working age population as a whole. But neither trend has much, if anything, to do with immigration. 

What should we conclude from this?  No matter how many times it is debunked, the myth that immigrants "take all/most of the new jobs" persists. But the experience of the last year suggests that, just as many of us have long argued, healthy job growth for the UK born is perfectly consistent with continued migration - for both economic and other reasons - at levels well above the "tens of thousands". Equally, there's still plenty to worry about in the UK labour market - unemployment overall is still 700,000 above what it should be if the economy was roughly on trend and youth unemployment in particular is a huge concern both in the short and long term.  But no-one should pretend that those problems are either caused by, or can be solved by, immigration or immigration policy. 

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