The impacts of immigration: my summary of the evidence (video)

My summary of the economic evidence on immigration: labour markets, benefits, public services and the long-term impacts on growth and productivity (8 minutes): 

White flight: "600,000 have quit London in a decade". The true figure is far higher

The Daily Mail is rarely knowingly understated when it comes to a scare story, especially about immigration. However, sometimes ignorance of basic statistical concepts does the job for them. So it is for today's piece, "How rise of white flight is creating a segregated UK", which states: 

"600,000 HAVE QUIT LONDON IN A DECADE

More than 600,000 white British Londoners have left the capital in a decade"

This is nonsense. The true figure for the number of white Londoners who've left is far higher - once again, the Mail confuses net with gross figures.  Even assuming that we are only talking about Londoners moving from the capital to other parts of the UK (that is, ignoring international emigration, much of which may be non-British and/or non-white), the ONS' best estimate is that about 240,000 people moved out of London in the single year ending June 2011 - over a decade, that adds up to well over 2 million.   

Comment on Reinhart and Rogoff's FT article

My letter to the FT responds to Ken Rogoff and Carmen Reinhart's opinion piece (2 May):

"In their article 'Austerity is not the only answer to a debt problem', Ken Rogoff and Carmen Reinhart argue:

"the debate needs to be reconnected to the facts. Let us start with one: the ratios of debt to gross domestic product are at historically high levels in many countries, many rising above previous wartime peaks."

Underemployment in the UK

In a new paper published today in the latest issue of the National Institute Economic Review, economists David Bell and David Blanchflower of the University of Stirling and Dartmouth College introduce a new measure of labour market slack. The conventional measure of the difference between supply and demand in the labour market is the unemployment rate. But it does not capture a phenomenon which has become increasingly important during the current recession - underemployment.

The deficit is falling..

[Updated 17.00 with HMT response: see end]

The deficit is falling!  Today's figures show that the budget deficit for 2012-13 (public sector net borrowing, excluding some of the more obvious distortions) was £120.6 billion  - £0.3 billion lower than in 2011-12. So maybe the Chancellor's cunning plan - to reduce last year's deficit by not paying some of the UK's bills until this year, also known as "the cheque is in the post" strategy, has worked.  Or, more prosaically, the government has simply cut public investment again - net investment was £2.4 billion lower in March 2013 than in March 2012, while the current deficit was about £1 billion higher.

Recessions and recoveries: a historical perspective (updated April 9, 2013)

Here is NIESR's chart showing the path of recession and recovery in various previous downturns, updated for our estimate of monthly GDP, published April 9, 2013.  

When it comes to migration, there are no winners in the numbers game

NIESR's research for the Foreign and Commonwealth Office, by NIESR researchers Tatiana Fic, Mumtaz Lalani, and Heather Rolfe, on the impact of immigration from Bulgaria and Romania was published today. The key findings are discussed in detail by Heather Rolfe in the New Statesman here.  Here, Heather explains what's not in the research - an estimate of the numbers of new migrants likely to move to the UK from Bulgaria and Romania after January 1, 2014.

The (economic) objectives of immigration policy: a dialogue with Martin Wolf

I recently devoted a blog post to an analysis of David Goodhart's claim that people in Whitehall and Westminster made immigration policy on the basis of a view that "the only decent policy is to throw open our doors to all" - an assertion so self-evidently absurd I am still astonished an intelligent person could actually write it down and expect to be taken seriously. David's defence appears to be that he didn't really expect the words that appeared under his name in the Daily Mail to be taken at face value. This is not in my view how a serious researcher approaches a serious issue, but please read David's piece in full if you think I'm being unfair. 
 
However, the blog provoked a very interesting debate in the comments section, addressing much more real, substantive and difficult issues than David's original articles. In particular, Andrew Green from Migration Watch noted that (almost in passing) I had said that GDP per capita was a better measure of the economic benefits of migration than GDP; this in turn led to a lengthy discussion with Martin Wolf. The full set of comments (and there are a number of interesting contributions from others) can be be read here, but I thought that it was worth pulling out my exchange with Martin, which we also continued on email. I have edited it for readability, but don't think I've changed the main points. I am very grateful to Martin for allowing me to reproduce his words in this format. 

A response from David Goodhart

[David Goodhart's response to my blog  is now posted below]

David Goodhart here

I agree with Martin! But can I just clear up Jonathan's original misunderstanding. He jumped on a couple of paragraphs in an excerpt of my book in the Daily Mail, and I think unfairly twisted them. I would not have expressed things in quite the blunt way that the Mail did (an excerpt often involves a bit of re-writing and simplifying, that is what happens and I am not blaming the Mail). But even in the Mail version "I" did not say that the Treasury policy was "driven" by a belief in the equal or greater importance of the welfare of Burundians.

David Goodhart's British fantasy

David Goodhart's book on immigration and the UK, the British Dream, hasn't been released yet.  But on what I know (I've discussed these issues with David numerous times and he kindly asked me to read part of the draft) it will have a tremendous amount of sociologically interesting anecdote but a rather selective, at best, reading of the evidence. I suspect I will agree to a considerable extent with some of the conclusions on the broad approach to integration, while disagreeing violently with immigration policy prescriptions that I consider very poorly reasoned and economically damaging. 

[UPDATED 11pm 27/3 - SEE END]

A Socratic dialogue with @ToryTreasury

Yesterday I spotted a tweet from @ToryTreasury, who describes him/herself as "Official CCHQ voice for all things Treasury".

Ed Miliband's spending plans he repeated today would mean £33bn more borrowing this year - driving the deficit back up to double-digits.

I tweeted back

@ToryTreasury Out of curiosity, what multiplier are you using?

I wasn't looking for an argument. I certainly wasn't endorsing (or opposing) Labour's "five point plan for jobs and growth"; in particular, as I've said numerous times (eg here), I'm not at all enthusiastic about a VAT cut in current circumstances. But NIESR's views, or my own, weren't the point at all; I was genuinely curious about ToryTreasury's methodology.

Nick Clegg's immigration speech

From Nick Clegg's speech on immigration: 

"I believe people will have more faith in our immigration system if they see that we are doing everything we can to help young British men and women into work.  To that end, the Coalition has also capped unskilled migration from outside the EU."

This is fantasy.  The Coalition has introduced absolutely no policies that "cap migration from outside the EU", since when they took office there were no economic migration routes permitting unskilled workers from outside the EU, and have not been for some time.  

Indeed, the previous government stated in 2008: 

"But we have also decided to suspend low skilled migration from outside Europe through the points based system which will provide additional protection for low paid workers."

Even this was disingenuous; there was very little to "suspend" even then.  Post 2004, and the new EU member states, what need was there for low skilled migration from outside the EU?

When I asked Mr Clegg what policies he was referring to, he said that of course all he meant was that that the Coalition had maintained the policy of the previous government, and said I was being "mischievous" in suggesting that he was being misleading. The written text is above; judge for yourself.

Politicians from all parties are always saying that we need an "open and honest"  debate about immigration. Getting your facts completely wrong doesn't help.  On policy, there's not much to say about the speech, except that it was profoundly illiberal (from an economic perspective); on this, again, there seems to be a regrettable cross-party consensus.  My outline of what a liberal, market-friendly approach that took the contribution of immigration to growth and productivity seriously is here. 

We've got the deficit down by a quarter? No, a third! (updated)

The first substantive line of George Osborne's Budget Speech was:

"We’ve now cut the deficit not by a quarter, but by a third."

This might surprising to anybody who read my earlier blog here, which pointed out that the deficit had (measured on a rolling twelve- month basis) been rising, not falling, for the last year or so. Nor does it chime very well with the statement made by Robert Chote yesterday, Chair of the independent Office of Budget Responsibility, who stated that deficit reduction "appears to have stalled". How to reconcile these figures?

Ready for Ageing: Report of the House of Lords Committee on Public Services and Demographic Change

This Committee published its Report today. For anyone interested who is interested in the future of public services and the welfare state, looking beyond the short-term debate about austerity, it is essential reading - and it is only 10 pages long, although there are extensive annexes setting out the evidence base.  

I (along with the estimable Professor Howard Glennerster at LSE) was a Specialist Advisor to the Committee. We take no responsibility for the Report's conclusions, and I don't necessarily agree with every detail, but for what it's worth I think they are broadly sensible. Below, I have picked out (verbatim) what I think are the key points; personally, if I could highlight one, it would be this passage on fairness:

"There are likely to be considerable increases in public and private spending over the next two decades on services that are particularly important to older people: healthcare, pensions and social care. This is not a bad thing; over time, an increasingly affluent society (as, on the whole, we expect to become) is likely to want to spend more on improving the lives of its citizens, and an older society is likely to want to spend more on the priorities of older people. This increased spending can only be financed by individuals directly, or through taxes, social insurance, or cuts elsewhere: it must be financed fairly.

 The welfare state has largely meant people paying in when they are young and drawing out when they are older; this should continue. But we have to be wary of shunting too many costs onto younger and future generations. In particular, the property boom has led to a very large transfer of wealth to older, better-off homeowners, which has increased housing costs substantially for younger generations. Younger generations will benefit from being part of a richer society in many ways in the future, but they will also have to service large public and personal debts and may often have poorer pensions.

It does not seem fair to expect today’s younger taxpayers—especially those not born to better-off parents—to pay more for the increased costs of an older society while asset-rich older people (and their children) are protected." 

More detail below. 

Believing in "miracles"? Self-defeating austerity and self-financing stimulus

The Prime Minister's speech on the economy on Thursday was, leaving the policy aside, notable for some of its analytical claims.  Simon Wren-Lewis's dissection is thorough and comprehensive; Danny Blanchflower and Adam Posen have a lengthy discussion here . In particular, much has already been written about the Prime Minister's misinterpretation of the OBR's position on the impact of fiscal consolidation on growth; for a thorough explanation, see Duncan Weldon.

But I wanted to focus on another specific passage of his speech, since it seems directed at, among others, us here at NIESR, and where the Prime Minister cites the work not of the OBR but of the IFS to put the counterargument. The Prime Minister argued:

"So those who think we can afford to slow down the rate of fiscal consolidation by borrowing and spending more are jeopardising the nation’s finances. Labour’s central argument is exactly that.  They say that by borrowing more they would miraculously end up borrowing less.  Let me just say that again: they think borrowing more money would mean borrowing less.Yes, it really is as incredible as that.The Institute of Fiscal Studies has completely demolished this argument.They say that if we had stuck to Labour’s plans we would be borrowing an extra £200 billion.."

Immigrants and benefits

Do migrants, especially those from within the European Union, get a better deal in Britain than they would elsewhere in the EU? My article in the Guardian, here. 

Speaking English does matter. But almost all immigrants to the UK do.

Tonight, Ed Miliband will - again - admit that "Labour didn't get it right on immigration", in particular by failing to impose the "maximum transitional controls" on those coming here from the new EU Member States. As I've pointed out before, this ignores the fact that pretty much all the evidence about the impact of this decision is positive: the new migrants get jobs, contribute to the economy, pay taxes, don’t use many public services, and don’t take jobs from natives. Nor, as I explain in the Guardian, do they pose a significant threat to the benefit system. 

Budget 2013: time for an investment-led growth agenda

[This article originally appeared in Public Finance]

The economic history of the UK over the past 30 years can be summarised as a period of quite successful microeconomic reform, leading to relatively high productivity growth, interspersed with episodes of disastrous macroeconomic mismanagement. Unfortunately, we are living through such an episode at present.  This is the slowest recovery in the UK’s recorded economic history. NIESR  forecasts that real per capita gross domestic product, the simplest measure of how prosperous we are as a country, will not return to its 2008 peak until 2018.

Immigration is down. So are exports.

[This article originally appeared in City AM on Friday 1 March]

Wednesday's GDP figures confirmed that the UK economy shrank in the last quarter of 2012 – in large part because of the weakness of exports. So the government’s strategy of generating growth by rebalancing the economy towards investment (which is also weak) and exports is far from on track. But the government is at least making progress towards its objective of reducing immigration to the “tens of thousands,” with Wednesday’s figures showing net migration is down to the lowest level in four years. It was duly trumpeted as a policy success.

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. 

No debate please, we're Europeans

[Updated March 6, 2013.  Mr Rehn's letter and this post sparked a lot of further debate/comment, in particular Karl Whelan's excellent Forbes piece here and Paul Krugman here and here. Apparently Krugman's comments, in particular, have irritated the Commission considerably, as the FT describes here. Mr O'Connor - Mr Rehn's spokesperson - doesn't exactly put up a strong defence, appearing to confuse the 1930s and the 1940s (I've asked him via twitter to explain what he meant). On the substance, I think Kevin O'Rourke says all that's needed.]

I pointed out late last year that European Commission Vice President Olli Rehn has been predicting for at least two years that, thanks to the excellent policies recommended by the Commission and the European Central Bank, economic recovery in the crisis economies of the eurozone is imminent.  However, this week - perhaps noting that outside the financial markets, the light at the end of the tunnel that he is fond of referring to appears to be receding - he's tried a different tack. Blame the economists - and in particular, economists who want actually to use proper, theoretically based and empirically grounded analysis to critique the Commission's policies.  Mr Rehn, in a letter to European Finance Ministers, copied to other international financial luminaries like Christine Lagarde, says:

"I would like to make a few points about a debate which has not been helpful and which has risked to erode the confidence we have painstakingly built up over the last years in late night meetings. I refer to the debate about fiscal multipliers, ie the marginal impact that a change in fiscal policy has on economic growth.  The debate in general has not brought us much new insight."

Reflections on the Green Budget

The IFS Green Budget - the 2013 version of which was published last week - is as ever essential reading for anyone interested in UK macroeconomic and fiscal policy.  Catching up with it a little after the event, the following passages jumped out at me:

"Domestic demand is now rising. Although this is not the first time that "green shoots" have been observed, it nevertheless remains likely that the economy will begin to recover this year...The main threat to this outcome is the recession in continental Europe, where German monetary influences are still forcing policy to be unsuitably tight for domestic purposes.  A substantial portion of Britain's trade is with this bloc, and we could still suffer an unpleasant backwash from Europe's problems."

"The public finances are in a substantially worse state than anyone expected this year. This was because GDP growth did not emerge, leaving the economy smaller than it was expected to be.  We anticipate borrowing for this year will be about 7 per cent of GDP. .."

Since the government has already announced its public spending plans, and since it is likely to have considerable difficulties in hitting these plans, most of this budgetary tightening will almost certainly have to come from higher taxation...Our view is that significant tax increases will be necessary if the public finances are to be brought under control."

China at the Crossroads?

[This blog, by NIESR Principal Research Fellow Alex Bryson, summarises the articles published in the February 2013 special issue of the National Institute Economic Review on China's economy]. 

China’s political future has been settled – for the time-being – with a new cadre of political leaders taking over nearly 3 months ago. But its economic future appears less certain.  With annual GDP growth projected to remain below 8 per cent some commentators are revisiting debates about the sustainability of China’s economic growth.  Here we point to a number of factors that suggest China's economy remains in pretty good shape to face many of the new challenges it faces.

Prospects for the global economy: NIESR's February 2013 forecast

Global Economic Forecast

• World growth remains below trend at 3.3 per cent in 2013 and 3.7 per cent in 2013, little changed from our previous forecast.
• World trade will only grow slightly faster, and again below trend.
• The Euro Area will grow only slightly next year, while Japan is forecast to grow by 1.4 per cent, the US by 2.4 per cent, and China by 7.3 per cent.
• Interest rates will remain extremely low by historical standards, and inflationary pressures will remain subdued.

Prospects for the UK economy: NIESR's February 2013 forecast

Prospects for the UK economy

• The economy, after seeing zero growth in 2012, will grow by 0.7 per cent in 2013 and 1.5 per cent in 2014.
• Consumer price inflation will average 2.4 per cent this year and 2.3 per cent in 2014.
• Unemployment will stabilise at about 8 per cent, and to begin a sustained fall in 2015.
• We expect public sector net debt to peak in 2016–17, at about 85 per cent of GDP.
• GDP will regain its 2008 peak in 2015, but real per capita GDP will not recover its peak until 2018

The Austerity Delusion?

The continued dismal performance of the UK economy is entirely consistent with the predictions of those of us who have argued consistently for the last two years that premature fiscal consolidation would be severely contractionary in the short term, and risked doing significant long-term economic and social damage. As has been widely reported, this analysis is now generally shared by most serious economists, including most notably the Chief Economist of the IMF, Olivier Blanchard, probably the most distinguished empirical macroeconomist working on policy issues at present.

It is obviously impossible to argue that an economy that has grown less than 1 percent in the period since the fiscal consolidation was introduced, compared to the approximately 6 percent that the government forecast at the time, is performing acceptably. So some commentators who supported the government's programme - or indeed, argued that it did not go far enough - are taking a different approach, arguing that economic weakness cannot be attributed to austerity because, in fact, there is no austerity.

Debating debt ratios with Michael Fabricant

Last night I got into a Twitter "debate" with Michael Fabricant, who is Vice Chairman of the Conservative Party.   I replay it here to set out the facts (which are fairly simple) and perhaps to give Mr Fabricant one more change to correct his position gracefully.  

[Updated, 2.45pm: Mr Fabricant has done exactly that, tweeting: 

"Lesson learned. NEVER take a 'fact' from a colleague at face value. I withdraw the remark on Debt to GDP ratio. Apologies to all."

This is both gracious and appropriate in content and tone, and I am grateful to Mr Fabricant. So what follows is now simply for the record; if you just want the facts on debt/GDP, no need to read past the chart.]

It started when Mr Fabricant tweeted the following:

"GDP to debt ratio almost as big now as WW2. Total war achieved the same debt ratio as total incompetence achieved in 2000's by Gordon."

II responded, I thought factually, politely, and self-explanatorily, as follows: 

"I hope @Mike_Fabricant will retract that last tweet; simply wrong, as chart shows."

and provided this chart, showing the debt to GDP ratio from 1900 to 2011:

Credit and credibility: France and the UK

At the Treasury Committee in October, I came under sustained questioning as to my view that low long-term interest rates in the UK reflect economic weakness (domestic and global) and expectations that short-term interest rates set by the Bank of England will remain very low (again, reflecting economic weakness); and not, in any meaningful sense, the "credibility" of government fiscal policy or economic strategy more generally.  A much more detailed discussion is here. 

European labour markets: six key lessons from the Commission report

I haven't always been complimentary about the European Commission - either its economic analysis or its policy advice.  So it's nice to be able to be wholeheartedly positive about the excellent report "Employment and Social Developments in Europe 2012" (brought to my attention by this article by Ambrose Evans-Pritchard in the Telegraph, also excellent) produced by the Commission's Directorate-General for Employment, Social Affairs and Inclusion.

The report is really worth reading.  But it's close to 500 pages, and the main messages deserve as wide an audience as possible, so I thought I'd try to highlight them with some commentary. To my mind, the key ones are the following:

The government's mid term review: deficit reduction

Yesterday the Government published  the "Midterm Review: Programme for Government Update." This was intended to be a comprehensive assessment of progress against the commitments made in the original Coalition Agreement.  The Prime Minister said that this "audit" would be "full, frank and unvarnished."   Naturally, I was particularly interested in how the Review described progress in deficit reduction, particular, given my view (set out here) that the Government has effectively abandoned its initial "Plan A" for deficit reduction.   

Immigration as a growth strategy

[My chapter in the Fabian Society pamphlet "The Great Rebalancing: How to fix the broken economy", edited by Andrew Harrop, which also features chapters by Maurice Glasman, Stephany Griffith-Jones, Chi Onwurah, Duncan Weldon, Mariana Mazzucato, Vicky Pryce, and Chris Leslie]. 

What forms of supply-side reform would do most to boost UK growth over the medium to long term?  Bizarrely, much of the recent debate has concentrated on reducing various forms of labour market regulation (procedures for unfair dismissal, health and safety, etc).  The evidence base supporting such proposals is remarkably thin.  The UK labour market, as many have observed, is doing remarkably well. Hiring - given economic conditions - is surprisingly healthy, and employment is rising, despite weak or no growth .   Labour market economists, and international organisations like the OECD, agree that three decades of successful reform have given the UK a flexible and generally well-functioning labour market, by international standards.  There is no reason to believe labour market regulation is currently a significant barrier to job creation. This suggests that - while doubtless there are improvements that could be made around the edges -  there is little to gain from further wholesale deregulation.  Spain and Italy need radical labour market reform; we don't.  

The macroeconomics of recessions: AEA panel discussion

Brad Delong has posted the full (rough) transcript of the panel that he chaired at the San Diego meetings of the American Economic Association: 

STIMULUS OR STYMIED?: THE MACROECONOMICS OF RECESSIONS

• CARLO COTTARELLI (International Monetary Fund)

• PAUL KRUGMAN (Princeton University)

• VALERIE A. RAMEY (University of California-San Diego)

• HARALD UHLIG (University of Chicago)

Panel Moderator: J. BRADFORD DELONG (University of California-Berkeley)

The economic impact of uprating policy

[This article, an expansion of my earlier blog, was written for the Child Poverty Action Group (CPAG) report "The Double Lockout".  Obviously I do not necessarily share or endorse the views expressed by CPAG or by other authors whose chapters are included in the report (or they mine)]. 

Leaving aside normative questions about the "appropriate" or "fair" level of benefits for those who are out of work, disabled, or on low incomes, there are two principal issues raised by the Coalition Government’s decision to cut most working age welfare benefits in real terms over the next three years:

• First, macroeconomic; is this sensible and/or necessary given the short-run prospects for the public finances?

• Second, long-term sustainability; is this sensible and/or necessary given long-run trends on benefit expenditure and rates?

Predictions for 2013: my answers to the FT Survey

Here are my answers to the Financial Times' annual economists' survey (the survey is reported in full here):