No Evidence That Cutting Net Migration Would Be ‘catastrophic’ For British Economy

Economics, Employment, Policy, Population

The organisation Global Future argues in a recent report (published on 19th March) that cutting net migration would be ‘catastrophic’ for the British economy. It claims that continued high rates of net migration help keep unemployment low, tackle the UK’s chronically low productivity growth and are essential in helping to address the consequences of an ageing population.

None of these claims stand up to scrutiny.

With respect to the first of them, Global Future argues that unemployment levels of 5% or lower are apparently associated with high levels of net migration. That is not surprising, ordinary supply and demand means that in a tight domestic labour market employers will seek new sources of workers, and workers from abroad will be attracted by the availability of jobs. Thus it is easy to see how low unemployment might cause an increase in net migration, and this is what basic economics would predict. However the reverse is not at all likely – that high net migration will cause lower unemployment. Extensive academic research evidence for the UK has found that high net migration does not appear to have led to any increase in unemployment for the resident population, but it is a quite unjustified leap to say that it has reduced or will reduce unemployment. Furthermore, much of the return to ‘full’ employment since the recession has been due to growth in part-time and self-employment for the UK-born. This indicates that high levels of net migration may have had a negative effect on the availability of full-time employment for the UK-born and thus on their stability of employment and security of earnings.

Global Future also argues that high net migration ‘tackles chronically low productivity growth’. However this assertion is almost directly contradicted by their later admission: “There is no relationship between migration levels to different countries and their productivity growth.” Certainly it is a well-known fact that productivity growth has dropped off markedly in recent years (ONS data, as illustrated by Figure 1 below). Commentator Jeremy Warner has argued that there is some evidence to suggest that employers are choosing easily dispensable cheap labour in preference to productivity enhancing investment (Daily Telegraph, March 2016 (£)), a trend that recent high levels of immigration from Europe into lower-skilled roles are only like to entrench. If migration to the UK contributes to productivity growth the question is why productivity is barely higher than ten years ago despite record levels of net migration and an increase of 10 percentage points in the migrant share of workers in the UK.

Figure 1: Output per hour and output per worker, 1997-2015. ONS, Labour Productivity, Oct-Dec 2016, published April 2017.

Nor have the current high levels of immigration been proven to have any significant positive impact on the UK’s GDP per capita – a key measure of economic prosperity. Since the recession, and at a time of record levels of net migration, the UK economy measured by GDP is now 8% above its pre-recession peak, but GDP per capita is barely 1% higher.

With regards to the need to tackle the consequences of population ageing, it is true that the long-term impact of an ageing population presents a significant fiscal challenge to the UK. However, the Office for Budget Responsibility has said higher immigration would only delay these fiscal challenges rather than deal with them. As London School of Economics Professor Michael Murphy argues: “Immigration is not a long-term solution for population ageing.” In the words of the OECD: “This type of demographic dividend vanishes quickly as migrants also age or leave.” As migrants get older, they would need to be replaced by an ever-increasing flow of immigrants to have any continuing effect on the age structure of the UK. The result would be a substantial and continuing increase of the population, potentially without end, while the need to take radical steps to solve the UK’s fiscal challenges would merely be delayed for future generations to deal with. That hardly seems fair.

The report also suggests that certain sectors of the UK economy, such as construction, social care, nursing and hospitality, are highly dependent on both skilled and unskilled EU labour. However, showing that a high number of EU workers currently work in a sector does not prove the need for continued or increased inflows. In any case, analysis of the Labour Force Survey suggests that the existing workforce of Eastern Europeans has been a largely settled population, at least since the end of the recession. This means such workers are unlikely to disappear overnight. While most will have arrived as young single people, many have since formed families and have children at school meaning a much higher opportunity cost to leaving than arriving, even without any regard to whether they can find equivalent earnings and job opportunities, whether in their home country or anywhere else.

On balance, it seems that the grand claims made by Global Future and countless other organisations in favour of the economic benefits of mass immigration are highly contestable. What is incontestable is that the UK’s population is growing at its fastest rate in nearly a century, at a rate of half a million each year. On current migration levels, the ONS projects it to hit 76.4 million by 2038, with 75% of this being the direct or indirect result of migration.

The report seems to base its assertion that net migration in excess of 200,000 will be needed to avoid the collapse of whole sectors on the Office for Budget Responsibility’s suggestion in its Fiscal Sustainability Report (June 2015) that net migration of 225,000 a year (its high migration scenario) would be required to raise the population in employment from 32 million to 38 million by 2064. However they do not mention that the OBR projects that this would result in a total UK population of 85 million by 2065, or more than two cities the size of London. Nor do the OBR forecasts take account of potential negative externalities associated with large-scale population growth, such as congestion and pressure on public services.

Post-Brexit, the best way in which to reduce EU migration, which makes up around half of the current total of 273,000 a year, would be via an extension of the present work permit system to include EU workers offered highly-skilled jobs. We have also argued that, with respect to EU migration, free movement should be preserved in both directions for most purposes.

And to allow UK employers to adjust to a situation in which they improve training, conditions and pay post-Brexit, we have proposed a temporary scheme for EU migrants at lower skilled levels, such as brick layers, together with an expanded Youth Mobility Scheme to encourage exchanges between young Europeans.

The government should also continue to tighten controls on non-EU migration, especially with respect to the work, student and family routes, to ensure that net migration is reduced to the sustainable levels that the majority of the public consistently say they wish to see.

26th May 2017

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