Calls for UK to boost immigration to lower wages

By Leith van Onselen

The decline in EU immigration into the UK in the wake of the Brexit Turmoil has proven to be a massive boon for workers, with unemployment falling to the lowest level since the 1970s and UK wages surging:

Average wages are rising at the fastest rate in a decade and employment has reached a record high in the UK, according to official figures released today…

The Office for National Statistics (ONS) said total earnings were up 3.5%, including bonuses, despite expectations the labour market would be suffering more from the UK’s looming departure from the European Union.

Figures released by the ONS also show employment has soared to its joint highest level since records began at 76.1% of the working-age population. The official unemployment rate has dipped to 3.9%, the lowest since the mid-1970s…

Matt Hughes of the ONS said: “The jobs market remains robust, with the number of people in work continuing to grow. The increase over the past year is all coming from full-timers, both employees and the self-employed”…

Meanwhile, with the UK’s unemployment rate cratering, and wages rising, the government is being urged to open the immigration spigots to “help businesses access the skills they need” (read lower their wage costs):

The list of occupations eligible for the UK’s non-European skilled work visas should be expanded “as soon as possible”, with the uncertainty caused by Brexit a major consideration, government advisers have said…

In a review published on Wednesday, the [migration advisory] committee said its recommendations would mean putting about 2.5 million workers, or 9% of the total workforce, on the list, whereas the current figure was fewer than 1%. It said the expansion would come mainly from the inclusion of more health and IT jobs.

Prof Alan Manning, the chair of the committee, said: “The labour market is very different now from the last SOL review in 2013. Unemployment is lower, vacancies higher and free movement no longer providing the ready supply of workers it once did for some employers. In addition, there is considerable uncertainty surrounding Brexit and the future immigration system. Together these factors lead to a high level of employer concern”…

It recommended lifting restrictions, such as those relating to seniority or speciality, from a number of occupations on the list, including medical practitioners, social workers, artists and a number of different categories of engineering, “as there is sufficient and overwhelming evidence of a UK-wide shortage”. ..

Jane Gratton, the head of people policy at the British Chambers of Commerce, said: “Expanding the shortage occupation list will help businesses access the skills they need”…

Being employed in a profession on the SOL also grants exemption from the £35,000 minimum income threshold and incurs lower visa fees.

Here’s a chart of average weekly UK earnings growth:

And here’s a chart showing UK’s unemployment rate cratering:

And here’s a chart showing a record high employment rate:

Low unemployment (3.8%). Solid wage growth (3.2%). Record high employment. What’s not to like?

It is basic economics that if you stem the flow of foreign workers, then workers’ bargaining power will increase. This was explained by The Australia Institute’s chief economist, Richard Denniss, when he noted that the very purpose of foreign worker visas is to “suppress wage growth by allowing employers to recruit from a global pool of labour to compete with Australian workers”.  That is, in a normal functioning labour market, “when demand for workers rises, employers would need to bid against each other for the available scarce talent”. But this mechanism has been bypassed by enabling employers to recruit labour globally. “It is only in recent years that the wage rises that accompany the normal functioning of the labour market have been rebranded as a ‘skills shortage'”.

Except in very limited circumstances, there is no such thing as a shortage of labour. There is only a “shortage” of labour at the price/ wages firms are generally willing to pay.

Given faster wage growth: a) the least productive businesses would lose people, shrink and go bust, transferring workers, land and capital to more productive businesses, raising average productivity across the economy; and b) all businesses, observing higher wages, would invest more in labour saving technologies, training and restructuring to raise productivity.

This is how the labour “market” is supposed to work. But allowing the mass importation of foreign workers circumvents the ordinary functioning of the labour market by enabling employers to pluck cheap foreign workers in lieu of raising wages. It also discourages employers from training locals in favour of hiring ready-made workers from overseas. This is deleterious for both workers and the broader economy.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. Yeah but classical economic theory only matters when the business sector and capital holders are benefitting. When its workers benefiting we need “reform”.

    • St JacquesMEMBER

      You meant neo-classical theory which is a very different thing and bolloxs from the foundations up.

    • I’m surprised why no one has noticed the two-way link between immigration and property market. Many people have correctly observed that immigration is a way to inflate property prices, but I haven’t seen anyone noticing the opposite link as well. Any developed country with high levels of immigrant intake that experiences a property market bust, has also experienced a social reaction against immigration. Notice that Japan has never had a high intake of immigrants, why? Because its property market has already been in recession for three decades. In other words, immigration is socially admissible insofar as the property price inflation begets a stream of rent flowing to the mass population, making them numb against the stagnant level of wages that’s caused by inflow of immigrants.

      • St JacquesMEMBER

        I think you make a good point, but Japan is not a good example because Japan has always had a strict policy against large scale immigration in order to protect its culture and identity even during the huge run up in property prices in the 1980s. Even in the greater Tokyo area, immigrants only make up a small percentage of the total population. The US, Ireland and Spain all experienced immigration huge booms, Spain’s was particularly big relative to the population, and there has certainly been a souring towards immigration and immigrants there in the years since the bust between the time I was there in 2006 and then in 2015. .

  2. blindjusticeMEMBER

    This article should be plastered all over brexit twitter/facebook/relevant political parties feeds. I reckon it could go viral in the UK.

  3. DominicMEMBER

    Sounds like the UK model is just like ours, only, you end up chasing your tail:
    – lower wages means less spending
    – but more people means more spending

    The key is how those two net off. Too bad our economy is ‘managed’ based on faulty economic thinking i.e. spending drives the economy. The alternative (and correct view) is that saving and investment is the bedrock of the economy.

    Not to worry, the chickens are heading home to roost as we speak. Neo-classical theory in a nutshell: spend faster, borrow more you b*stards!

  4. blindjusticeMEMBER

    Share Share Share this article please.
    Get it on social media, the Brits aren`t taking it lying down. But by bypassing EU migration and feigning Brexit the government is trying to pull as fast one on them. If they get wind of this it will make news (just not on the BBC)

  5. Snotty Millenial

    Hang on a minute, so all that “skilled” immigration hasnt actually been needed after all? I can’t believe how naive I was!

    Ask Engineers what they think of the “engineering shortage” and you’re likely to get a colourful reply. Unlike Doctors, who are protected by strong associations and regulations, and lawyers, who operate with the firm model, Engineers are mostly employed by the private sector on a salary, and theres also an expectation amongst the profession that they will be well renumerated. Lo and behold, in pretty much any country you care to name, you’ll hear the “we need more engineers!” line trotted out incessantly by big business and the media when there are scores of unemployed graduates who are driving uber or even sadder, considering the wonderfully productive FIRE sector because they cant get a start in a STEM field. But this is exactly what the powers that be want. A desperate and obedient workforce that has no bargaining power. Don’t like it? Thats fine, Prakesh will do it for 1/10th the price

  6. 10 hours ago

    Migration Watch UK, a body that wants less immigration, called the new job shortage list “astonishing”.

    “The MAC seems to have turned 180 degrees from its previous emphasis on encouraging employers to recruit domestically through improved wages, better conditions and boosted training,” Migration Watch’s vice-chairman, Alp Mehmet, said.

    https://www.reuters.com/article/us-britain-eu-immigration/from-archaeologists-to-vets-uk-widens-list-of-desired-immigrants-idUSKCN1SZ233

    Mr Alp Mehmet MVO

    Arrived from Cyprus 1956 aged 8.

    That is so beautiful! An immigrant is ranting against mass immigraiton! Where is the Aussie equivalent of Migration Watch? Sweden is also inspiring if it is deporting cheap third world labour:

    (comment under article)

    How is it that every Western country in the world has a ” skills shortage”? They’d just better train more locals

    https://www.smh.com.au/world/europe/long-swedish-word-has-a-short-message-for-aussie-workers-go-away-20190301-p5112p.html#comments

    • Theresa May is no longer PM.
      She was the one who said no.
      Now she is gone the banks are back in charge.

    • How good is Migration Watch UK????

      We need to start the Australian version ….

  7. drsmithyMEMBER

    The obvious question to ask based on those graphs is, why wasn’t this happening ca. 2010-2011 ?

      • drsmithyMEMBER

        That’s pretty much saying the same thing. Similar settings in terms of immigration, but twice the unemployment.

      • The point was i don’t think the post GFC environment was a fair reflection on any economic activity – the dip in this case had significant other economic issues associated with it. It’s just as possible the dip in migration during that period prevented worse outcomes from the recession. The data looks quite significant post brexit.

  8. If there are genuine skill gaps, offer temporary visas, not permanent residency. Those on temporary visas can then apply for permanent residency after a qualifying period, IF that skill shortage remains.

    Let the labour market rationalise – wages for lower-skilled work will go up and maybe the locals would be more likely to do this instead of pursing tertiary education that leads to Nowhereville.

    No Western country should be offering Permanent Residency straight up, outside of the country. Prove your worth on a temporary visa, where you are filling a genuine skill shortage (not a shortage of people willing to work for peanuts).