Calls for UK to boost immigration to lower wages

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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):

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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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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.