Brexit continues to boost wages

By Leith van Onselen

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

Wage growth beat market and economist expectations in the three months from February to April.

Pay rose by 3.4% compared with a year ago. After taking inflation into account, wage growth was 1.4%, official figures show.

The unemployment rate remained at 3.8%, and has not been lower since the October to December 1974 period, the Office for National Statistics said.

The employment rate for women was 72%, the highest on record.

The below charts tell the tale.

First wage growth is running near pre-financial crisis levels:

Unemployment has cratered:

There are near record job vacancies:

And the employment rate is the highest on record:

Rather than letting workers enjoy the fruits of the labour, the migration advisory committee (MAC) has called on the government to open the immigration spigots to “help businesses access the skills they need” (read lower their wage costs):

The government advisers have stressed that the list of occupations eligible for the UK’s non-European skilled work visas should be expanded “as soon as possible”, with uncertainty around Brexit being a major factor.

The 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%…

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”…

The review said Brexit uncertainty and the resulting reduction in EU migration was one of the two main factors cited by employers, the other being a higher demand.

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 when they can’t recruit locally”.

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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