Interesting Times:
The Election and UK Immigration
Had things gone as most commentators expected, the UK would
now be entering hard Brexit talks with the near certainty of leaving the single
market and/or customs union and the consequent ending of free movement of
people from the European Union. A few weeks later and that near certainty no
longer seems as certain, with murmurings of a Softer Brexit and the implication
that allowing freer movement of labour from the EU may now be up for
discussion. Yet any rowing back on
ending free movement would immediately conflict with the net migration target
of 100,000 - a key feature of the Conservative party manifesto. If we assume
that this is still in play, any allowance of free movement from the
EU – around half of the net migration number - would obliterate any attempts to
hit such a target within a parliament.
Would this matter? The net migration target is one of the strangest political
fetishes of modern political history. While sensible arguments could be made
for placing some restrictions on immigration – no country allows unrestricted
migration - It is far from obvious why any government would seek to target
something over which it has very little control. Simply put the net target is
the result of the difference between the numbers of migrants coming in to the
UK and the number leaving. Government can currently control, at best, around
half of the inflow – that from outside the EU. Even that is moot since student
numbers, the majority of entrants from outside the EU, are not regulated. With
a hard Brexit it could potentially control the other half of the inflow. With
or without Brexit it can not and will never have, any control over the numbers
leaving. Yet changes in these uncontrolables can and do affect the target.
A good example of this underlies the recent fall in net
migration, shown in Figure 1 below. Undoubtedly net migration has fallen
considerably (by around 100,000) over the past year. The irony is that this
fall is mostly driven by factors over which the government has no control –
namely a rise in the number of EU (mainly A8) migrants leaving the UK and a
rise in emigration of British citizens (the green line in the second panel is
below zero which means net emigration of British citizens).
| Figure 1: UK Immigration Flows, 1991-2016 | |
|---|---|
 |  |
Source: ONS (2017) .
Going forward, if the UK economy stalls while many of the EU
economies grow more rapidly then there may be further falls in the net
migration figure – again for reasons beyond government control. Migrants
seeking work will be attracted to the employment opportunities that are best for them. If there
are suddenly more opportunities in mainland Europe we would expect more migrants
to choose Germany, France or Spain rather than the UK. (the 15% fall in sterling relative to the
Euro also makes UK wages 15% less attractive relative to a job in the Eurozone
to prospective migrants). So the inflow to the UK could fall over the next few
months reducing the net migration numbers without the government having done
anything other than preside over a stalled economy.
Even if migration form the EU fell to zero, the net
migration numbers would be way above the 100,000 target and require any government
intent on trying to hit the target to make some (infeasible) restrictions on
student numbers from outside the EU.
But the real question is
whether it matters if immigration comes down a lot or a little. With regard to
pay and job prospects of the UK-born population the answer is probably not. As Figure 2 below illustrates,
large rises in immigration had very little effect on jobs (and pay) of either
skilled or less skilled UK-born workers. The solid red line summarises the relationship between immigration and
UK-born unemployment rates. If immigration increased unemployment, we would
expect a strong upward sloping line:
more immigrants would mean more unemployment for local workers. It is clear
from the graph that there is no positive relationship between immigration and
unemployment rates of those born in the UK. If anything, the relationship is
negative, suggesting areas with more immigration experienced larger falls in
unemployment for the UK-born over this period. Look at two areas – dots A and B
in Figure 2. Both have had increases in the immigrant share well above the
national average for this period. In area A unemployment for the UK-born has
risen by over 1 percentage point, which is also above the national average. So
in area A it feels like immigrants are bad for jobs. But area B has had a
similar increase in immigration, while unemployment here has fallen by 2
percentage points. Therefore, just because immigration and unemployment both go
up in an area does not mean that immigration is the reason for rising
unemployment, since it is quite easy to find areas where immigration went up
and unemployment fell. Something else must underlie the prospects of UK-born
individuals in areas with rising unemployment.
Figure
2: Unemployment rates of UK-born and immigration
Notes: Each dot represents a UK local area. The
solid line is the predicted ‘best fit’ from a regression of changes in
unemployment on the change in share of immigrants in each UK local area. These
are weighted by the sample population in each area.
Source: CEP analysis of
Labour Force Survey.
And if immigration had little effect when it went up a lot,
it is hard to think why or how a large fall
in immigration would have any large effects either.
And that is probably the crux of the immigration issue.
Immigration seems to matter much more politically than it does economically. All the
empirical work that has been done on UK immigration shows very small effects,
either positive or negative, though its influences in cultural matters probably
extends much further. True any reduction in EU immigration would make paying
the deficit off a little harder – since EU migrants pay more in taxes than
receive in benefits and public services. (whereas UK-born and non-EU migrants
receive more in benefits than they pay in taxes), but these net payments are
not very big. Certain firms and sectors -see forthcoming blog post - would also have to look around for
different sources of labour or methods of working (though any firm that relies
on a never ending supply of EU workers in an environment of free movement has
an unstable business model), but the number of sectors affected is relatively
small and the adjustment will always be at the hiring margin not the entire
workforce.
Perhaps one of the best things that could come out of the
election is that we learn to stop worrying so much about immigration. Or if we can't do that then try to stop worrying about its effects on jobs and pay.
Jonathan Wadsworth
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