Wednesday, July 19, 2017

Deciding on the evidence

Jonathan Portes, professor of economics and public policy at King's College London, writes:
"There is essentially no evidence that migration to the UK has increased unemployment for British workers... immigrants (directly or indirectly) add to labour demand as well as labour supply; they earn money and spend it. Ignoring this effect, as many do, is what economists call the “lump of labour fallacy” – the idea that there are only a certain number of jobs to go around, so that if an immigrant (or an old person, or a woman) takes one, then a Briton (or a young person, or a man) must lose out. So while an immigrant may “take” one job from a British worker directly, she may also “create” one job – or indeed more than one job – for a British worker... the empirical evidence in the UK is pretty clear – these two effects more or less balance..."

Professor Portes goes on to explain:
"Broadly, the same thing applies for wages. Again, anyone who claims that reduced immigration will increase wages simply because of “supply and demand” is ignoring basic economics. Reduced immigration may push up wages for pizza restaurants; but if it also reduces demand across the economy as a whole, then it will reduce labour demand too, and hence wages... And again, we have evidence. A recent study by Steve Nickell and Jumana Saleheen – much cited during the referendum campaign – looked at the impact of immigration on wages. Iain Duncan Smith, for example, claimed that it showed that immigration had led to a 10 per cent fall in wages.  This was, of course, complete fiction – the actual impact is perhaps only one twenty-fifth as large. Professor Nickell himself later described the actual impact on the wages of low-paid workers as “infinitesimally small”...perhaps pizza workers will see some wage gains, while pizza eaters will lose, as higher wages feed through into prices. But the net impact, even for low-paid workers, is likely to be very small..."

His conclusion is clear.
"Our analysis suggest that the negative overall economic impact of reduced migration will far outweigh any modest wage gains for low-paid workers. If low wages are the problem, ending free movement is not the solution.