Sunday, October 19, 2014

The truth about immigration

People’s worries about immigration are real and legitimate; new arrivals inevitably create challenges for a society that faces rationed public services. The numbers of eastern Europeans able to come freely to Britain because of EU freedom of labour mobility has driven the issue of immigration up the list of things that cause people most worry. It is now number two across the country (health and the NHS is the number one worry). One time, the target of immigration fears were Indians, Pakistanis, Bangladeshis, Sri Lankans – all rolled together in the derogatory label “Paki” . It was they who were stretching public services, taking up housing and causing problems in schools. Earlier it had been West Indians, Jews and the Irish. The contempt directed against immigrants from poorer EU member states for "leeching off the state" and burdening our economy is misplaced. According to a recent European Commission report, immigrants from EU countries to Britain paid more in tax than they received in benefits. Poles have made a net contribution to the UK in economic terms and have been readily absorbed into Britain's labour market.

Jonathan Portes director of the National Institute of Economic and Social Research answers some of the myths on EU migrants.

What were the impacts of immigration on jobs and wages? Research seems to say not much.Wages are generally higher and jobs easier to come by in areas of high immigration like London While Clacton, for example, where the immigrant population is less than half the national average – wages are 20% below the national average, while the proportion of people on benefit is far higher.

 A government summary of the evidence concluded that there was “little evidence in the literature of a statistically significant impact from EU migration on native employment outcomes”. So it doesn’t appear that they take our jobs. On wages, the picture is more mixed, with some evidence immigration actually pushes wages up overall, while exerting downward pressure on wages for low-skilled workers. But as yet the impacts seem pretty small – certainly compared to other factors such as technological change, employers’ increasing demand for skilled workers and the positive impact of the national minimum wage.

Many will ask how can this be and say isn’t it just the economics of supply and demand – if you increase supply of workers, wages will fall and if an immigrant takes a job, then a British worker can’t.  What people who say this (and many do) usually don’t understand is more immigrant workers does increase the supply of labour but, because immigrants earn money, spend money, set up businesses and so on, it also increases the demand for labour. And it’s true that, if an immigrant takes a job, then a British worker can’t take that job – but it doesn’t meant he or she won’t find another one that may have been created, directly or indirectly, as a result of immigration. So immigration may have a negative or positive impact on jobs and wages for British workers; so far, the evidence suggests that the direct impacts have been rather small. Over the longer run, however, the indirect impacts are likely to be larger, and here the evidence suggests that the impact is likely to be positive. Immigrants have different skills and experiences to native workers, so they complement rather than substitute for natives, helping raise wages and productivity for everybody.  It can hardly be claimed that unemployment at 6% constitutes an emergency when it’s close to twice that in the eurozone. With trade unions too weak to check the local wage effects felt in some sectors, immigration continues to stir unease.

Some immigrants do abuse the benefit system – as do a lot more Britons. But the evidence that a significant number of people come here just to claim benefits is very thin. When the government was asked by the European commission to substantiate its claim that this was a real problem, its response was that the commission was placing too much emphasis on “quantitative evidence” (that is, numbers and facts). The government’s own figures show that migrants are about half as likely to be in receipt of a DWP out-of-work benefit as people born here. Many migrants from the EU, however, are in low-paid work (including self-employment) and so receive tax credits; as the numbers settling here permanently have grown, and they start having kids, this has become quite a significant phenomenon. But it’s not benefit tourism.

Recent immigrants from the EU are disproportionately healthy and below pensionable age and considerably more likely to be in work, than the average Briton. And since most public spending goes on pensions, health care for older people and education, it is hardly surprising the overall impact is likely to be positive in the short term, so long as they are not driven underground and remain within the tax-paying economy. .Without EU migrants, the deficit would certainly be bigger than it is now. Research here at the National Institute of Economic and Social Research suggests that, if the prime minister were actually to meet his target of reducing net migration to tens of thousands, the very long-term impact (looking out to 2060) would be significantly higher taxes (or lower public spending) of about £30bn a year in today’s money. The Office of Budget Responsibility has produced very similar projections.

It is accepted that immigration increases demand for the main public services – health, education, etc. But since these are funded by taxation, it’s the net costs and benefits that matter; overall, stopping EU migration would cost public services more in lost tax revenue than it would save in reduced demand. And migrants often work in public services, especially the NHS.  There are significant local pressures, particularly where funding is slow to respond to population growth, as it has been for schools.  Despite the pressures of a growing population and a very large number of children for whom English is not the first language, London schools significantly outperform the rest of the country, especially for more disadvantaged children. And recent research suggests that the presence of children from eastern Europe actually improved the educational attainment of kids here already. The pressure of increasing population on housing, public services and transport, especially in London. These are problems of success, not failure, (but none the less real.) At present the unease is answered not through new homes or new schools and hospitals but instead by hollow promises that will ultimately disappoint.

And what about the alternative - increased border controls. Would any limit apply on a country-by-country basis, which would seem arbitrary and potentially unfair? Or would they apply to all EU nationals, so if we let in more Lithuanians then we’d have to let in fewer Germans? What about Brits living elsewhere in the EU, or moving there in future? What about the two million or more EU citizens currently living here? Would they be entitled to go home and then return here, or would they have to apply for a work permit next time? What about “mixed” families, an ever growing number? Would those married to a British citizen, or with a British child, be exempt? The EU is not the US, but you only have to imagine how Americans would react if they were asked to forgo their constitutional right to move and settle without hindrance between states. With firms free to seek out returns for their capital anywhere, it is in the interests of European workers to be able to go where they can command a better wage.

In an Independent on Sunday poll today, support for free movement of labour has risen from 23 per cent to 36 per cent since last year, although more people, 46 per cent, are still opposed to it. In the long view, the tide of opinion on Europe may be turning.

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