Bloody immigrants eh? Coming over here, driving down wages, destroying terms and conditions of employment.
Over the last few days British politicians have debated Brexit in the House of Commons, while their parties respective spin Doctors have filled the airwaves and provided content to partisan websites with endless drivel.
The arguments about Brexit are tangled up with a debate about immigration. No-one wants to make the case against immigration on the straight forward grounds that they don’t like foreigners and so the discussion is always put in terms of:
- There are lots of people in this country who are disadvantaged by immigration because it makes it harder for them to find jobs, drives down wages, and damages working conditions
- The only way to reverse these trends are through ending free movement of people, tightly controlling immigration at lower skills levels, and therefore we must leave the single market/EU/EEA [tick you pick which one]
As you might have guessed by the title I am a bit sceptical about claims that immigration has been the cause of recent low levels of wage increases. That doesn’t mean that no-one is negatively impacted by it, just that immigration has become a catch all explanation for all kinds of things which have nothing to do with it
My scepticism about the link between immigration and wages goes back to the 1992 General Election. I was in Quarrington with some local Labour Councillors talking to prospective voters. One of the electorate expressed the view that if Labour got in Quarrington would be flooded with immigrants, driving down wages and marrying all of the most attractive women. The Local Councillor expressed severe scepticism explaining that from the Souks of Kandahar to the beaches of Jamaica there was absolutely no-one who wanted to come and live in Quarrington, and maybe a bit more competition for women might encourage some of the men to smarten up a bit, trying shaving once in a while. The argument got more and more heated and sweary until the Local Councillor pointed out that the angry voter was themselves an immigrant having moved to Quarrington from Coxhoe.
Labour lost the 1992 General Election and Quarrington was saved from a mass influx of foreigners.
I tell this story because both the voter and the Councillor believed themselves to be good solid, Labour chaps, but with completely divergent views on immigration. The voter was expressing a long held belief that immigration drives down wages, destroys working conditions, and benefits the bosses not the workers. This view has existed as long as there has been mass immigration into the UK. Immigrant workers are shipped into the UK by wicked bosses to undercut good honest Brits.
This hasn’t changed much. This is Corbyn on the Marr show last year with some hard Brexit anti-immigrant rhetoric. (from 2 mins in)
https://www.youtube.com/watch?v=K7vVxHrJ6uI
I could share with you some right wing politicians talking rubbish about immigration, but why would I do the Daily Mail’s job for it?
I suspect that blaming immigrants for slow wage growth or poor terms and conditions is nonsense.
To illustrate why it is nonsense let’s start by looking at different parts of the labour market. If we start at the very top of the labour market we find high levels of labour mobility, high levels of immigration and very high wages. The influx of foreign workers into Law Firms, City Banks/Financial Institutions and Premier League Football clubs hasn’t reduced wages at all, in fact the exact opposite has occurred.
Football is a good example of this – over the last few decade the rules on clubs bringing in foreign players have got looser and looser, and more and more foreign players have come to the UK. Sometimes Premier League clubs field teams without any British players at all, which I always find a bit sad although I am not sure why.
This hasn’t led to a reduction in wages – far from it – wages for domestic and foreign players have rocketed. Either supply and demand isn’t as big a factor in setting wages as simple Labour market models would suggest, or immigration is actively driving up wages. At clubs like Sunderland it’s not hard to find examples of immigration led wage increases. Sunderland has to offer higher wages to immigrant players to persuade them to move to the North East, in turn talented young UK players like Jordan Pickford demand parity.
If immigrants really are driving down wages as a simplistic supply and demand labour market model would suggest then how on earth is Jack Rodwell earning £65,000 a week?
If we then look at the bottom end of the Labour Market there is no evidence at all of immigration affecting wages because market forces don’t determine wages – the Government does through the National Minimum Wage. Changes in supply of workers at the lowest pay rates have no impact at all on people on low wages. Different parts of the UK have different local labour markets – in the North East the difference between a free market clearing rate for unskilled labour and the NMW is very big. If you take the number of jobs which pay less than NMW either legally or illegally the actual market rate is a long way below the rate the Government sets. This affect of distorting local Labour Markets isn’t an accident- it is the very essence of what the NMW is meant to do.
It is of course worth noting that there are in increasing number of people who are being moved into forced self employment, which removes them from the NMW rates, and about which we know very little. If there are negative impacts from immigration it is in this group, the least studied, and the hardest to get data about, where we should be looking.
Industries with high levels of Immigrant Employment
For the rest of us – those who aren’t on NMW and aren’t playing for Chelsea – a great many of us aren’t impacted by supply and demand in the labour market either.
The largest employer of immigrants in the UK is the NHS, with other public sector employers not far behind. In the public sector wage rates are set nationally, and don’t change based on shifts in supply and demand. Increasingly most large private sector organisations are the same. Our business culture across public and private sector is bossy centralised HR Departments setting national pay scales and employment contracts which don’t vary in response to changes in supply and demand.
It’s worth remembering that centralised standardised pay and conditions was a key demand of Trades Unions over the years, who aren’t the first people who should have been a bit more careful what they wished for.
This doesn’t mean that there are no industries where supply and demand impact on wage rates, just that it is a much narrower range of employment types than a crude model of supply and demand would indicate. My peer group might be a misleading as it contains a high proportion of middle class college graduates, but hardly anyone I know has a job in which labour supply and demand have a big impact on their wages.
As well as Healthcare there are 2 other sectors with very high levels of immigrant employment: Food and Drink/Hospitality and Food processing/Agriculture.
Roughly a quarter of all jobs in food and drink and hospitality are filled by immigrants, much higher in places like London. Mainly these are jobs which are unattractive to UK workers, either because of poor working conditions, low wages, or because they are based in parts of the UK which are expensive to live in long term.
If the supply of migrant Labour falls dramatically some of these employers would have to raise wages and improve conditions, and accept lower margins or higher prices.
Many employers are already incredibly squeezed on their margins, and increased costs would cause many of them to go out of business. The recent problems that Jamies Italian, Prezzo, Byron etc. have experienced show how tight margins now are in the middle and lower ends of the market. The expansion of restaurant and casual dining options in most towns and cities has been driven by migration – at the higher end of the market where margins are higher a reduction in the supply of labour might lead to higher wages, or it might simply lead to fewer food and drink outlets, fewer hotels.
In many parts of the UK immigrants are highly likely to be the owners and founders of food and drink businesses not just their employees. Restricting immigration won’t mean that those businesses will hire non-immigrant staff on higher wages. Those businesses just wont’ exist.
I have a confession to make that I know less about food processing and agriculture than I should, and the view I do have is coloured by my upbringing in the North East. The majority of food picked in the UK is picked by immigrants, mainly from Eastern Europe, at any one time there are 10,000s working in the industry.
I started to ponder the obvious question – who picked our fruit and veg before the Eastern Europeans did?
The answer is…. more Eastern Europeans. The first seasonal immigrant labourers from Eastern Europe arrived in the UK in 1945 under the Seasonal Agricultural Workers Scheme (SAWS) set up by the Attlee Government. This scheme was only scrapped in 2013 when Freedom of Movement made it irrelevant. Before WW2 Irish picking gangs dominated the industry. Around the North East Irish picking gangs were known as Tatty Howkers.
The industry was also dependent on large amounts of child labour. October half term in the North East historically was tatty picking week, while fruit picking and hop picking in the South were heavily dependent on children working in their school holidays, often as part of family groups. If this sounds like a long time ago it was – children picking hops in Kent ended in the 1960s, tatty picking in the North East in the 1970s. That’s how long we have been using migrant labour
Although there have been Eastern European fruit and veg pickers in the UK for the last 70 years there has clearly been an increase in numbers over the last decade or 2. The biggest factor driving this increase is the squeezing of margins by Supermarkets. We have come to expect a huge range of fruit and vegetables at very low prices, and this means a big increase in demand for labour and low wage rates. There is an irony that many Brexiters claim that one of the benefits of Brexit is more locally grown fruit and veg rather than imports from around the EU.
There hasn’t been a time when seasonal agricultural labour paid enough to make it attractive to British adult workers, and there is no sign of that changing. If we want more locally grown fruit and veg we need more immigrant labour
I don’t mind Pick Your Own Strawberries in the summer, but I don’t much fancy picking my own cabbages.
Stock and Flow
So if the traditional way of thinking about immigration and wages is wrong how should we think about it?
In order to illustrate how immigration has impacted on the Labour Market the best way to do it is to think about a basic Stock and Flow model.
Anyone who has worked with me will know that I love a stock and flow model. Anything from hospitals beds, child maintenance cases, to gin bottles
Reducing the movement of people in and out of the Labour Market is a very crude way of looking at it, but it does allow us to look into the supply of Labour and how it has shifted over time
Lets start by looking at the number of young people entering the Labour Market. I contacted DfE and ONS and neither of them had a proper data set to cover this, so I had to build my own, which was loads of fun. I used the cohort of live births, adjusted the deaths in childhood, and then looked at what happened to them when they left school – how many left at 16, for example vs how many went on to HE.
The shape of the curve is caused by shifts in the birth rate but also by an increase in people staying in at school. For example in the early 80s there is a big increase in youth unemployment which is followed by a big increase in the numbers staying on at schools and going into HE.
If we adjust for relative population sizes the decline in the number of school leavers is even starker.
The most notable thing about the data was the huge shift in the numbers leaving school without any qualifications up until the 1970s vs today. Lets look at 2 similar size cohorts from the 1970s and today. The school leavers from the 1970s will be starting to retire right now, and the school leavers in the 2nd chart are replacing them.
Lots of people are happy with highly skilled immigrants coming to the UK but would support controls on those without particular skills and qualifications. What is clear from the data is that the people leaving the labour market through retirement are large numbers of experienced male workers who entered the workforce in the 1970s without qualifications, while the new entrants into the Labour Market are less experienced, graduates, and equally male and female. While the UK has less demand for unskilled but experienced Labour than it once had the large numbers of unskilled workers coming to the UK makes perfect sense if you look at the people leaving and joining the Labour Market
Once we have the flow into the workforce lets have a look at the flow out of the workforce – the number of people leaving the labour market, through retirement or by death and disability. Once again there isn’t a ready made data set for this from ONS or from DWP, so I took birthrate 65 years previously, adjusted for those who never entered the workforce (died in childhood), and the adjusted for people leaving early due to death or disability. The proportion leaving the workforce due to death and disability has been similar over time, but with fewer deaths and more disability.
That gives us this graph:
The odd looking drop in the numbers retiring in the late 70s and early 80s is the WW1 and Spanish Flu cohort. The big peak over the last few years are the baby boomers reaching retirement age.
This lets us look at the way that flows in and out of the Labour Market relate to each other:
Hopefully this picture is reasonable familiar. In the 1950s and 1960s there is a big shortage of labour. This is the era of the Windrush Generation, and when my In-Laws came to the UK from India to work for the NHS. It is also an era when wages rose rapidly as shortages of Labour strengthened the hands of Trades Unions.
As the Baby Boomer generation enter the workforce labour shortages start and disappear, the position of Trades Unions weakens, and industrial relations gets a lot nastier. The flow out overtakes the flow in again when the Baby Boomers retire, which co-incides with recent waves of immigration, however generally flow in exceeds flow out, which is why wage increases have been modest over recent years.
This however misses out one key group, which is very hard to track – the early retirement cohort. Up until the 1980s early retirement wasn’t common, except in certain industries like the Fire Service, which had a limit on the number of years of service. Starting in the 1980s as heavy industry closed employers started to offer early retirement packages to encourage expensive older workers to leave. Since then this has become a regular phenomena – every time there is an economic crisis employers public and private offer packages to go early. I used this technique to slim down my team in the Civil Service during the austerity fad, before taking redundancy myself.
Pretty much every sector public and private and every skill level has been through these experiences. As some who has just turned 50 and is frankly full of vigour and vitality I think this is awful.
OK. That last bit might not be true. I do like an afternoon nap.
Sadly we only have a couple of decades of data on early retirement, which peaked at over 1.5m after the Credit Crunch:
Lets see what that looks like on a graph shall we?
We can pretty crudely add the early retirement cohort into the numbers leaving the labour market and then compare that to the flow in:
What this leaves us with is a lot of mostly unqualified, but very experienced workers leaving the Labour Force all at the same time as the Baby Boomers retire early. The Baby Boomers on the whole entered the workforce when wage rises were higher, and tend to be more expensive and have better terms and conditions than the generations which came after them which entered the Labour Market when the flow in was higher than the flow out.
The Baby Boomers are also less well qualified than every generation which came after them.
Over the last few decades we have been encouraging these highly experienced, expensive, but less well qualified workers to leave the workforce in their 50s to be replaced by cheaper younger workers. These cheaper, younger workers, however tend to be very different to the ones they are replacing, they are much more highly educated, and often have very different aspirations about the kind of work they want to do.
The increase in migration over the last 20 years corresponds pretty neatly to the retirement and early retirement of this cohort, while the long term excess of flow in over flow out explains why wage increases have been suppressed. It also explains they the mix of people coming into the UK has so many manual workers.
I realise that I have been a bit cheeky in that I started this blog by criticising simplistic models of how supply and demand set wage rates in the Labour Market, and then I have created a simplistic model all of my own.
Apart from the rather obvious thing that my simplistic model better reflects how actual employers view the Labour Market, more than anything I am sceptical about a free market view of the labour market. I don’t think that widgets, or craft gin, and people behave in the same way. People are sometimes perfectly rational, but often not, and their shift from rational to irrational in the way the make job choices
There is no traditional supply and demand based labour market model which would predict why I would decide to run a Distillery rather than take a more lucrative job as a management consultant. There is no supply and demand based labour market model which explains Jack Rodwell.
Jack. Fucking. Rodwell.
The views expressed by Corbyn in the clip above, and by the angry voter in Quarrington are based on a very simple free market supply and demand view of Labour Markets. This view has become so prevalent that even the left seem to have adopted it, if only the give a false appearance of intellectual sophistication.
The demographic changes which drove the last round of immigration are coming to an end, and immigration is falling too. Government is keen to claim credit for recent falls in immigration, but in my view the current era of high immigration was coming to an end anyway. The falls in immigration, just like the falls in teenage pregnancy, are driven by bigger forces of demographics rather than any particular genius by Government Ministers.
This doesn’t mean that immigration will stop completely
Businesses need a regular flow of new workers if they are to expand, and the wider the choice they have the easier it is to grow. As customers we want an economy with high levels of customer service, and labour intensive craft products. We want barrista coffee, craft gin and artisanal cheese rather than Mellow Birds, Gordons and plastic Cheddar. We also want a greener economy with less resource intensity.
And we want our children to go to University, and compete for the best jobs.
This means that we are unlikely to ever go back to little or no immigration. If we want to have free movement for the goods we buy on Ebay, and free movement for capital investments, and free movements for ourselves we will have to accept that some people will move to our country too.
Shutting off that flow completely will be about as easy as closing down the flow of goods on Ebay.
Postscript
Regular readers have probably noticed that the sections on rising wages in industries like food and drink retail are at odds with my usual views. Normally I am sceptical that changes in government policy which increase wages have a big impact in sending businesses bankrupt, or increasing unemployment.
When we look back at reforms like Equal Pay legislation or the National Minimum Wage the increase in wages encouraged people into the Labour Market, and increased the pool of applicants for employers. While businesses had to pay a bit more in the short term in the long run having a wider pool or flexible workers more than outweighed this. Flexible labour markets which give employers the widest range of workers are a good thing for businesses, and reduce unemployment
Restrictions on immigration are different imho. While they might increase wages they do so by making Labour markets less flexible and by reducing the pool of workers available. Businesses have all of the costs, but none of the benefits. For this reason increasing wages by restricting immigration is likely to be more destructive to businesses and employment than previous legislation like Equal Pay Acts
References
http://www.educationengland.org.uk/documents/dearing1997/dearing1997.html
https://www.gov.uk/government/statistics/participation-in-education-training-and-employment-2016
https://www.ifs.org.uk/uploads/BN234.pdf
https://www.ifs.org.uk/elsa/report10/ch2.pdf
http://www.data-archive.ac.uk/
https://www.ifs.org.uk/uploads/publications/comms/r95.pdf
https://www.ftadviser.com/pensions/2018/03/21/early-retirement-to-disappear-by-2035/