Sunday, January 27, 2008
Will migrants avoid downturn Britain?
Posted by David Smith at 08:59 AM
Category: David Smith's other articles

jobvacs.jpg

The stock market, which has given us so much excitement, is very important and has implications for interest rates, as I report elsewhere. But so is the job market. How will it fare in what Mervyn King, governor of the Bank of England, described last week as the most testing set of economic circumstances in 10 years of Bank independence?

One fear is that economic weakness will lead to further problems for the banks. Another is that it will push up unemployment.

So much depends on the job market. If it cracks, the downturn in consumer spending will be even greater. The housing market, having lost one supporting pillar with sharply reduced mortgage availability, would lose its biggest remaining source of support if employment were to tumble.

There is another important test for the job market. Gordon Brown has promised “British jobs for British workers”. Official figures suggest that as many as four-fifths of the jobs created since 1997 have gone to foreign-born workers.

The question is whether migration will be a flexible friend for the economy. As it slows and job opportunities dwindle, will the flow of workers to Britain fade? Or will the migrants continue to arrive, adding to unemployment?

The first thing to say is that, if a cold front is on the way for jobs, it has yet to arrive. True, there have been some gloomy surveys and forecasts for 2008 and there have been one or two announcements from firms about job losses.

The employment numbers, however, remain strong. The latest figures cover the three months to November, when some of the effects of the credit crisis will have begun to be felt, and show a surge in employment of 175,000 to a new record of 29.4m. Employment over the year was up by 263,000.

The number of jobs in the economy, a bigger total than the employment figure because some people have more than one, stood at 31.6m, up 287,000 on a year earlier. Pretty well all measures, in fact, pointed to job-market strength. Vacancies in the final quarter of 2007 rose by 12,200 to 681,100, the highest for six years. The economic inactivity rate slipped.

The claimant count - those claiming jobseeker’s allowance – dropped by 131,400 in the 12 months to December and is now at its lowest rate since June 1975. Unemployment on the broader Labour Force Survey measure also fell. Hours worked, a good indicator of the underlying strength of the job market, rose.

There may be trouble ahead but so far employment has not skipped a beat. That should change, though not as dramatically as some fear. The consensus among economists is that this year will show below-trend growth, probably matching the 1.8% of 2005, a weak year.

Even that will not mean job growth comes to an end, however. Economists expect, on average, a rise in employment of about 0.4% – equivalent to some 120,000 new jobs. They also expect a modest rise in unemployment, but certainly not carnage.

Exactly how uncomfortable it feels will depend on another factor – the flow of migrant workers coming to Britain. There is anecdotal evidence that this flow has started to fade and that, for some groups of workers, it has even begun to go into reverse.

The economic outlook may be dull in Britain, but Poland, the Baltic states and many of the other new EU members are booming. Poland is set for at least 5% growth this year. True, these economies remain a long way back in terms of income levels but the gap is closing. The weakness of sterling against the euro has also reduced Britain’s attractiveness to eastern Europeans, many of their currencies being linked to the euro.

There is also an issue on the demand side. It may be that the bits of the economy that are weakest are those that provided the draw for migrant workers.

The weakness of the housing market means there are fewer direct employment opportunities for Polish plumbers and building workers from other accession states. The weakness of the financial markets means there is less demand for bankers and brokers in the City and Canary Wharf from other parts of the EU. The retail and catering trades are also struggling.

An even bigger impact may come from the fact that other European countries are in the process of liberalising their rules to allow in workers from the newer member countries. Germany relaxed its restrictions for skilled workers in November and over the next two years will complete the process of full liberalisation. Remember that part of the reason Britain attracted so many workers from eastern Europe was that most other EU countries restricted entry.

Is there any hard evidence on this? Given the strength of the job market, it would be unrealistic to expect too much yet. The latest official figures run only to the third quarter of last year. They show the number of “A8” migrant workers (those from eastern European countries that joined the EU in May 2004) applying to work in the UK under the worker-registration scheme dropped to 54,000 from 63,000 a year earlier, a fall of 14%. There was also a drop between the second and third quarters in migrant workers registering from the newest EU members, Romania and Bulgaria.

This is a big issue. Whether the migrant flows continue will determine whether the pendulum starts to swing back so that there are indeed more “British jobs for British workers”.

It may also mean, for firms, that more challenging times are on the way. Though few say it explicitly, migrants have provided a quick fix for their recruitment problems.

What if the flow of migrant workers into Britain turns out to be more cyclical than had been thought, and not a permanent shift? Official population projections have been hugely influenced by recent migration experience. The latest 2006-based projections assume net migration of 190,000 a year. For comparison, the 1996-based projections assumed only 65,000 of net migration annually.

The cumulative difference over time between these assumptions is enormous, particularly when differential birth rates between the foreign-born and indigenous population are taken into account. A lot rests on government assumptions about migration, which drive a projected rise in population to 65m by 2016 and 71m by 2031. This year we may find out whether those assumptions are realistic for the bad times as well as the good.

PS: Just as every generation thinks it has discovered sex, so we tend to believe we are the first to have hit on the idea of globalisation. In fact, as a magisterial new book by Ronald Findlay and Kevin O’Rourke points out, globalisation goes back a very long way. Power and Plenty: Trade, War and the World Economy in the Second Millennium, makes a case for pinpointing the dawn of globalisation in the 13th century, when Europeans ventured east from Venice and west from Genoa.

But there is also an argument, as the authors point out, for saying that globalisation came even earlier, about the year 1000, when there was extensive trade and commerce involving western Europe, eastern Europe, central, south, southeast and east Asia, sub-Saharan Africa and the Islamic world which, as well as the Middle East and North Africa, took in Muslim Spain.

In the “Islamic golden age”, in fact, it was only the Islamic world that had direct trade contact with all the other discovered regions. If that was the globalised world of the time, Islam was at the centre of it.

When we think about the shifting global economy these days, the emphasis has been on the rise of China and India and their return to the past dominance of the global economy. But largely thanks to oil, parts of the modern Islamic world are also enjoying something of a return to former glories. Nowadays, of course, power is often exerted through multi-billion-dollar sovereign wealth funds.

From The Sunday Times, January 27 2008

Comments

Whatever the future holds, David, it seems to me a tragedy that, as you say, so many of the people Labour got into work were foreigners.

"Mr Brown used his years of prosperity to keep five million Brits on benefits and imported a workforce - which is why two in three jobs .... have been filled by migrants."

So writes Fraser Nelson in the current issue of the Spectator.

In a phrase which should chill the hearts of Nu Lab apologists he continues, "It is also why economic growth has not translated into true 'social justice'. It has passed millions by."

And now as Brown's economic miracle unwinds and HMG runs out of money, times are going to get harder for benefit claimants and the employed alike. For as Frank Field has noted, the challenge for future UK governments is going to be to make public services work on less money, not more.

Posted by: bears all at January 29, 2008 10:54 AM

Ever wondered why the migrants were selected over the locals? (Despite hurdles of language, culture, work permits etc. ) The malaise is local and social. The employers are merely rational.


Excellent point made about historical globalisation...would be interesting to find parallels for immigration in history. You may be right - immigration may well be cyclical. Britain too exported migrants to the "colonies" with a similar impact on local economies and social justice.
You may argue that those economies benefited from the skills of the migrant colonizers. So does Britain today.


Posted by: Londonsen at January 29, 2008 08:29 PM

"Ever wondered why the migrants were selected over the locals?"

Well, yes. The locals on benefits didn't have sufficient incentive to work, partly because immigration has kept wage increases down, and/or the immigrants were brighter and harder working.

"The employers are merely rational."

Sure. I don't blame the employers.

"You may argue that those economies benefited from the skills of the migrant colonizers. So does Britain today."

Britain benefits to the extent that low wage inflation (something that has puzzled the BoE for years) helped the economy run hotter without problematic inflation. That was fine for those of us who don't compete with immigrants for jobs. But the law of unintended consequences applies. People at the bottom end, their labour denied its proper value in a growing economy, fell further behind. A whole tranche of people remained on benefits who might have been got into work. Artificially low interest rates helped ramp up an asset price explosion. Population growth put
strain on the social infrastructure.

So some people benefit; but does the good outweigh the bad?

Posted by: bears all at January 30, 2008 11:23 AM

'Bears all' is, of course correct. Many of the immigrants were/are prepared to move here and live several to a house (minimising living costs) and to send income home (where it buys a lot more for their families than it does here).

If you're unemployed in (say) South Wales with a family, and there was low paid work available in London, would it be rational to do the same? You couldn't afford to move your family to London and the cost of living there (unlike, say, Poland, isn't that much lower than London, so money sent home wouldn't go very far). For low paid work, losing benefits, and adding travel and accommodation costs would make you worse off. You just couldn't contemplate it.

Neither does the tax/tax credit system help. If your wife has low paid work, so you claim tax credits, and you were then to work in London during the week on a low wage, your tax credits would be withdrawn. The effective marginal rate of tax on your extra income (income tax plus withdrawal of tax credits) amounts to around 70% of your income increase.

It is madness - much of it devised by Gordon Brown.

Posted by: HJHJ at January 31, 2008 09:19 AM

I do realise that the plural of "anecdote" is not "data", still less the singular, but a friend of mine supports what HJHJ says. He has a medium sized business employing about 30 people, mostly women working part-time. He says that the overwhelmingly his staff play the tax-credit system, declining to work more than a certain number of hours because to do so would lead to a reduction in the credit they receive from the taxpayer. All down to Brown.

Posted by: bears all at January 31, 2008 10:04 AM

David

Do you think that the revisions to the congestion charge, which will mean that an individual with a higher CO2 car in the congestion zone tax will pay an additional tax of approx £6,500 per year, when added to the non-dom tax (on the basis that a lot of the non doms live in the congestion zone), may add more pressure on these individuals to leave?

I know these amounts may only be a drop in the ocean for some non-doms but some press has already been saying that £30k is upsetting a number of non doms and therefore (to the extent that they would be caught by it) then the additional levy imposed by the congestion charge may swing the balance with consequnces on investment and jobs in London when we could probably do without this (not forgetting the x thousand people who will be paying somewhere in the region of £30m to £50m for this higher charge - see Times article 12/2, which is more money being taken out of the London economy which could have been spent here - I appreciate not all drivers come from within congestion zone but a very large % do!).

This is ridciulous!

p.s. apologies if this is not directly relevant to the topic in hand but it seemed indirectly the most suitable topic!

Posted by: Charlie at February 18, 2008 11:57 AM