Sunday, February 21, 2016
EU migration: economically beneficial, politically toxic
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is the biggest and most toxic issue in the referendum debate, central to the deal concluded by David Cameron late on Friday. It is the one in which emotions run highest. I am talking about immigration, safe in the knowledge that whatever I write today plenty of people will disagree with me.

Immigration from the rest of the European Union to Britain has got caught up in the public mind, wrongly, with the EU migrant crisis; the flood of asylum-seekers from Syria and elsewhere making their way across Europe and threatening the EU’s open borders, the Schengen agreement. Britain, of course, is not part of that agreement and never likely to be.

But figures this week will confirm that “normal” net migration into Britain – the number of immigrants minus the number of emigrants – is at or close to all-time highs. Thursday’s figures, covering the period to September last year, are set to show a rolling total similar to the 336,000 for the 12 months to June 2015, which was a record.

The figures will provoke a row, again making a mockery of David Cameron’s always unachievable 2011 “no ifs, no buts” pledge to reduce net migration to the tens of thousands. Before getting into the arguments, let me provide a little more detail on the previous set of numbers.

The 12-month total to June last year comprised 636,000 immigrants and 300,000 emigrants (many previous immigrants). Of the 636,000, 294,000 came to work, 192,000 to study, and 80,000 accompanied or joined other family members.

Just as there is confusion over migration and the asylum crisis, so there is a widespread assumption that immigration into Britain is overwhelmingly from the rest of the EU. That is not the case now, nor has been true at any time in the 43 years of Britain’s EU/EEC (European Economic Community) membership.

In the 12 months to June 2015, EU net migration to Britain was 180,000, non-EU migration 201,000. If you think that does not add up to the 336,000 net migration total you would be right. The circle was squared by 45,000 of net emigration by British citizens (much of it to the rest of the EU). That continued a long-term trend. In only one year in the past 40, 1985, has there been no net emigration by British citizens.

Immigrants from the EU tend to come to Britain to work. They accounted for at least 162,000 of the 294,000 migrants coming for work reasons. Non-EU migrants, in contrast, are more likely to come to study – 131,000 out of 192,000 – or for family reasons; at least 45,000 out of 80,000.

What about the impact of EU migrants on the job market? Separate labour market figures released last week showed there are now 2.04m non-UK nationals from the rest of the EU working in Britain, about double the number from the rest of the world. In the latest 12 months (between the final quarters of 2014 and 2015) there was a 215,000 rise in employment for EU migrants – two-fifths of the total rise in numbers in work. These were the figures that caused apoplexy on some front pages on Thursday.

Is immigration from the rest of the EU good or bad from the economy? As a thought experiment imagine what the impact would be of waving a magic wand and increasing the working population by hundreds of thousands of mainly young, mainly skilled and mainly educated people. You would expect the economic effects to be beneficial and you would be right.

Studies have consistently found that EU migration provides a fiscal boost, not a fiscal drain, including a much-quoted November 2014 University College London study. EU migrants, on average, pay more tax than they receive in public services or benefits. Notwithstanding a central aspect of the prime minister’s EU renegotiation, migrants mainly come to Britain to work, not to claim benefit. If there is a problem with in-work benefits, including tax credits, the fault lies with the design of the system.

A Home Office review of the evidence two years ago found that EU immigration does not adversely affect native employment during normal times. Only when the job market is weak, such as in 2008-9, is there an adverse effect.

What about pay? A Bank of England working paper last year by Steve Nickell and Jumana Saleheen found that immigration has a small negative impact on average wages, though there was no difference in the impact on earnings of EU and non-EU migrants.

Though other studies have suggested no impact on wages, that conclusion does not seem logical. The effect of immigration is to provide an ongoing boost to labour supply. That means more slack in the job market and at the margin less upward pressure on wages.

But such effects should not be overstated. The overlap between the jobs EU migrants do and those British workers want to do is much less than commonly thought. As Jonathan Wadsworth of the London School of Economics put it in a recent paper, new migrants are much more likely to be close job market substitutes for existing migrants than native-born workers.

I wouldn’t want to use the Pret A Manger close to our offices as typical of the labour market as a whole, but it appears be entirely staffed by young, largely EU, migrants. The availability of migrants for work almost certainly increases employment, currently a record 74.1% of the workforce.

We do not know is what might happen in the long-term if EU migrants stay permanently rather than returning home. Younger workers who stay eventually get old, and the positive contribution they make to the public finances evens out over time. One indicator of that would be if EU migrants were choosing to apply for UK citizenship in large numbers. So far that does not appear to be happening. Poles are remaining Poles: there are 853,000 people of Polish nationality in Britain.

There are swings and roundabouts in EU migration but the evidence points to the economic benefits comfortably outweighing the costs. Why then is migration such a politically toxic issue, the big potential swing factor in the referendum?

One factor, plainly, is the speed of change. Until the mid-1990s there was virtually no net migration from the rest of the EU. Since then there has been lots. In 10 years from 2004 to 2014 the number of EU nationals in Britain rose from just over 1m to nearly 3m. From 1997 to 2015, the proportion of employment accounted for by non-UK nationals rose from 3.8% to 10.2%, driven by EU migration.

Another factor is the uneven concentration of EU migrants. In some areas migrants put intense pressure on schools and public services. Across much of the country migrant-driven population growth exacerbates the housing shortage. Add to that the fact that the losers from migration, perhaps from being squeezed out of housing provision or low-skilled job opportunities, feel those losses much more keenly than those who benefit from economic gains spread across the population.

But those who oppose immigration should not be played for fools. If we left the EU tomorrow there would still be large-scale net migration to Britain. Non-EU migration, which is substantial, would be unaffected. Some EU migration would continue. But business would find it harder to recruit the skilled and productive workers it needs, and gaps in the job market would go unfilled. EU migration both reflects and contributes to Britain’s flexible and successful labour market. Economically, we would lose out.