Comments: Workers count the cost of a global labour flood

How, as an economist, can you write "... immigration by unskilled workers ... fills all those gaps in the labour market that local workers canít or wonít do."? This view contravenes everything that is taught about economics, i.e. supply/demand is balanced through prices. It is not that local workers can't or won't do the jobs, it's that they won't do the job for the pay that is offered. Are you arguing that the labour market is not a market?

In the name of fighting income inequality, the Labour government spends billions of pounds on income support for low skilled workers (doing untold damage to the economy through high levels of bureaucratic waste and taxation), and then turns around and undermines those same incomes by allowing unfettered immigration of low skilled labour. The whole effort to manage inequalty is a complete waste and drain on economic growth. (I suppose it could be worse: France adds in inane regulations around job creation, along with income transfers, in order to have both immigration and income equality).

If you look at the history of the globalization of capital, one of the more salient lessons would be that governments cannot use interest rates to both manage demand in the economy and exchange rates. It would have seemed obvious beforehand, but it took the ERM debacle in 1992 for the the UK to learn this. It would seem equally obvious that you cannot have a sustainable social democracy with reasonable levels of inequality at the same time that you have unlimited immigration of unskilled labour. What is it going to take for the UK to learn this lesson?

Posted by RichB at April 29, 2007 12:41 PM

Yes the labour market is a market but:
(a) It is now increasingly an international market
(b) It is distorted by the benefits system. One reason indigenous workers don't take on the low-paid jobs is because it does not pay them to do so once loss of benefit is taken into account, as you yourself implied.

In terms of inequality, the main cause has not been immigration, and the present government has tried to look after low-paid workers by introducing and increasing the minimum wage. The problem - if it is as problem - is caused by the fact that skills are in demand, particularly certain skills, and the premium for those skills has increased sharply.

Posted by David Smith at April 29, 2007 02:52 PM

I agree that the labour market is distorted by the benefits system, but the the fact that the benefits system exists can't just be willed away so that the real world conforms to some economic model of how the market could/should operate.

As for the causes of inequality, the evidence that it all comes down to skills or technological change seems less than conclusive. Technology is rapidly changing now, but technology was also changing rapidly in the 1960's without increases in inequality.

Posted by RichB at April 29, 2007 05:28 PM

Reading David Smith's latest piece in The Sunday Times I was a little surprised by his apparent 'about-turn' on the importance of M4 money supply data as an indicator of Uk inflation. I (as well as the entire short-sterling market in the UK) avidly follow what Mr Smith has to say on a Sunday and I remeber reading 2 or 3 pieces last year when he warned of the impending rise of M4 above 12%, stating that the MPC would be wise to follow it more closely, or ignore it to their peril. However, this week he plays down the importance of M4 growth - about to rise over 13%. I would be interested to know why he feels its less important now than last year, especially as the latest CPI figures would seem to justify his arguement of last year, rather than refute it??

Posted by Ranvir Singh at April 29, 2007 09:37 PM

I'm a bit puzzled by your comment. On August 13 last year and February 11 this year I said something similar about M4 to my latest remarks. It is possible that you are confusing me with David B Smith, chairman of the shadow MPC, who has indeed warned often about M4 growth.

Posted by David Smith at April 29, 2007 11:07 PM

The house price to earnings multiple used to be around 3 or 4. It is now 6. Why are workers less efficient than they used to be?

Posted by the_austrian at April 30, 2007 05:58 AM

That's an interesting way of looking at it. Housing, of course, is relatively fixed in supply, workers are not. But workers are more efficient if you compare wages with the prices of other things that are flexible in terms of supply - e.g. cars, consumer durables, food (look at those comparisons of how long the average worker used to have to work to pay for a loaf of bread or pint of milk). Productivity - output per worker - rises by about 2% a year.

Posted by David Smith at April 30, 2007 09:08 AM

My tentative answer would be that houses have an investment value. They are not perishable like food and clothing. Houses and shares have become a proxy money. Housing is all about Location Location Location so I'm not sure more supply would do much good.

Posted by the_austrian at April 30, 2007 09:36 AM

Hi David,

I agree that the challenges posed by globalisation are numerous and treacherous. Luckily the UK of late has turned into a carefully engineered and very effective plutocracy. UK citizens if homeowners should from now on be labelled as serfs, since this is the NU reality when negative equity returns. You got to admire the cheek of it all.
Make people believe (officially)they can only win, sign them up and suck them dry. And after all what have people really gained? .....SERFDOM
I dont use the fancy statistics, just follow the rules of fundamental economics....ooooh and how soon we alll will and must do the same. Debit credit balance....NOT debit debit balance stupids
Best wishes,
Arik Schickendantz

PS stay liquid

Posted by Arik Schickendantz at May 1, 2007 09:53 AM