Friday 17 March 2017

Discussion thread: Impact of immigration on UK wages

Interesting comments yesterday sparked by BE, so more on the topic for today is in order.

Economics is hard and open to interpretation. However, since 2010 there have been around1.5 million new UK jobs created. At around 250,000 a year, more than the EU combined, albeit less than Germany and but Spain and Greece have seen big declines to the net is greater in the UK. Osborne's boast was technically true.

During that time the population has increased by just over 2.4 million (crazy eh!).

A proportion of the population 'growth' is really due to ageing of the population over pure immigration.

According to ONS date, net migration has been just over 1.25 million during this time. Which is why overall the UK unemployment rate has fallen - as job growth has been stronger than immigration (some immigration is for students too rather than pure job-seeking immigration, then again, official stats do not account for the black economy, which probably invalidates much of the data!)

Of course, immigrants doing jobs adds to GDP, so more jobs will beget more jobs to some extent. Economists calculations around this concept though are a severe overstretch of credibility however and they arrive a wildly varying conclusions, unsurprisingly aligned on the starting political viewpoint.

As ever though, nobody accounts for the fact that new jobs are increasingly lower paying than previously - this is the car washer effect. At the bottom of the wage stack, study after study shows wages being held down, even when the gaurdianistas are trying to prove otherwise.

Still too nobody has worked out how to account for the impact on the welfare state. As a proxy I can see the NHS spending is going up over 8% and yet the whole service is in crisis and the social welfare bill goes up even as the Tories are accused of hideous bedroom taxes etc.

Additionally, the tax income for the Government has grown at a far slower rate than the economic expansion would expect (i.e. below the expected net increase in GDP).

All this circumstantially points to the conclusion that overly open borders promote low-wage immigration which on balance detracts more than benefits the country as a whole; this is before we get to any social cohesion aspects.

Where the balance is, is hard to know and worse, because we can only ever look at historical data, we will never be able to get it right, Brexit or no Brexit.

What do you think?


Anonymous said...

One thing that may help as years go by is better medical treatment. For instance, a real cure for arthritis would save the NHS a great deal of money and allow people to work longer.

Think how much money has been saved by tuberculosis becoming curable in the 1950s.

There needs to be some hard thinking about the starting age for the state pension, linking it to sickness and unemployment benefit. Nobody wants a 60 year old who is too ill to work or cannot find a job to suffer, but healthy people should be in taxable employment until at least 70.

The problem with low wages is that some people are simply not worth much. Some are not worth employing at all.

Don Cox

Blue Eyes said...

Glad to have got people thinking. It is worth saying that contrary to what people may have thought I was saying on the previous thread, I am not saying that there is a theory which beats all other theories. My only point was that there is no one factor in play. It isn't either immigration or globalisation or any one other thing. I am also saying that because there are so many factors it is quite difficult to test any single theory.

Basic Scientific Method.

Steven_L said...

I think open borders means the cleverer, more motivated, better skilled people can more easily move higher up the added value chain. They will move to areas where higher added value employment is available. Hence there is a greater concentration of highly paid people, in high added value jobs in London than in Liverpool. The better Liverpudlians are more inclined to migrate to London than their lazy, low skilled brethren.

Now as long as we take into account differences in the values of local currencies (something C@W writers do not always like to do) a typical consumer in the UK will pay much more to have their hair cut or their nails done than a typical consumer in Romania. It takes just as long to dye a girls hair blonde in Bucharest as it does in Birmingham. But the haircut adds more value.

So Romanians that can cut hair will move to the UK to add more value and earn more money. Now this is where the textbook models all fall apart. Because typical Romanians are so poor they are likely to cut each others hair as a skill swap. There are probably very few state funded hairdressing colleges in Romania. They aren't necessarily any good at cutting hair, or lock blocking driveways or cutting trees down etc. In fact I'm not even sure there is a Romanian equivalent of building standards / buildings regulations.

But I digress, the Romanians move in and they displace the native hairdressers. All of a sudden, instead of the two usual Aberdonian girls, it was a different Romanian every time, and yielding very mixed results. One of the local girls was there on occasion with a Romanian for a while. She told me she'd discovered some of the Romanian girls were also running an 'escort' service on the side.

I don't know how the ONS account for this kind of thing in their productivity figures. I'mnot sure how it affects GDP. All I know is I've found a nice Latvian hairdresser now and if I was the Scottish one I'd be rather annoyed about being outbid for my chair by a hooker.

Blue Eyes said...

Good points all SL.

I got my hair cut by a Kurdish chap who has set up shop near me and by doing so has improved the parade. So he has added value to the area and provided competition (he charged me a pound less than I usually pay and did a much better job). How does that improvement get measured? No idea.

Anonymous said...

Social cohesion is very important. While you hear the mantra that "diversity is good" repeated in every HR department, the moment even the BBC go outside Europe they're open about the fact that it's a weakness, not a strength - see BBC reporting on Syria or India.

The resulting order inherited by the Middle East of the day sees a variety of states whose borders were generally drawn with little regard for ethnic, tribal, religious or linguistic considerations...Often a patchwork of minorities, there is a natural tendency for such countries to fall apart...

We see that even in the historic UK. Scots and English fought for centuries. I really want Ireland to win in Dublin. Even now there are people identifying as Irish who want to blow up the neighbour identifing as British. And these were people of similar phenotype, same religion (if different flavours). Theresa May is even now finding out from Ms Sturgeon what a strength diversity is. As Glubb Pasha puts it in "The Fate Of Empires"

"While the empire is enjoying its High Noon of prosperity, all these people are proud and glad to be Imperial citizens. But when decline sets in, it is extraordinary how the memory of ancient wars, perhaps centuries before, is suddenly revived, and local or provincial movements appear demanding secession or independence"

And stood against them, proud Edward's army, anyone?

dearieme said...

We don't have to get it "right". We need only get it less wrong, and err on the side of caution.

Nick Drew said...

I don't know anything about macro economics (except that it ain't a science) but I do know there are issues where one can frame the question about optimal solutions, but find it damn' difficult to assemble any meaningful numbers to determine where and what 'optimal' might be

the good Sackerson & I have debated in the past (in respect of trade) - what is the optimal degree of self-sufficiency?

at one end of the spectrum, anyone insisting on being 100% self-sufficient will lead a very limited and impoverished life in a small wooden shack, secuerly dependent upon nobody, until the year his crop fails when he will (attempt to) change his policy PDQ. [BTW George Moonbat actually tried this - food, energy and all; and when after a couple of years the crop failure happened, he had an epiphany and became a convert to nuclear energy, which may be over-reacting a bit]

at the other end, a nation that imports all its food could come badly unstuck in conditions of war, interruption to lines of communication etc etc

but where's 'optimal' in between? Just a concept, really - by analogy with problems where there really is a mathematically optimal solution

same goes for the subject I raised last Sunday - what's the 'optimal' degree of over-capacity in a grid system?. At one end - gross, gold-plated over-capacity, CEGB-style, at enormous cost: at the other, blackouts.

and the same again for 'optimum degree of free-flow of labour' - on which topic there is such a complexity of issues and qualitative judgements in play, it's even more vexatious

couple of things to remember:

- most places I go, forriners marvel at how well we manage the balance here in the UK

- "anyone can build a bridge that won't fall down: it takes a good engineer to build a bridge that only just won't fall down"

Wildgoose said...

It's not just the impact of immigration on UK wages (and the resulting tax take).

Ralph Abernathy (Martin Luther King's right-hand man) gave a speech in 1961 in which he warned "The civil rights movement is in a race with the tractors". Basically, automation was replacing Black Farm Labour when Blacks had few other alternative sources of employment. Right now, both the working and middle-classes are in a similar race, even if they don't realise it yet. Well-paid jobs are going, whether it is to immigration (wage suppression), by being out-sourced to low-wage countries, or most importantly, to Automation.

No doubt someone will say that types of employment have always changed and that ths led to candle-makers becoming manufacturers of light bulbs. This time though it really is different. There won't be alternative jobs to do, because they will have been automated as well. 100 years ago horses were commonplace, right up to the point when they were suddenly replaced by machines en masse.

Automation is only just making its first tentative steps. It hasn't started to accelerate yet. But it will. What happens to the country's tax base and social services when there are only a handful of well-paid jobs in a sea of poorly paid ones? And what happens to society when these repercussions are finally understood?

As CU says, the new jobs are increasingly lower paying. That's because it's the well paid jobs that are first to be automated. Car washing is not a well paid job. That automation happened early because it was easy. Now look at more professional jobs such as searching legal documents for case-law precedents, or examining X-rays of patients looking for anomalies, and so on. Expensive Labour. And it is starting to be replaced. Which will mean more downwards pressure on wages as people find themselves having to compete with machines.

And remember, it hasn't started yet. But it's approaching fast.

Wildgoose said...

Over time, wage costs tend to increase whereas technology only ever gets cheaper.

Even cheaper than Slave Labour apparently:

For Manufacturing and Retail Companies, Using Automated Robots is Cheaper Than Actual Slave Labor Would Be

CityUnslicker said...

Excellent comments. very insightful.

Wildgoose in many ways the automation argument, which I broadly accept (although people will need to repaid the machines - there are more jobs now than before the industrial revolution - albeit that took a few decades to come to pass) a basis on which to take pre-emptive action and rapidly scale back on immigration to help reduce future social problems.

The birth rate decline will help mitigate the rest...

Anonymous said...

I keep hearing that automation is going to wipe out swathes of employment. Then I also keep hearing that Europe needs loads of immigrants to fill jobs*. Does not compute.

Wildgoose - the car-wash is interesting - easy to automate, easier to hire 5 swarthy chaps with buckets. After all, an automated car wash needs capital. Plastic buckets are a quid each.

(*some idiot on the Today programme argued that Merkel's open borders approach was because she needed workers - why did they keep the gates closed to Poles in 2005 then? Mutti opened the gates cos a) little refugee girl cried in front of her, and b) she's childless so has no lasting interest in Germany's future)

Al said...

To my mind a huge number of jobs today are already of very questionable value, have been around for a long time and don't show any sign of disappearing. As long as a population has a reasonable level of wealth / disposable income then the jobs of tomorrow will be created. If you remove or concentrate the wealth then you are in trouble. I see the hollowing out of the middle class as a far bigger risk to future job creation than robotics/automation.

Anonymous said...

To follow up on Merkel, if you read Andrew Hammel's blog (expat law prof in Dusseldorf - liberal sort but not blind to what's in front of him), he points out that caring for 'refugees' cost 20 billion euros last year, that only about 5% of last year's migrants are employed, and that (as the leader of the free world would say) "they're not sending their best" - one example being the chap who axed a load of people at Dusseldorf station a couple of weeks ago.

Blue Eyes said...

Automation. Are we talking about oxen or water wheels? The industrial revolution didn't really get going until the Corn Laws stopped the land hogging all the workers.

It currently takes about 1% of our workforce to produce 50% of our food requirements. Not that long ago it was 99%. Between then and now unemployment has varied between about 10% and 5% of the workforce.

It must be awful to be a Malthusian, because you are wrong the whole bloomin' time.

Blue Eyes said...

I agree with Nick, of course.

Steven_L said...

I got my hair cut by a Kurdish chap...

Each to their own :)

Sobers said...

Its easy to see where it all went wrong. As with pretty much everything, it was during the 1997-2005 Blair/Brown years that it was decided to universally subsidise low paid employment via Tax Credits. Guess what you get more of when you subsidise it? Result - massive growth in low paid jobs mirrored to massive rise in welfare expenditure and a hollowing out of the tax base.

K said...

Another issue is that you don't really need much money to entertain yourself these days. 15+ years ago if you didn't want to sit and stare at the crap on the TV you needed to spend money. It was either TV, a book, or spend money and go somewhere. Now there's the internet and a lot of other ways to pass the time.

I also think this is the reason for the "snowflake generation". The government claims responsibility for falling teen pregnancies, teen drinking, etc but I think it's because they're not going outside. Also half of night clubs closed since 2005, millennials apparently having the least sex, it all adds up.

K said...

BTW aren't wages really about house prices? People have more than ever and generally aren't struggling to buy anything else. Teenagers are still buying cars and pimping them out. So it's really just about house prices, right?

So did importing a couple million people worsen the UK house shortage? Obviously it did.

But also the Eastern European workers that work for the least (truckers, farm workers, etc) can do so because they live together in slums and pay little to no rent. These are the guys in tracksuits speaking Polish that you see being hauled around in minibuses at 6am (vs the pretty girls in the coffee shops that the BBC seems to prefer showing). These guys demolish wages but probably don't actually affect house prices or rents at all.

Electro-Kevin said...

The national debt is increasing exponentially - as is personal debt.

That's where the truth lies.

These workers are being subsidised, either directly or indirectly.

The more abundant a commodity the cheaper it becomes, so a floor had to be put under employment in the form of the minimum wage (proof of wage compression) - those not on the minimum wage (self employed car washers) have access to welfare and healthcare regardless.

They are not a cheap alternative to car wash machines.

It is bottomlessly stupid to think that they can be.

Blue Eyes said...

The national debt is set to peak next year as a proportion of GDP and in cash terms the year after.

Blue Eyes said...

The global workforce (i.e. working-age population) is at its peak and is set to decline.

Blue Eyes said...

And is significantly lower than many of our competitors.

Electro-Kevin said...

9.02 - We'll see. But I reckon that if we continue to import poor people then we can only maintain the standard of living through borrowing. One or the other has to give.

9.04 - So instead of 7.5 billion potential willing workers we have 6.5 billion.

9.04/2 - "And is significantly lower than many of our competitors" meaning BRICs ? Proof that an abundance of workers = competitive export prices .... because of lower wages.

Dick the Prick said...

They had a graph on Sky stating that net average wages were the lowest for over 200 years - obviously, you can instantly call bullshit on this, but it would have been interesting to see how they weighted the metrics.

Whilst it's certainly true that higher earners have more ability to travel, I think some regard should be paid to English being the world's second language thus increasing the incentive for people to come here on a whim. Coupled with the tax credits abortion that we run, everyone's a winner.

From a local politics perspective, it wasn't 'the numbers' as such which made me furious but the totally unplanned and random nature of the changes. This school funding imbroglio is just another perfectly preventable fuckup on the theme.

Dick the Prick said...

@BE - 'The global workforce (i.e. working-age population) is at its peak and is set to decline' - not sure that's true, they've got 11.2 billion by 2100 from about 8 billion now. Couple that with pension age increasing etc.

Anonymous said...

DTP - I have a feeling that they were looking at a report that said that the real wage FALL was the most prolonged in 200 years, not net average wage.

Real male wages are lower than 1997, and we've just heard that as a proportion of real average wages, house prices have doubled since 1997.

(I prefer median to average wages, as average is distorted upwards by the 1%. 99 people earning 25k and 1 earning 2.5m gives an average of 49.75k. 99 people earning 45k and one earning 520k gives exactly the same average, but I'd rather be in the second example.)

Anonymous said...

I don't see how the global workforce can be in decline, as Africa's population, having doubled in the last 30-odd years, is set to double again. Ethiopia's population has doubled since we were putting our hands in our pockets for Live Aid, and is now 100 million (and we're being asked to chip in again).

"As of 2013, the total population of Africa is estimated at 1.1 billion, representing approximately 15% of the world's population. According to UN estimates, the population of Africa may reach nearly 2.5 billion by 2050 (about 26% of the world's total) and nearly 4.4 billion by 2100 (about 39% of the world's total)"

Of course the biggest UK wage rise (for the survivors), plus liberation from feudal serfdom, came after the Black Death had reduced the workforce by 30%. And the US was developed by what Ben Franklin called a policy of "cheap land and high wages". The UK seems to be following the opposite course.

Blue Eyes said...

Global. Y'know, all the continents.

EK actually I meant France, Italy, Japan and others.

andrew said...

On optimum levels of self sufficiency


We grow the least we can whilst preserving the ability to go self sufficient in a timescale where not many starve.

Electro-Kevin said...

FIJ are all in economic trouble.

Electro-Kevin said...

Anon 11.37 - Labour reforms post WW1 and WW2 saw higher wages and better conditions... because of a paucity of young men rather than the unions becoming good negotiators.

Blue Eyes said...

That was pretty well my point EK. We are in much better shape than a lot of countries. The main reason Japan is in big trouble? Its population is shrinking.

Dick the Prick said...

@Anon - 11.22; cheers for that - it didn't make it that clear.

Anonymous said...

Japan is not in big trouble - or if it is, I wish the UK was in that kind of trouble.

High wages, huge trade surplus, technological leadership. And in 50 years time Japan will still be full of Japanese.

"Growth for the sake of growth is the ideology of the cancer cell"

"Take, for instance, how Western observers have viewed Japan’s demographics. The population is getting older because of a low birthrate, a characteristic Japan shares with many of the world’s richest nations. Yet this is presented not only as a critical problem but as a policy failure. It never seems to occur to Western commentators that the Japanese both individually and collectively have chosen their demographic fate — and have good reasons for doing so.

The story begins in the terrible winter of 1945-6, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day.

Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than 20 years in life expectancy since 1950.

Psychology aside, a major factor in the West’s comprehension problem is that virtually everyone in Tokyo benefits from the doom and gloom story. For foreign sales representatives, for instance, it has been the perfect get-out-of-jail card when they don’t reach their quotas. For Japanese foundations it is the perfect excuse in politely waving away solicitations from American universities and other needy nonprofits. Ditto for the Ministry of Foreign Affairs in tempering expectations of foreign aid recipients. Even American investment bankers have reasons to emphasize bad news. Most notably they profit from the so-called yen-carry trade, an arcane but powerful investment strategy in which the well informed benefit from periodic bouts of weakness in the Japanese yen.

Economic ideology has also played an unfortunate role. Many economists, particularly right-wing think-tank types, are such staunch advocates of laissez-faire that they reflexively scorn Japan’s very different economic system, with its socialist medicine and ubiquitous government regulation. During the stock market bubble of the late 1980s, this mind-set abated but it came back after the crash.

Japanese trade negotiators noticed an almost magical sweetening in the mood in foreign capitals after the stock market crashed in 1990. Although previously there had been much envy of Japan abroad (and serious talk of protectionist measures), in the new circumstances American and European trade negotiators switched to feeling sorry for the “fallen giant.” Nothing if not fast learners, Japanese trade negotiators have been appealing for sympathy ever since.

The strategy seems to have been particularly effective in Washington. Believing that you shouldn’t kick a man when he is down, chivalrous American officials have largely given up pressing for the opening of Japan’s markets. Yet the great United States trade complaints of the late 1980s — concerning rice, financial services, cars and car components — were never remedied."