Nationalising British jobs

Migration restrictions are a bad way to fight unemployment in times of crisis. There is no evidence

As Gordon Brown tours the EU to fight protectionism in trade and finance ahead of the G20, his Home Secretary, Jacqui Smith, touts new domestic measures that look uncannily like labour protectionism.

The proposed package includes possible moves to limit access to dependants of skilled migrants working in Britain and to restrict skilled migrants to taking jobs only in occupations with shortages.

Meanwhile the approach to immigration envisaged by the Conservatives is even stricter with the introduction of annual quota legally limiting the number of migrants admitted in the UK.

It seems these days that nationalising jobs is a more popular proposition than nationalising banks. But while there may be arguments to support the latter, I'd suggest no economic argument in support of migration restriction can withstand close scrutiny.

Migration restrictions are a bad way to fight unemployment in times of crisis. There is no evidence that less immigration means less unemployment in the UK or anywhere else.

In fact, the opposite seems to be true. While immigration tends in the minds of people to be linked to domestic joblessness, in reality, rises in immigration have been associated with falling unemployment in the UK. While it is obvious that a booming economy attracts migrants, it is also true that the presence of migrants helps the economy grow (in per capita terms) and creates jobs.

Greater London has been by far the largest recipient of immigrants in the last 30 years. It is home to 43 per cent of total UK immigrants, and only eight per cent of the total domestic workforce. Not surprisingly, London has also experienced one of the highest growth rates in the country, and real wages (as well as the average level of education of the workforce) have increased more than any other part of the UK in recent times.

The economic literature is fairly convincing: there is no evidence of any negative effect on the domestic labour market as a result of immigration.

Even one of the largest migration inflows in British history – those arriving from Eastern Europe following the enlargement of the EU in 2004 – did not contribute to a fall in wages or a rise in claimant unemployment in the UK in the following two years.

And this does not apply only to Eastern European migrants. Recent evidence suggests that overall immigration has led to a slight increase in average real wages in the UK, with the effects being most beneficial for relatively high skilled workers.

This is not surprising as migrants tend to self-select, with the brightest and more educated people the most likely to migrate. Migration is, therefore, likely to raise the average education and skills level of the workforce in the host country, helping employers create (rather than destroy) new employment opportunities. And new migrants tend to be concentrated in the young (and most productive) age groups, raising the average productivity of the labour force.

That is why immigrants are usually an important source of innovation, and long-term growth for the receiving economy. And migrants often act as intermediaries between their country of origin and the country of destination, effectively reducing transaction costs in trade and investment between the host and the source countries.

Migrants are often complementary to local labour forces, filling important gaps in the local labour markets. It is often the case that foreigners work in those sectors where it is difficult to recruit British-born people, such as the health service, or hotels and restaurants. Anyone who has needed the services of the National Health Service will have appreciated the importance of foreign (and non-EU in particular) health professionals in the health system, from physicians to cleaners and carers.

As there is no sound economic argument for restricting immigration as a response to the crisis (as the government itself recently recognised), is the government simply caving in to xenophobic sentiments ignited and exploited by the BNP in communities that face widespread job losses as a result of the recession?

After all, if the impact of the economic crisis and unemployment could be addressed simply by restricting the entry of outsiders into a local labour market, why is no one calling for restriction in movement of workers from one region of Britain to another?

Around six million British citizens (10 per cent of the total) currently live and (often) work abroad at least for part of the year. Would the British government be happy if those countries hosting Britons attempted to implement the restrictive measures against foreign labour that it is, itself, proposing? No country in the world has developed by closing its borders to new immigration and, as Gordon Brown tours the world convincing leaders to renew international cooperation, he would do well bear this in mind.

Massimiliano Calì is a Research Fellow for Overseas Development Institute’s International Economic Development Group