Sunday, 20 March 2016

A confident UK has nothing to fear from free movement of labour

By Ian Preston
Centre for Research and Analysis of Migration (CReAM) at University College London

Migration brings net gains to the UK, and to hamper it would likely be as bad for British nationals as it would be for EU migrants.

Freedom of movement is at the core of arguments over Brexit. Not everyone in favour of Brexit is against free movement but polling evidence suggests that concern about immigration is strongly linked to support for EU withdrawal. Among the most common reasons given for voting Leave is the suggestion that it will restore British control over labour migration from European sources. By removing the country from the obligation to honour free movement of workers, it is suggested, it will make it possible to selectively and advantageously discourage immigration of less attractive sorts of workers.

Many have argued plausibly that the supposition on which this is based is questionable, that it will be impossible to negotiate continued access to European markets for British goods and services without also accepting continued free movement of labour into British markets. Indeed the delinking of different dimensions of free movement would not be straightforward, even if it were desirable. Free flow of services and free flow of individuals delivering those services are not easily separable, for example: you can’t engage a bricklayer’s services unless they are allowed to come and lay the bricks. If all of this is true, then British withdrawal would simply dilute British influence over the rules of free movement.

These sorts of points, convincing as they might be, are not what I want to concentrate on here. Instead I want to question the idea that separating Britain from the free movement of labour within Europe would be economically beneficial even if it were feasible.

From an economic point of view, mobility of labour is advantageous in many respects. Allowing workers to move where they are best rewarded is helpful to productive efficiency. It means that, when skill shortages arise, firms can recruit widely and workers can supply labour where their particular abilities are most in demand. British firms benefit, just as do firms in other countries, from being able to recruit from a broader pool for the particular skills needed in their operations. At the same time British workers gain, just as do workers in other countries, from access to a broader pool of possible employers.

Free movement also provides insurance against local labour market fluctuations. When there is a downturn in one region and a boom elsewhere, flows of workers between them can dampen the effects. Judging this by the economic circumstances of a single point in time gives a poor guide to the long run benefits this brings. British workers stand to gain from this when British labour markets are weak just as do workers in other countries when conditions suit movement for them.

The main benefits of free labour movement accrue, of course, to migrants themselves (including British-born migrants) who can enhance their incomes substantially by moving to where they are most valued. Some of those gains are captured in the receiving country through taxes paid on and out of migrants’ incomes. But the non-moving population may also see their own incomes change as a consequence of the movement of foreign labour and any movement of capital associated with it. If the possibility of employing immigrants keeps firms in the UK, for instance, then that may generate or prevent the loss of employment for British-born workers. Wages of non-movers may also be affected and some may gain and some may lose. Those whose skills are complemented by those who arrive and those who were competing with them in the areas they leave are most likely to gain, while those who compete most closely with them where they arrive and whose skills were most strongly complemented where they left are most likely to lose. Economies have many long-term and short-term ways to adjust which will damp these effects down, perhaps even to zero. And these effects do not just take from one person to give to another – the overall average wage effect on workers other than the migrants themselves may be positive. But if the harmful impact were to be concentrated on the less affluent then that would be a legitimate reason to worry.

Net gains


So what does the evidence say? In the UK it suggests that migrants tend to work initially for pay well below that which might be expected given their qualifications if they had been locally born, presumably because it takes time to learn local skills such as command of the language and to embed themselves into local labour markets. To the extent that it is possible to identify negative effects on wages of locals – by comparing outcomes in parts of the country with different migrant inflows – these appear to be strongest exactly in the part of the wage distribution where migrants seem to be working, which is to say at lower wages. Nonetheless the effects are small, suggesting that the ability of the economy to absorb immigration without compromising the wages of the hardest hit is reassuringly strong. Moreover, any losses appear if anything to be more than balanced by gains to others, and those gains could be spread around if the political will were there to do so.

Why might the average individual in the receiving country gain? Maybe migration spreads ideas and encourages innovation. Letting innovators move to where their ideas can be developed may be important to economic dynamism and as entrepreneurs move they expose those with whom they work to new ideas. There is not much evidence on this for the UK but there is tentative evidence elsewhere that migration is associated with innovation and entrepreneurship.

Furthermore, freedom of movement allows certain industries to maximise their productivity by allowing for the build-up of a workforce in certain localities. Again this is something generally beneficial. One context in which this may be true, for example, is scientific research. Knowledge spillovers from concentrating the best minds in disciplinary specialities in the same place may be substantial, something reflected in the international composition of university departments and research laboratories.

Furthermore since benefits from research are largely public, enduring, and enjoyed in common, it makes sense for public funding to play a large role and much of that funding is at the European level. The wisdom of cutting the UK off from participation in such arrangements under the hope that the desirable outcomes could somehow be replicated through negotiation and newly formulated visa rules is questionable.

The question of benefits

Perhaps the strongest case for worrying about the possible implications of free movement regards its interaction with the public sector. There are well-established arguments within economics that suggest the redistributive functions of government should happen at the highest possible geographic tiers, not only because that allows addressing a wider range of inequalities but also because it means that migration between lower tier jurisdictions cannot unravel the effects. If one jurisdiction provides more redistributive services, especially if entitlement to use them has no past contributory basis, then the possibility that that will attract the neediest migrants from other jurisdictions could compromise sustainability. Since European social provision is principally a national responsibility, concern that free movement could compromise social programmes has to carry some weight in principle.

But evidence to support the seriousness of these concerns is again lacking. From what we know, migration is motivated principally by work and movers to the UK contribute positively to the exchequer at a time when there is an overall fiscal deficit. Migrants are no more unhealthy and no more criminally inclined than the British-born, and they tend to arrive already educated. Of course if they stay then they will age and eventually draw more heavily on public services, but this is just to say they will eventually come to be more like those already in the country.

Notwithstanding the evidence, the British government has negotiated an agreement allowing for circumstances in which an extended waiting period could be imposed on EU migrants before they could claim certain benefits. The agreement reached has been widely derided by advocates on the Leave side, who point out that even those wanting to remain accept that it is unlikely to affect migration levels. But this ignores the fact that those who believe this do so precisely because they never believed that welfare tourism was a problem in the first place.

The benefits of free movement

Free movement of labour has positive economic effects and if we restrict it we become worse off on average. But it also brings with it some disruption and there may be some who lose from it. The role of government should not be to prevent free movement and in doing so lose those gains, but to see that the long term benefits are enjoyed widely and the negative effects on those whose lives may be disrupted are recognised and addressed. 

A continent of walled-off labour markets with governments as gatekeepers arbitrating movement of workers between them would be less productive, less flexible, and less dynamic. In economic terms, a vote to begin erecting those walls would be a vote for a step backwards.

Ian Preston is the Deputy Director of CReAM and Professor in the Department of Economics at UCL.

Acknowledgement: This piece was published first at Open Democracy

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