Immigration and the UK labour market

Posted by Tim Congdon in News Archive | 0 comments

Heavy net immigration into the UK has occurred in the last 15 years, reflecting the impetus of mostly administrative changes at the start of the last Labour government in 1997. (No major announcement was made and no public debate was held on the desirability of this new development in British life.) A particularly important new trend was inaugurated about a decade ago. Following a decision by the then prime minister, Tony Blair, the UK would not impose any restrictions on the inward movement of workers from eight East European countries when they joined the European Union in May 2004.

Since spring 2004 UK-born employment in the UK’s labour market has fallen, whereas foreign-born employment has increased by about 1.8 million. Roughly half of the 1.8 million come from the so-called ‘EUA8’ countries, i..e, the eight accession countries of May 2004. The mere recital of figures does not demonstrate a causal connection, but more detailed work (such as on regional employment patterns) does suggest that UK workers have lost jobs because of the influx of foreign workers. On 1sJanuary 2014 people from Bulgaria and Romania – which together have a population of about 30 million people – will be free to come to the UK, and to live and work here. The following note – which is chapter 4 of the 2013 edition of my study for the UK Independence Party on How much does the European Union cost Britain? – discusses these developments in more detail.

4. The cost of lost jobs

The first three chapters of this study have trodden relatively familiar ground in the debate on the UK’s membership of the EU. Right from the start of our membership in 1973 it was understood that the UK would be a net contributor to EEC/EU funds, and that the protectionist CAP would cause an increase in food prices and resource misallocation. By contrast, the topics surveyed in this chapter could not have been foreseen 40 years ago because, at that stage, hardly anyone envisaged large-scale inward migration from the rest of the EEC/EU. The subject is difficult and sensitive, because opposition to immigration is sometimes characterised as the result of prejudice, particularly prejudice against those of different race, religion and so on. Nevertheless, the notions of ‘a government’, ‘a nation’ and ‘public policy’ imply that a defined group of people (‘a nation’) exists for whom its government frames public policy to its benefit.1  The words ‘a government’, ‘a nation’ and ‘public policy’ would otherwise have no clear meaning. The group of people that constitutes ‘a nation’ cannot include anyone from any country of the world. To the extent that public policy allows people from other countries to reduce the nation’s welfare, something has gone wrong.130823 Table1

There can now be little doubt that in the last few years inward migration, particularly from Eastern Europe, has restricted the availability of jobs to some British people. That inward migration has been the direct result of the UK’s membership of the EU, while ‘the British people’ are to be understood here as  people  who  are UK-born  as  well  as  enjoying British  residence and  citizenship.  Inward migration has therefore hurt the citizens of our country and been costly to us. Precise calculations of the costs are difficult and will not be attempted here.2  The subject is likely to become even more fraught in the next year or two, as its EU membership will oblige the UK to ‘open its doors’ to immigrants from Bulgaria and Romania on 1st January 2014. That will further undermine job security for people who regard themselves as long-term British.

Blair opens UK labour market

The downfall of communism in the late 1980s and early 1990s was one of the most welcome developments in modern European history. It was welcome not least because it confirmed the superiority of the market economies of Western Europe, with their respect for the rule of law and private property, over the planned and largely state-owned economies of the former Soviet bloc. Once they were freed from Moscow’s clutches most of the countries in the former Soviet bloc wanted to join the EU. Various entry criteria were specified in the 1990s and these took a number of years to meet, but eight central and Eastern European countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) were able to join the EU on 1st  May 2004. This was the largest single enlargement in terms of people, and number of countries, in the history of the EEC/EU.3

Income levels in the ‘EUA8’ (an abbreviation for the ‘EU accession eight’) were appreciably below those in Western Europe. (See the chart above. In 2004 the UK’s income per head, at over $36,000 in terms of current price $s, was more than five times higher than in Poland. In 2012 the UK’s income per head was still more than three times that in Poland, and about five times that in Bulgaria and Romania.) As noted in the previous chapter, the freedom of movement of people is one of the ‘four freedoms’ of the EU’s single market. But, if the EUA8 had been granted such freedom on their accession to the EU, the income disparities would almost certainly have led to large movements of workers to the richer EU member states. Most of the EU’s older member states introduced a seven- year transition period, in which they limited inward migration from the EUA8. The UK, led by prime minister Tony Blair, decided not to follow this course. Instead people would be free to move from the EUA8 to the UK as soon as the EUA8 belonged to the EU. From 1st May 2004, potentially millions of working-age people were free to move from the EUA8 to the UK (and indeed Ireland, since people can move freely between the UK and the Republic of Ireland).

The British government expected only a modest influx of new workers. In practice immigration from the EU8 was on an extensive scale, with major effects on the UK labour market. Official data show that in spring 2004 64,000 people born in the EUA8 were employed in the UK, about double the level of five years earlier, but still only 0.2% of total UK employment. Between March 2004 and the end of 2007, a period of relatively buoyant economic conditions and strong demand for labour, the number rose from 64,000 to 487,000. Within less than four years the importance of EUA8 workers had therefore increased so sharply that they accounted for 1.7% of total UK employment. The growth of employment in this period for UK-born workers was only a little more than 100,000, a mere quarter of the surge of over 400,000 in employment of EUA8-born workers.

From late 2007 the UK economy’s performance deteriorated markedly. The situation was not too bad in early 2008, but by late 2008 grave weaknesses in the international banking system became evident, and a major downturn in demand and employment began. The worst phase of the ensuing Great Recession was in the opening months of 2009, when tens of thousands of jobs were disappearing every week. The labour market in the UK was then dominated by UK-born workers, as it still is today, although to a lesser extent. At the end of 2007 total employment was just under 29.5 million, split between UK-born of 25.9 million (87.7% of the total) and foreign-born of 3.6 million (12.3%). The foreign-born workers had generally been in their jobs for a shorter period than the UK-born, while in many cases they occupied temporary positions or had only a half-hearted commitment to the UK.4 A reasonable surmise might have been that a fall in the demand for labour would cause higher job losses for the foreign-born than the UK-born. That surmise would, in the event, turn out to be completely wrong. In the Great Recession and the immediately subsequent years UK-born employment dropped heavily, whereas foreign-born employment rose and employment of people from the EUA8 climbed dramatically. The figures are set out in the chart below.Employment trends in the Great Recession

UK-born people did lose jobs

The fall in UK-born employment was concentrated in the year to mid-2009 and amounted to about 800,000 people, about 3% of the number of UK-born people in jobs at the end of 2007. After mid-2009 the number of UK-born people at work has fluctuated markedly from time to time, but the underlying trend has been for slight growth of about ¼% a year. In reality labour market conditions have remained tough in the last four years. Many British people have left full-time employment, while part-time employment and self-employment have expanded. Youth unemployment has been high and rising. By contrast, foreign-born people have made continuing inroads into the UK job market. The chart above relates to changes in the level of employment, in terms of thousands. It shows that, from the start of the Great Recession in 2008, employment of people born in the EUA8 has risen by about 200,000, while employment of people born in the rest of the world (i.e., in neither the UK nor the EUA8) has increased by about 600,000.

A small adjustment in presentation emphasizes the message. When the numbers are set out as %age changes, the result is altogether more dramatic because the number of Eastern European people in Britain in late 2007 was still quite low. (The employment surge was from a small base.) Employment of EU8-born people soared by 45% in the five years to end-2012. In short, in the Great Recession and its sequel the number of jobs occupied by the UK-born slumped by 800,000 in a year and then failed to recover to anywhere near the end-2007 level, whereas the number of jobs occupied by the EUA8- born increased by 200,000 or about 45%.

At  any rate, the net inflow  of  workers  from the  EUA8  is  now stabilizing, partly because East European workers have considered returning ‘home’ as incomes in their countries begin to catch up with UK levels. But that is far from being the end of the threat to British workers’ jobs. In the last few quarters  a  new  development  has  been  a  sharp  rise  in  employment  of  people  of  Bulgarian  and Romanian birth, even though in principle the UK labour market is open to them freely only from the start of 2014. (For several years they have been able to come here as temporary workers.) Official data are now being made available for the number of people of Bulgarian and Romanian birth employed in the UK. The chart below shows the % changes in employment since the end of 2007 of the UK-born, those born in what one might term ‘the EUA10’ (i.e., the EUA8 plus Bulgaria and Romania) and those born in the rest of the world. The leap in the EUA10 category is obvious. Further, while employment of people from the EUA8 is stabilizing, employment of those from the EU10 continues to climb. Of course, that pattern will be reinforced in 2014 when low-cost staff from Bulgaria and Romania will be able to move to the UK, and to take up jobs here without restriction.Employment trends in the Great Recession

Does this constitute prima facie evidence that people of British birth have lost jobs because of the influx of working-age men and women from Eastern Europe, because – in other words – of our EU membership? The UK labour market has undoubtedly become more difficult and hostile for UK-born people in the last few years. There must be a strong presumption that jobs are harder to find not just because of the Great Recession, but also because a large number of immigrants, many of them from Eastern Europe, are competing for the few positions available. Admittedly, a strong presumption is not definite proof. But one further set of numbers may open the minds of even the most obstinate Europhiles. These numbers, prepared by the Office for National Statistics, ought to be enough to persuade most people that over the last decade immigration from the EU has reduced job prospects for people who are not just British by residence, but British by citizenship and birth.

The chart below shows the proportion of the resident working-age population that is actually in UK employment for two groups, the UK-born and those born in EUA8. In other words, it shows what we might term ‘employment ratios’ for these groups. Until the 2004 enlargement, UK-resident people born in the EUA8 had an employment ratio beneath that of the UK-born. Their propensity to seek employment then changed radically. Notice what happened in the four years from the first quarter The employment ratio of the EUA8-born group soared from 61.9% to 82.6%. So in those years UK-resident people born in the EUA8 had an employment ratio well above that of the UK-born. The greater part of this increase occurred in a spectacular leap in late 2004, just as the UK labour market was opened up to workers from Eastern Europe by the EUA8’s accession to the EU. The obvious interpretation is that these workers were keen to take advantage of the much higher wages offered in the UK and sought work in our country. Further, when the Great Recession hit and the number of job opportunities declined, the immigrants did take jobs from the British-born. On this basis EU membership did destroy UK jobs.Employment ratios since 1997 of people of different nationality

Some academic research is also consistent with the claim that immigration hurt the job prospects of UK-born people, particularly the young. Youth unemployment has been appreciably higher over the last ten years than in the 1980s. As noted by Petrongolo and van Reenen in a study for the London School of Economics’ Centre for Economic Performance, since ‘the rise in youth unemployment dates back to 2004, the year of the EU’s enlargement to take in eight central and eastern European countries…, it would be natural to think that the increase in youth unemployment is related to stronger competition from immigrant labour’. When a regression was estimated between youth unemployment and the immigration across UK regions over time, evidence showed that ‘a one percentage point increase in the proportion of foreign-born in the working-age population is associated with an increase in youth unemployment of 0.43 percentage points’.5

Official endorsement

The conclusion must be that the heavy immigration to the UK from Eastern Europe since 2004 has taken jobs away from the long-term British. This claim is highly contentious, not least because it challenges the ‘cosmopolitan’ or ‘internationalist’ outlook of many key opinion-formers.6  However, the notion that immigration could reduce UK-born employment has been endorsed in two official reports. The first was published in January 2012 and prepared by Professor David Metcalf, the chairman of the Migration Advisory Committee, which is sponsored by the UK Border Agency. The second appeared in June 2013 and came from the Paris-based Organisation for Economic Cooperation and Development.

The MAC report claimed that employment of 160,000 more British people would have been possible in the 2005 – 10 period if no migrants from outside the EU had come to the UK. Asked directly if there would have been this number of extra jobs if immigration from outside the EU had been stopped, Metcalf answered, ‘yes, that would be a reasonable way of putting it’.7

The puzzle here is the restriction of the MAC analysis to immigration from outside the EU. If immigration  from  outside  the  EU  can  reduce  employment  for  British  citizens,  why  cannot immigration from within the EU have the same effect? Common sense would suggest that the employment-reducing effect of immigration ought to apply regardless of the source country. The argument might be made that immigration from outside the EU was generally of lower-wage workers than, say, EU8 immigration. However, that in fact was not true. Non-EU immigration was partly from such countries as the USA, Canada and Australia with much higher living standards than the EU8. Indeed, an analysis prepared inside the government machine showed that workers from the EU8 countries tended to be in low-wage employment to a far greater extent than the UK-born. To quote, ‘Examination of the occupations of workers born in EU14 countries show that they are predominantly employed in “Professional occupations” (23.3%), “Associate professional and technical” (17.6%) and “Management and senior officials” (14.3%). These categories account for 55.3% of EU14-born workers. The same occupations account for 44.2% of UK-born workers and 46.6% of other non-UK- born workers, but only 14.5% of EU8-born workers. EU 8-born workers are predominately employed in “Elementary occupations” (37.5%).’8

The MAC analysis said that the 160,000 jobs lost due to immigration reflected ‘700,000’ extra working-age migrants in the 2005 – 10 period. In fact, official data for the period from the final quarter of 2004 to the first quarter of 2011 show an increase in non-EU immigrant workers of 652,000 and of EU immigrant workers of 588,000. If the ‘700,000’ non-EU immigrant workers are supposed to have destroyed 160,000 jobs for the UK-born, then the 588,000 EU immigrant workers destroyed about 135,000 jobs for the UK-born.

The OECD’s report appeared in its annual 2013 International Migration Outlook publication.9 Before the onset of the Great Recession in 2007 foreign-born men in the UK were less likely to have a job than those that were born here. In 2006 the employment ratio for UK-born men was 76.9%, whereas for the foreign-born it was 76.3%. But by 2013, after the worst economic downturn since the 1930s, the employment rate of UK-born men had dropped to 74.3%, while that for the foreign-born was up to 76.9%. The OECD analysis received widespread press coverage, not least because it clearly signalled a  harsher job-seeking environment for the long-term British. (Note  the  similarity of the  OECD conclusion to that in this publication’s earlier discussion of the employment ratios of the UK-born and people from the EUA8.)

A Home Office spokesperson pointed out that half of the UK-resident foreign-born people in the UK had now become British citizens. She went on, ‘We are building an immigration system that works in the national interest and is supporting growth. Our reforms are working, and they are having an impact in all the right places…[N]et [im]migration is down by almost a third as a result’.10 The tell- tale phrase here is ‘our reforms’. Without being too direct about the matter, the Home Office spokesperson  was  admitting that  in  the  previous  decade  much  had  gone  wrong.  ‘Reforms’  had become necessary. It is indeed true that since 2010 government policy has been, consciously and actively, to limit immigration from outside the EU. The UK remains sovereign in the sense that it can control movements across its borders by people who are not EU citizens.

However, because the UK is a member of the EU, it cannot stop immigration from within the EU. In that sense the UK is not sovereign and it cannot ‘reform’ anything. To repeat, from 1st January 2014 its borders will be open to large-scale immigration from Bulgaria and Romania. Both these countries are at present in recession, as a by-product of the wider macroeconomic malaise in central Europe which is related to the travails of the single currency system. According to a 2011 National Public Opinion Institute in Bulgaria, 12% of the population would emigrate once EU restrictions were lifted in 2014.11   (Bulgaria has a population of seven million people, Romania of 22 million.  Official estimates of the size of the influx from Bulgaria and Romania have been prepared, but not released. A number  in  excess  of  ¼  million  and  perhaps  of  as  much  as  ½  million  looks  reasonable,  given experience with other East European nations since 2004.)

‘Rivers of Blunder’

It  is  time  to  summarize.  Inspection  of  the  official data  identified  two  points.  First,  since  2004 immigration from the EU has been on an unprecedented and remarkable scale. Secondly, these immigrants have, to an exceptional extent, taken up employment in the UK. (As we showed, and as was confirmed by the OECD 2013 International Migration Outlook, their ‘employment ratio’ soared in 2004 and 2005, and since then has been well above that for the UK-born or the other foreign-born groups.) The post-2004 influx from the EUA8 was the result of Blair’s decision in 2003 not to impose the seven-year transition period favoured by other long-standing EU members, but that influx – and the prospect of another massive inflow from Bulgaria and Romania next year – can be seen as a consequence of EU membership. While the UK remains a member of the EU, it cannot restrict immigration from other EU member states because the free movement of people is one of the single market’s ‘four freedoms’. The UK’s membership of the EU has destroyed British jobs and, while we remain inside, it will continue to do so.12

The Labour Party has conceded that Blair’s 2003 decision damaged Britain. In August 2013 Chris Bryant, the party’s home affairs spokesman, gave a speech which ran, ‘Labour made mistakes when we were in government on migration….[T]he A8 countries joined the EU in 2004…France, Germany and Italy sensibly said that they would have transitional controls for seven years. We didn’t do that. A larger number of people came to the UK than anybody had anticipated.’13  Almost unbelievably, Bryant used his speech to criticise two prominent retail firms, Tesco and Next, for recruiting overseas workers rather than British workers, as if it were their fault rather than the government’s that so many overseas workers should be living in the UK. He had at last evidently come to believe that British jobs were being taken away as a result of immigration! However, it turned out that Bryant’s specific allegations against Tesco and Next were untrue. As a former adviser to the Labour Party remarked in The Daily Mail, ‘Imagine Enoch Powell’s Rivers of Blood speech written by the scriptwriter of the Benny Hill show and delivered by Alan Partridge and you get the drift. “Rivers of Blunder”, as one Twitter wag called it.’14

1 A favourite conceit of left-leaning ‘intellectuals’, including many working in universities, is that the focussing of public policy on a particular nation is anti-internationalist, and therefore narrow-minded and backward- looking. But that does not stop British academics asking for more British government money to finance British universities. In January 2012 Sir Martin Rees authored a pamphlet for the Politeia think-tank setting out the case for more government funding for UK universities in order that they be ‘internationally competitive’. (Sir Martin Rees Right Aims, Wrong Policy? [London: Politeia, 2012].) See also footnote 6 below.
2 The difficulty arises partly from the ambiguity of the concept of ‘a nation’. Is a nation to be defined as those people resident in it at a particular time or over a particular period, or the people born there (again with some time interval in mind ), or the people who are ‘citizens’ (where the notion of citizenship is also to some extent a matter of definition)? Later in the chapter a statement will be made to the effect that ‘135,000 jobs were lost because of immigration from the EU’ in the 2005 – 10 period. One calculation of the loss ‘to the UK’ might
then be the output that would have expected from 135,000 people, if they had been in work and had had average
UK productivity, which comes out at about £7 billion a year. I am under few illusions about the fragility of the assumptions required to deliver this result.
3 Note that Cyprus and Malta joined at the same time, but they were of course not from the former Soviet bloc and are ignored in the rest of the chapter.
4 Official data show that in the year to September 2011 696,00 people of Indian birth and 614,000 people of
Polish birth were estimated to be resident in the UK, and these were the two most common countries of birth (apart of course from the UK). They also show that in the same period the 654,000 Polish nationals, 341,000 nationals of the Republic of Ireland and 330,000 Indian nationals were estimated to be resident in the UK. Clearly, birth status and nationality did not coincide, and nearly all of the people of Polish birth resident (and usually working) in the UK regarded themselves as Polish, which was not true of those of Indian origin.
5 Barbara Petrongolo and John van Reenen ‘Youth unemployment’, Centrepiece (London: Centre for Economic
Performance), summer 2011 issue, pp. 2 – 5. The quotations are from p. 3. The authors of this piece tried to retract their conclusion by saying that it depended on the inclusion of London in the sample. But why should London be excluded? They refer to another paper in 2005 by David Card in The Economic Journal. But in 2005 no data whatsoever could have been available about the medium-run effects of opening-up of the UK labour market to EU8 immigration.
6 See David Held Cosmopolitanism (London: Polity, 2010) for an example of this sort of thinking.
‘Cosmopolitanism’ is defined on p. x as elaborating ‘a concern with the equal moral status of each and every human being and creates a bedrock of interest in what it is that human beings have in common, independently of their particular familial, ethical, national and religious affiliations’. Whether Britain exists primarily for the benefit of the British – meaning people of British birth, citizenship and residence – then becomes far from clear.
7 ‘160,000 jobs “lost to migration”, article in The Daily Express, 10th January 2012.
8 Jessica Coleman ‘Employment of foreign workers, 2007 – 09’, ONS occasional paper (London and Newport:
Office for National Statistics, 2010), p. 7.
9 International Migration Outlook (Paris: Organisation of Economic Cooperation and Development, 2013 edition).
10 Daniel Martin ‘So much for British jobs for British workers!’, Daily Mail, 13th June 2013.
11 ‘Almost a million Bulgarians are planning to move abroad’, Daily Mail, 14th June 2013.
12 This chapter has not discussed the employment-reducing effect of a range of employment directives and regulations. As the cost of regulation was covered in the second chapter, to quantify and add that cost here
would be double-counting. The total employment-reducing effect of EU membership – both the lost jobs from inward migration and the lost jobs from misguided EU legislation – must run into the hundreds of thousands, perhaps even into the low millions.
13 Jack Doyle ‘Labour finally admits: we let in too many migrants’, The Daily Mail, 13th August 2013.
14 Dan Hodges ‘Hypocrisy and the mother of all U-turns’, The Daily Mail, 13th August 2013.
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