Migrants boost UK growth, keep rates low

Several articles in the Sunday papers cite a new report by the Ernst & Young ITEM Club, which claims that migrant workers help keep inflation and interest rates low and are set to add £4bn to GDP next year. Heather Stewart in The Observer writes that migrants boost UK's growth:

Eastern Europe migrants have brought powerful benefits to Britain's economy since 10 new countries joined the European Union in 2004, according to research by the Ernst & Young Item Club.Item, which uses the Treasury's forecasting model, says interest rates are half a percentage point lower than they would have been without the influx of low-cost workers from the new members of the EU club. It calculates that economic growth will be boosted by 0.2 per cent this year, and 0.4 per cent in 2007.

'Economic elixir': East Europeans are breathing new life into Britain, by Jason Nissé of The Independent, put it like this:

It estimates that this fiscal year, immigrants will add £2bn to GDP, and that this figure will rise to £4bn next year and £6bn in 2008-09. This is feeding through to a 0.1 per cent reduction in the rate of increase of average earnings, and to the maintaining of the base rate at a steady 4.5 per cent.

E&Y reckons that without the same level of immigration, interest rates would be 0.5 per cent higher and there would be pressure to increase them further over the next couple of years. These figures have been arrived at by taking official statistics and applying the Treasury model to them.

The report is published on Monday. See also Migrants ‘have kept interest rates down’, by David Smith, Sunday Times, and Polish plumbers 'boost UK economy', by Robert Watts, Sunday Telegraph.

Comments

[Blissex]

For the UK these are mostly (except for the effect on interest rates) five year old news:

http://www.economist.com/displaystory.cfm?story_id=486825

"MIGRANTS, according to research published by the Home Office this week, can help boost growth, reduce inflationary pressure and fill labour-market shortages."

In the USA some studies have argued that a large part of the recorded improvement in productivity of the past decade has been a statistical effect, due to illegal immigrants: they are not fully counted in the labour force, but their output is, thus flattering the average for legal workers who do get counted.

Also, while low cost workers clearly benefit the rest of the economy in the aggregate, it would be interesting to have an idea of their distributional effect.

One effect is already obvious from the articles above: by keeping interest rates lower, immigrants have made house prices higher, never mind the direct effect on house prices due to increased demand for lodging (I guess many know someone who has made a lot of money buying dilapidated houses for renting rooms to immigrants).

For people with assets (businesses, shops or houses, or securities thereof) or with safe government or government licensed jobs the arrival of cheap immigrants is definitely a large boost.

Moreover the government itself is in that position: as ministers have stated the availability of cheap immigrants is essential to drive down salaries for the lower end NHS jobs and save money on taxes for the well off:

http://WWW.Economist.com/printedition/displayStory.cfm?Story_ID=486825
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"The speed with which the government has executed a U-turn in its approach to immigration owes much to its need to bring in foreign workers to meet its recruitment targets for the NHS and education."

My impression is that the government fully understands that there are many millions of well off middle class middle aged people with a safe job that are just waiting to inherit their elderly parents' assets and that they will vote accordingly, and immigrants don't vote and are desperate for a job anyhow.