The economics of UK migration - best analysis yet

The best analysis to date of the economic impact of migration to the UK was published today by Bank of England MPC member and professor of economics, Danny Blanchflower. Co-authored by Bank economists Jumana Saleheen and Chris Shadforth, The Impact of the Recent Migration from Eastern Europe on the UK Economy (PDF) explores the evidence in great detail. What the paper finds is ably sumarised by the accompanying news release:

Professor Blanchflower notes that empirical literature from around the world suggests little evidence that immigrants have had a major impact on native labour market outcomes such as wages or unemployment and recent work on the UK by other authors is consistent with this view. He goes on to examine whether the rising share of young immigrant workers can explain the increase in the unemployment rate among 18-24 years olds since 2000 and concludes that this increase has had little to do with the influx of migrants.

In addition, Professor Blanchflower suggests that the recent rise in the overall UK unemployment rate could be unrelated to structural factors and that policymakers may therefore interpret the rise in the actual unemployment rate as a reflection of greater slack in the labour market now compared to a year ago.

Professor Blanchflower says that the overall macroeconomic impact of immigration – including that from the A8 countries – on inflation and growth is not clear-cut. It would appear that the recent immigration from Eastern Europe up to late 2006 is likely to have acted to reduce the natural rate of unemployment in the UK and helped to raise the supply potential of the economy. In addition, this recent immigration appears to have continued to reduce inflationary pressures.

The paper usefuly compiles all the available data - and adds plenty of additional analysis. The most consistent effect rhrough almost the whole paper is nil or statistically insignificant migration effects. And it's not as if they didn't try - you can see them turning over every just about every rock to see what lies beneath. It won't convince everyone, of course - but the critics of recent immigration should give it the close reading it deserves.

As to the implications for monetary policy - a rise in labour slack suggests a low probability of an imminent wage inflation, despite quite a few gloomsters warning it is just around the corner. This is a key reason Blanchflower is considered an MPC 'dove' by the City - but I expect he will be proved right on this issue.

Comments

[David Wiczer]

One can't help but think of the monetary policy implications that Blanchflower draws as an interesting analogue to speculation that international flow of goods from cheap markets has also reduced inflation rate in the goods markets. Perhaps, what Chinese imports are to textiles(and electronics...and everything else, I guess), Eastern Europeans are to labor. However, I don't think there is definitive proof that either phenomenon decreases inflation, or merely shifts the price increases from one market onto another (skilled services, etc.)

[ChrisA]

I wonder how long the beneficial effects of Eastern Europe labour on the UK will last? Surely less time than the deflationary effects of chinese goods. Anybody seen any good estimate? What happens then - has the European labour surge been hiding a structural deterioration of the UK economy so that we will be back to the 70's stagflation.

[Lafayette]

"I wonder how long the beneficial effects of Eastern Europe labour on the UK will last?"

There are two precedents of note. One is the Maghreb peoples who immigrated to France and the other is the Turkish immigration to Germany. Both were beneficial to these economies during a long period of economic expansion. Both countries now perceive these populations with less enthusiasm to assimilate them. But, assimilate they do.

As well, the Maghreb countries (Tunisia, Algeria and Morocco) are all healthy trading partners for France, and the same can be said for Germany of Turkey. Immigrant country remittances helped developed that commercial relationship.

The Brits are finding that the low-end jobs are being taken by the newcomers, but that is nothing new historically. Immigrants typically take jobs that locals do not want.

The point is this: With these migrations, a binary situation does not exist. A country cannot admit them when there is a need, and then chuck them out when that need no longer exists. These are human beings; they develop roots especially subsequent generations born in the country. They also aspire to a middle-class existence like their fellow citizens.

Also, those that migrate but do not immigrate, usually leave to return home, once they’ve made enough money. The Romanians and Bulgarians will ultimately do the same … besides they have a legal right now to have a job in the UK (as of the first of this year).

As for the rest, the UK will have to find a way to uninvite migrant laborers. France once paid them a good sum to leave. Ever think of that?

[Lafayette]

This software is a visual delight.

I downloaded some "eye candy" called World Income Distribution. The array of graphical representations is impressive.

For instance as regards health services; it is interesting to note that the US has the same infant mortality rate at Hungary or Slovakia ... or Cuba.

What I disliked, however, was the array of European countries each specifically shown when they should be aggregated into the EU, to show comparatively the data vis-a-vis the US. Both regions are demographically similar.

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In addition, Professor Blanchflower suggests that the recent rise in the overall UK unemployment rate could be unrelated to structural factors and that policymakers may therefore interpret the rise in the actual unemployment rate as a reflection of greater slack in the labour market now compared to a year ago.

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