Economists negative about UK migration policies: results from the Centre for Macroeconomics August survey

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan

What is the impact of migration on the UK economy and how effective are the current government’s migration policies? Among respondents to the fifth monthly survey of the Centre for Macroeconomics (CFM), reported in this column, there is overwhelming support for the view that migration will increase the average income of current UK inhabitants. Moreover, the panel of experts thinks that current government policies are not effective in attracting the ‘best and brightest’ – in fact, they may even be doing the opposite.

The Centre for Macroeconomics (CFM) – an ESRC-funded research centre including the University of Cambridge, the London School of Economics (LSE), University College London (UCL) and the National Institute of Economic and Social Research (NIESR) – is today publishing the results of its monthly survey.1 The surveys are designed to inform the public about the views held by leading UK-based macroeconomists on important questions about macroeconomics and public policy.

This month’s survey focuses on the impact of migration on the UK economy and the effectiveness of current government migration policies.

The responses indicate overwhelming support for the view that migration will increase the average income of current UK inhabitants. Moreover, the panel members think that current government policies are not effective in attracting the ‘best and brightest’ and, in fact, they may even be doing the opposite.

The impact of migration on the average income of current UK inhabitants

As in many other countries, migration continues to be a contentious issue in the UK. In particular, the scale of immigration from the European Union is likely to be an increasingly important issue should the UK hold a referendum on its EU membership in 2017.

Dustmann and Frattini (2013) report that the immigrant population has grown substantially, from about 3.8 million in 1995 to around 7.6 million in 2011. In contrast, the native UK population has increased by about one million from 53.4 to 54.4 million. Moreover, during the last ten years, a large fraction of UK employment growth is accounted for by foreign nationals. This is especially the case for the period following the 2004 expansion of the EU.2

With such a large inflow of foreign nationals, it is natural to ask what the consequences are for the UK economy and whether particular groups in the UK are possibly negatively affected. Using data from the European Social Survey, Boeri (2010) documents that 45% of UK respondents think that 'immigration [is] bad for [the] country's economy'.

However, a recent report by the Migration Advisory Committee argues 'that migrant workers over the last 20 years have not had a major impact on the pay of British workers, on UK employment, the wider UK economy, or areas such as housing, healthcare, crime, education and welfare benefits.'3 The report goes on to point out that the effect of migration on low-skilled workers may have been more significant at the local level, as such immigration tends to be concentrated in certain areas.

This month’s first question focuses on the impact of migration on the average income of current UK inhabitants.

Question 1: Do you agree that migration to the UK can be expected to be beneficial for the average income of current UK inhabitants in the upcoming decade?

Summary of responses

Of the 44 panel members, 32 answered this question. An overwhelming majority agree with the question. In fact, there has not been such a strong consensus among panel members in any of the previous four surveys. To be precise, 34.3% strongly agree, 50% agree, 6.3% neither agree nor disagree, 9.4% disagree, and nobody strongly disagreed. Answers weighted by confidence level give a similar distribution.

Several of the respondents who agree point to the benefits for the UK labour market. Richard Portes (London Business School) argues that "properly regulated immigration" can increase the flexibility of the UK labour market and alleviate specific labour shortages. Martin Ellison (Oxford) reminds us of the ‘lump of labour fallacy’ – that is, the number of jobs is not fixed so that immigration increases the overall number of jobs rather than takes jobs from natives.

Jonathan Portes (NIESR) notes that "immigrants to the UK, both from within and outside the EU, are more likely to be of working age than current UK inhabitants and more likely to have higher skills and qualifications. As a result, the spillover effects and complementarities mean that immigration is likely to result in higher productivity for both new and existing workers and hence higher incomes."4

Several of the respondents illustrate their view with their experience in their own sector, higher education. Michael McMahon (Warwick) says that foreign students not only bring revenues to the UK education sector but also "a valuable global perspective". Morten Ravn (UCL) argues that the higher education sector "would die without migrants".

The skill level of migrants attracted to the UK in next few years is an important factor for those panel members that disagree with the question. Nicolas Oulton (LSE) thinks that "the bulk of migrants will be relatively unskilled", and adds that, although small, the effect of immigrants on wages and employment of native British is negative. Patrick Minford (Cardiff) also believes that UK migration is shifting towards the unskilled. He argues that this lowers existing UK residents’ income because the permanent income these workers receive in the UK is less than their marginal product – that is, the amount that they add to UK GDP.

Quite a few respondents (among those who agree and disagree) suggest that the question focuses on a narrow concept, namely the average income of current UK inhabitants. Migration is likely to affect many other aspects of society, such as the income distribution, potential culture clashes, congestion in the housing market, and capacity in infrastructure and public goods provision.

The effectiveness of current UK government migration policies

In 2010, the current Coalition Government promised to drive down net migration to 'tens of thousands' by the next election. In the last few years, net migration has indeed been lower than in the decade prior to the financial crisis. In 2013, however, net migration rose to 212,000 from 177,000 the previous year. The Government has also emphasized that curbs on migration should not prevent UK firms attracting the ‘best and brightest’. Nevertheless, a recent report shows that the total number of highly educated recent migrant workers decreased from 338,000 in 2007 to 242,000 in 2013.[5]

This month’s second question focuses on the question of whether government policies can be expected to be effective.

Question 2: Do you agree that current government policies with respect to non-EU migration (including policies on students, skilled workers, and family migration) are effective in maximizing the gains to the economy from migration while minimizing any possible negative impact to specific groups?

Summary of responses

Of the 44 panel members, 30 responded. 70% of the respondents either disagree or strongly disagree, only 6.7% agree or strongly agree, and 23.3% neither agree nor disagree. Weighing the answers with confidence level creates greater uniformity, increasing the fraction that either disagrees or strongly disagrees to 77%.

In their comments, the respondents do not shy away from using strong language. Government policies are described as ‘a politically- and PR-driven mess’ by David Cobham (Heriot- Watt), and as "flawed and unwieldy" by Kate Barker. John Driffill (Birkbeck) writes that "their policies are illiberal, short-sighted and damaging to the economy and society. It is appalling that this electorally weak administration appeases UKIP and the Tory right wing in its efforts to cling on. Its policies on immigration have nothing to do with the gains to the economy (or effects on society) and everything to do with staying in power".

Using more moderate language, these sentiments are echoed by other respondents. A recurring point made is that current government policies make it difficult for bright students who study in the UK to take a job in the UK after graduation. Luis Garicano (LSE) writes "Unlike other English-speaking countries, Britain makes little effort to discriminate in favour of those who are likely to be most beneficial for the economy as a whole. As a result, bright Chinese students finishing their studies are forced to go home, when most likely their presence would be positive for the economy as a whole." Silvana Tenreyro (LSE) says that "there is still untapped potential in, for example, university students from non-EU countries – higher education 'exports' could increase far more."

Another point made by several respondents is that existing government policies impose costs on businesses either because of red tape (Simon Wren-Lewis, Oxford) or the inability to recruit higher skilled workers (David Smith, Sunday Times).

Several panel members point out that the difficulty for skilled foreign students wanting to stay in the UK after graduation is also likely to have negative effects on the UK education sector itself.

Although the respondents are very negative about existing government migration policies, several respondents suggest that it would be beneficial if there were an effective policy that could target high-skilled workers.

Not all respondents agree. Martin Ellison comments that he does ‘not have great confidence in the government being able to identify which immigrants would be most beneficial to the UK economy. Past experience with governments attempting to pick ‘champion’ industries to support through subsidies and tax breaks has been disappointing, and there is little reason to believe that the government would be any better picking ‘champion’ people to allow into the UK either’.

The issue of migration is likely to remain a sensitive political issue. Giancarlo Corsetti (Cambridge) says "the UK is attractive as a destination because of a dynamic labour market and a relatively inclusive welfare state. For these very reasons, however, one may expect political opposition to remain strong."

References

Boeri, Tito (2010) ‘Immigration to the Land of Redistribution’, Economica 77: 651–687.

Campbell, Stuart, Jacquie Cooper and Jon Simmons (2014) "Employment and Occupational Skill Levels Among UK and Foreign Nationals".

Dustmann, Christian and Tommaso Frattini (2013) "The Fiscal Effects of Immigration to the UK", VoxEU.org, 13 November.

Rolfe, Heather, Cinzia Rienzo, Mumtaz Lalani and Jonathan Portes (2013) "Migration and Productivity: Employers’ Practices, Public Attitudes and Statistical Evidence".

Footnotes

Detailed results are available at http://www.cfmsurvey.org.

2 See Campbell et al (2014), which reports that 'between the first quarter of 2004 (the last quarter before the accession) and the first quarter of 2008 (the last quarter before the onset of recession) foreign nationals accounted for 78 per cent of the 1.1 million total rise in employment.'

3 See the report by the Migration Observatory, "Highly Skilled Migration to the UK 2007-2013: Policy Changes, Financial Crises and a Possible ‘Balloon Effect’?".

4 More information can be found in Rolfe et al (2013).

5 See the report by the Migrant Advisory Committee, "Migrants in Low-skilled Work: The Growth of EU and Non-EU Labour in Low-skilled Jobs and its Impact on the UK".