Alex Morton (a No 10 policy advisor under David Cameron) has written a piece for ConHome that attempts to show that there is no particular reason for free marketeers to support liberal immigration policies.

He is not very persuasive and mostly relies on his intuition to make his case. But since he mentions the Adam Smith Institute I feel obliged to respond. Conservatives reading his post deserve to hear more than Morton's gut instinct about immigration policy.

1. “People do not have the right to move to the UK”

The argument that all have equal rights to live where they please is a socialist concept based on a false premise. The Adam Smith Institute or others would agree that you might be unlucky to be born without wealthy parents, but it is not an injustice. It is the same with national identity. You are unlucky to be born in a poor country, but it is not an injustice.

It’s not clear what Morton means by “justice”, and it is certainly not a concept that I use when discussing immigration. One might argue that a UK citizen’s property rights create a prima facie expectation that they should be able to employ, do business with or sell their home to any other person unless there are important reasons to prevent that from happening.

With this in mind it is very strange to argue that “You have no more right to walk into another country and demand residence than you do in the UK” – most would-be immigrants are not demanding to be housed or employed by the state, they just want not to be prevented from working and paying for their own accommodation. Preventing them from doing this undermines not just their freedom of action, but that of the British citizens who would like to hire or house them.

We have an obligation to the rest of the world, in terms of trade and aid, and helping groups like women, religious and sexual minorities advance human rights overseas – but that is where our moral obligation ends. We do not have an obligation to welcome them here.

Again, it is not clear what Morton is really talking about here. Where do these obligations come from? How can he assert that we do have an obligation to trade freely with people in other countries but that we do not have an obligation to allow them to come here? Morton is really just stating what his intuitions are, and these are no more interesting or important than anyone else’s gut feelings.

2. “Immigration is economics of agglomeration and addition”

In terms of the economics, the evidence is clear – what might be termed the economics of agglomeration and addition. Agglomeration is the very clear evidence that high skilled workers benefit from the presence of other high skill workers, and if this generates an overall increase in wealth large enough it increases average incomes. This is why London and other global cities have such high productivity and income: they have huge pools of skilled labour.

This is mostly beside the point and misses lots of the actual economics of immigration.

First of all, the gains from immigration are not merely agglomeration effects (which are about productivity effects arising from geographical proximity). We should expect a basic division of labour effect to generate overall productivity gains as well. If, as Adam Smith said, the division of labour is limited by the extent of the market, then anything that makes it easier to do business with someone should allow for greater specialisation and more productivity – not merely a geographical change but a technological, legal or other institutional change that makes it easier to exchange.

One of the effects of immigration is to make trade with other people much easier in this way, by removing legal barriers to exchange (like regulations and tariffs). In many respects it is easier for an American in San Antonio to do business with a Mexican in New York than a Mexican living just across the border in Ciudad Juarez.

This should apply to unskilled workers as well as skilled ones – if, say, hiring an unskilled childcarer allows a skilled computer programmer to work full-time instead of part-time, we would expect both of their productivities to rise compared to the next best alternative. There is empirical evidence in support of this.

This should be obvious to anyone who supports free trade. Trade with Vietnam does not make me better off purely because of the skilled workers in Vietnam: the unskilled labourers who produce some of the clothes I buy and lower the prices of those clothes raise my total purchasing power, because I have more money left over to buy other things. They also allow unskilled workers in Britain to produce things that they, or the country, are most effective at producing.

This is true of immigration too, and borne out by empirical evidence. A study of the Danish labour market found that unskilled Balkan refugees raised the productivity of unskilled Danish natives and the complexity of their jobs. It is an interesting demonstration of the division of labour deepening and improving the wellbeing of unskilled workers, not just skilled ones.

Another effect is to boost the productivity of the migrant by allowing them to take advantage of some of the institutions like the rule of law and relatively good regulation that we have in the UK. People can increase their earning power by twenty times doing the same job, just by migrating from poor countries to rich ones – better institutions reduce the cost of doing business with them and allow for more capital accumulation that makes them more productive. Most immigrants and descendants of immigrants support mainstream political parties and so cannot be accused of undermining these institutions in an important way.

These people can also innovate more effectively – the innovation that was EasyJet was probably more likely to succeed in Britain than its founder's native Greece thanks to our superior institutions and business environment. Innovations like this raise our productivity and our wellbeing.

[Additionally], meanwhile, what happens when you simply add workers of average to low skills to an existing labour pool. In this case, it is a simple case of supply and demand – more workers means lower wages (though employment is not impacted).

Even under this ‘simply case of supply and demand’ Morton is wrong – as well as supplying labour (driving down wages), immigrants demand labour in the form of the goods and services they consume. There is no reason to assume that one effect dominates the other, and indeed the empirical evidence shows that the effect is mostly neutral. British studies show that, for the group most directly affected by unskilled immigration, the impact has been annual pay rises being about 1p/hour less. That's not nothing but it's absurd to suggest that it's a large impact especially compared to other effects (automation, welfare cuts, the minimum wage, etc).

But that’s not the only effect. Migrants are (on average) net contributors to the public purse, and increasing native workers' productivity (especially high-skilled native workers' productivity) raises tax receipts too. As a result their taxes allow for a greater level of support for poorer workers. Without the revenue that they contribute, tax credits may have to be lower and tax rates may be higher. I would predict that this fiscal contribution outweighs the incredibly mild wage effect.

Morton does not discuss the fiscal impact of immigration at all, which is strange – the UK debt-to-GDP ratio over the next fifty years can be kept under control simply by maintaining our current levels of net migration, but would rise to a dangerously high level if we cut it too much: