My Favourite Parts From: What Do We Know and What Should We Do About: Immigration

Just the data, please.

Sage are publishing a nice little series of primers on various topics. I recently read their book on immigration, written by Professor of Economics and Public Policy, Jonathan Portes.

Portes condenses a lot into a hundred pages. The book starts with a bitesized history of immigration to England and the UK, as well as some economic analysis. Let’s start with the whistle stop history.

Portes starts from the Norman conquest, when William the Conquerer invited and encouraged large numbers of British Jews to come to England to provide financial services to the King and the elite, before being forced to wear a yellow piece of cloth by Edward 1st in 1275, then being violently expelled in 1290. Fun fact: the Merchant of Venice and Marlow’s The Jew of Malta were written when Jews were barred from Britain. The Jews returned in 1656 thanks to Oliver Cromwell.

In 1685, 50,000 French Protestants called Huguenots came to England as part of an exodus of around 200,000 people. This was after Louis XVI had removed the civil rights granted to them by the Edict of Nantes. It’s important to remember that there are only ever a few million people in England (at most 5 million) when these changes are taking place, so the Huguenot arrival represented a 1% increase to the population!

Between 1870-1913, the British Isles had net emigration of 5.6 million, reducing the population by a third. Portes also documents the Jews and non-whites who were refused entry in the 1920s and 30s due to fears of anti-Semitism and civil unrest, before Empire Windrush arrived in 1948, marking the beginning of post-war migration.

In 1951, the UN refugee convention is signed. It’s a treaty that requires signatories to grant asylum to those with a ‘well-founded fear of persecution’, something obviously inspired by the events of WW2. Portes then breaks down the post-war waves of immigration:

— In the 1950s, Caribbeans, Indians, and then Pakistanis arrived. 

— In the 60s-70s, African Asians come to the UK. These were mostly Gujaritis who had gone from from India to Kenya and Uganda (which were part of the British Empire), before arriving in the UK. 

— The 70s-80s saw Bangladeshis arrive. 200,000 East African Asians flee Idi Amin and the Daily Telegraph has the headline: “Invasion of Asians forces borough to call for help”.

— In the 90s, Eastern Europeans arrive, as well as asylum seekers from Yugoslavia. There are now 2.2 million Eastern European nationals living in the UK, with the largest groups being Polish, Romanian, and Lithuanian.

An interesting socio-economic point Portes makes is that perhaps the reason the Huguenots, Jews, and East African refugees have been so successful is because they’re more committed to their new country than normal migrants and don’t have the option of returning home. Anyway, that’s the brief history. 

Where this book really shines is its economic analysis. I learnt so much in such a short space of time. We start with the lump of labour fallacy, the incorrect idea that there exists a fixed number of jobs in the market. Portes reviews the data showing that immigration adds to labour supply and demand. 

The equilibrium level of unemployment is a bit technical, so here’s Investopedia:

According to the general equilibrium model of economics, natural unemployment is equal to the level of unemployment of a labor market at perfect equilibrium. This is the difference between workers who want a job at the current wage rate and those who are willing and able to perform such work.

Portes tells us that the economic consensus is that this unemployment is mainly driven by education, training, and the welfare state, not immigration. The University of Oxford’s Migration Observatory has apparently done good work here.

When Portes wrote the book, UK unemployment was actually at its lowest level since the mid 1970s. The halcyon days before global economic devastation. Of course, some argue that this is because immigrants have taken these jobs and depressed wages. Whilst wage depression does happen, Portes tells us that we must differentiate between nominal and real wages. The latter are the purchasing power of nominal wages when we take inflation into account. And if a shortage of workers pushes up nominal wages, inflation will rise and real wages will fall due to economic output remaining the same. For example, if we need more doctors, those doctors might be able to bargain for higher wages, but if economic output hasn’t increased, the purchasing power of those wages goes down.

Immigration can also affect relative wages. If it boosts the number of low-skilled workers, it could also push down the prices of goods and services they produce. However, the reports Portes cites show that these impacts don’t appear to be very large, we’re talking a 1 per cent rise in low-skilled workers equalling a decline of 0.12% in wages. 

Despite this we have witnessed a sharp fall in productivity in the UK, but Portes explains that this is probably driven primarily by the financial crisis, although he admits the evidence is not as good as the evidence on immigration’s effect on jobs and wages. 

We should also remember that a 1 per cent rise in adult migration equals a 2% rise in GDP per capita with EU migrants in particular make a massive contribution to the UK economy. However, the rich gain more from low-skilled immigration and also don’t have to live in high migrant areas if they don’t want to. 

One of the biggest takeaways is the note Portes ends on. There are countries like Latvia and Lithuania which are seeing their tax bases obliterated as young, skilled people leave. This means taxes go up and that, in turn, makes even more people leave. This is the demographic downward spiral has incentivised policy makers in the UK from Blair onwards to rely on high rates of immigration as a quick fix. In a drastically ageing society, we might find that ourselves even more reliant on foreign labour in the years to come.

Please let me know in the comments if any of the above is wrong/contestable!

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