Economic Analysis: Time to have a grown-up debate on migration

It's been an unhappy new year for anybody hankering after a sensible debate on immigration.

David Cameron gained a few cheap headlines by threatening to kick out Muslim women who fail English language tests after two-and-a-half years.

In Germany, which accepted more than a million refugees and immigrants, the debate has been inflamed by Cologne’s mass attacks on New Year’s Eve, intensifying pressure on Chancellor Angela Merkel’s open-door policy.

In Middlesbrough, meanwhile, asylum seekers are cowering behind their red front doors.

So three cheers for London School of Economics professor Alan Manning, whose lecture on migration came as a welcome reminder of its economic benefits when the discussion has been gripped by hysteria.

Immigration must be one of the most furiously debated but massively ill-informed topics in national discourse. Frankly, most of the British public haven’t got a clue about it, and their ignorance is so firmly entrenched that it can’t be shaken. Unfortunately, politicians by and large don’t stand up to this prejudice because it costs votes, so they pander to it instead.

Let’s take an example. The Royal Statistical Society asked the public in 2013 what proportion of the UK population was foreign born and the answer came back 31%. But in 2014, the last full year for which figures are available, the actual answer is 12.5%.

In the survey, quoted by Manning, nearly half of the people refused to change their mind even when they were told the right answer.

But despite their apparent lack of knowledge on the subject, almost half of British respondents thought it is one of the top two issues facing the UK, a change in attitude broadly tracking the steep rise in net migration we’ve seen in the past 20 years.

It is true that over the broad sweep of the past 100 years, the rise in net migration seen since the early 1990s to levels well above the 300,000-a-year mark is unprecedented.

But is that necessarily bad for the indigenous UK workforce?

Migrant workers can be a substitute — potentially bad news — or somebody you work with, potentially an advantage. But more indirectly, if immigration means certain goods become cheaper, that disadvantages competitors while benefiting “complementary” industries.

If those goods become cheaper, as the professor explains, we’ve all got more money to spend on other things, and the demand for labour overall goes up.

And don’t forget, as Bank of England Governor Mark Carney pointed out this week, immigrants spend money and work as well.

The trouble is that these indirect benefits are largely invisible, whereas the losers tend to be concentrated, visible (and often vocal).

Despite the public being convinced that high immigration is very bad news, academic studies disagree and either way the effect one way or the other is far smaller than the wider population believes.

A look at the evidence shows the employment rate of UK-born workers now virtually back to pre-crash levels while the canard about the wages of lower-skilled workers being hammered by a flood of immigrants simply isn’t backed up by the evidence.

The hourly earnings of the lowest 10% as a share of the median have in fact increased by nearly six percentage points in the past 20 years, largely thanks to the minimum wage.

That compares with a near-10 percentage point decline to the mid-1990s under almost 20 years of Conservative rule.

And forget the old saw of “they’re nicking our jobs”. As any economist will tell you, there’s no such thing as a fixed amount of jobs in an economy; that’s known as the “lump of labour fallacy”. In fact, the more people there are in the labour force, the more people go into employment.

Of course the main effect of migration is on population, which in turn builds pressure on housing supply and public services. It also underlines our chronic failure to build enough homes over the past 20 years.