Monday 20 October 2014

No wonder free movement of EU labour is a hot topic for UK

I would not describe myself as a Eurosceptic and also think immigration is generally positive for the British economy. However, a decade ago when a group of central and eastern European countries joined the EU I questioned the wisdom of immediately allowing citizens of those countries to enter the UK labour market.

My concern was that free movement of labour within the EU, though correct in principle, had the potential to cause practical difficulties given the very substantial income disparity between existing member states and these former communist bloc newcomers. The sensible course, in my opinion, would have been for the UK to follow the example of most other existing member states at the time and take advantage of scope for transitional restrictions on migration from the new member states while the latter integrated into the EU economy. Instead, the UK adopted an open door policy, resulting in a flow of eastern Europeans across our borders that has proved so large as to alter the complexion of many local communities and, in the process, not only propelled immigration to the top of the political agenda but also placed the issue of the free movement of labour at the centre of debate over the UK’s membership of the EU.

Politics aside, most economists contend that my concern has proved misplaced. My worry was that in an economy oversupplied with less skilled labour, an inflow of labour from low income countries would reduce the employment of less skilled British born people and/or lower their pay levels. As things turned out I was wrong about the employment effect of immigration, mainly because a decade ago I hadn’t quite appreciated how ultra-flexible the UK’s uber deregulated labour market has become. Nowadays it seems as though you can pump as much labour supply into the market as you like and still create lots of low productivity jobs because pay takes the strain and prices people into work, albeit the impact of migration on pay is generally found to be small, in part because the national minimum wage provides a floor to pay at the bottom of the market.

The national minimum wage has proved a policy Godsend in this respect since, despite protestations to the contrary, it’s pretty clear that UK employers have been hiring EU migrants primarily to cut wage costs. This is apparent from a recent study by the Chartered Institute of Personnel and Development (CIPD).  Oddly, while the CIPD is at pains to stress that ‘what the vast majority of employers are not doing is hiring migrants to lower the wage bill’ its key headline is that employers have been turning to EU migrants to fill entry level job vacancies, particularly for lower skilled jobs, because they are more skilled and ‘a bit older and have more work experience’. If hiring migrants with skills and experience into low skilled entry level jobs at low pay isn’t about cutting the wage bill for a given value of output I’d sure as hell like to know what it is.

It’s obvious that bosses, along with migrants themselves, benefit most from immigration. British born people benefit as consumers too, assuming the lower cost of employing migrants feeds through to product and service prices rather than adds to profit. But for British born workers the blessing is mixed, with immigration one of several supply side factors now keeping the lid on growth in pay with millions of people, British born and migrants alike, employed in jobs that pay less than a living wage. No wonder that immigration is a hot political topic. No wonder that free movement of labour within the EU is a matter of debate.  

Wednesday 15 October 2014

Rise in number of economically inactive people enables unemployment to fall below 2 million despite slower pace of job creation as self-employment records sharp quarterly fall

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2014.

The fall in unemployment to below 2 million (1.97 million or 6% of the workforce, the lowest rate since late 2008) will grab the headlines but the latest figures suggest an underlying change in the pattern of the labour market recovery. The pace of net employment creation (up just 46,000 in the latest quarter to a total of 30.76 million, with a working age employment rate of 73%) has slowed markedly compared with earlier in the year, due in large part to a sharp quarterly net fall of 76,000 in self-employment. As for employees, continued growth of 107,000 in the quarter was split roughly between full-timers and part-timers (causing another slight fall, to 1.35 million, in the number of people working part-time because unable to find a full-time job). However, unemployment has nonetheless continued to fall sharply because slower employment growth was dwarfed by a big quarterly rise of 113,000 in the number of economically inactive people, almost half of which is accounted for by a rise in the student population. The fact that the latest fall in unemployment has been driven by rising inactivity rather than employment creation also helps explain why the associated fall of 18,600 between August and September in the number of people unemployed and claiming job seekers allowance (JSA) is also much lower than in recent months.

There is slightly better news on the rate of growth in average weekly earnings (unchanged at 0.7% including bonuses and up to 0.9% when bonuses are excluded) though this is still much lower than the accompanying rate of price inflation and there is little sign of an imminent pay surge to end the real wage squeeze.   

Monday 13 October 2014

Is Mr Farage the answer to our political purgatory?

The BBC, ITV, Channel 4 and Sky News this morning outlined plans for a series of three televised debates between the political party leaders during next year’s General Election campaign. As I write, it’s unclear whether the suggested formats will be acceptable to those invited, and those excluded (the Greens and the Nationalists) from the plans are bound to be unhappy. Much of the difficulty in determining the format stems from the ever rising profile of UKIP and its leader Nigel Farage, who the broadcasters know is the only mainstream politician other than London Mayor Boris Johnson likely nowadays to draw a really big TV audience for such programming.

Mr Farage is popular because he is a populist and conveys an image of having lived a bit that many people clearly relate to. There was a time when more politicians came across this way. Last week marked the 40th anniversary of the October 1974 General Election and the BBC Parliament Channel re-broadcast the accompanying results programme.  I was a couple of months short of my 17th birthday at the time but remember watching the journalists quizzing varied pollsters, pundits and politicians as they pondered on what it all meant for the parties.

Looking back, most of those involved 40 years ago are now sadly departed, whether to heaven, hell or (God forbid) some kind of endless purgatory for politicos nobody knows. What struck me most, however, was the contrast between politician and pundit. All of the former (at least in the hour or so I watched the re-broadcast) were of an age to have lived through the Second World War, in most cases as adults. Not only were they wrapped in the aura of experience, their manner and accents reflected the class mix of the vox pop which also punctuated the programme. The pundits, generally somewhat younger, appeared trendier, more sophisticated and socially a bit removed from the general populous, often aided by the occasional drag on a cigarette, the latter anathema by today’s values but then a cool counterpoint to the common person style of Prime Minister Harold Wilson with his pipe and slight northern drawl.

Well over a generation on, and the distinction between politician and pundit has all but disappeared. Most look and sound the same and tend to have had similar education and experience. They are not so much a political establishment as a political class that transcends the ideological views and party labels they display.  Moreover, in the era of multiple think tanks, unelected quangos and digital commentators the members of the political class are increasingly interchangeable, today’s pundit or quangocrat becoming tomorrow’s politician and vice versa.  Rightly or wrongly, to the everyday Janet or John outside this class all that appears to matter at any particular time is whose in and whose out rather than the underlying state of the nation.  The prospect of continued coalition government further exacerbates this feeling, offering the nauseating sight of parties condemning each other’s policies while happy to get into bed together so as to grab a slice of ministerial power.

Continuation of this situation could itself be said to amount to a form of political purgatory for the living, with endless hand wringing about ‘connecting with the people’ combined with perpetual frustration that nothing will ever change. The only means of escape is to replace the political career as we have come to know it with an ethos of political service: opportunity to participate in democratic politics extended through increased devolution to a wider citizenry, combined with greater ongoing influence over the activities of all those – political bodies, public agencies and corporations – who affect our lives.        

I don’t yet know enough about Mr Farage to determine whether he is a genuine outsider seeking to break the prevailing mould or a canny insider who thinks his best chance of rising within the ranks of the political class and advancing his own ideological beliefs is to exploit disenchantment with the economic and social consequences of its stultifying grip on power.  Whatever the configuration of public debate ahead of the General Election this is the fundamental question he and his party need to answer. As for the other parties, they must demonstrate that political change means more than simply rearranging the Whitehall furniture.