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.