Comment/Response: The truth about immigrants and lower wages

By Keval Dhokia

The following analysis is in response to these two points, put to us by a sympathetic reader, about the socioeconomic impacts of immigration, on the domestic population:

Tweet 1 Tweet 2

Response to first tweet:

The reasoning behind the idea that free movement of people in Europe leads to lower earnings for British workers is a well-trodden economic argument. The basic argument from an economic perspective is based on the premise that we view immigrants as an alternative form of labour to British people.

As a result, a firm in Britain looking to lower its wage bill, but maintain output would merely need to employ a worker from elsewhere that is willing to work for less. More often than not, given the ease of travel, the ubiquitous nature of basic English skills in Europe (due to TV shows, music and other cultural diffusion), and not to mention the large number of recruitment agencies specialising in European labour, the British firm will, and has, found it easy to replace British labour. In theory.

It has been argued that apparently more frugal immigrants, particularly those from economically weaker Eastern European states, are more ‘competitive’ since the hypothetical firm can extract more profit from a unit of their labour, compared to regular Brits. This apparently comes down to lifestyle difference, with the argument going that certain strata of British society are not willing to give up certain ‘cultural’ traits, such as unionisation, higher standards/costs of living,  the ‘entitlement culture’, and hence bargain for or demand higher wages (if there were no immigrants to compete them out of the markets that is). A lot about the cultural differences is speculation, but more worryingly it is a staple of our political discourse.

Of course, the fallacy in this whole argument is that in the medium to long-term immigrants, particularly from relatively similar states such as Europe (as compared to Pakistan or Ethiopia), share certain traits, such as enjoying more expensive accommodation or a healthy nightlife, and while in the short term they may accept lower pay, they do not accept the lower wage because they want an equal standard of living to their peers. That is why they come here.

Beyond lifestyle, immigrant workers also have to contend with the same general price levels as local labour, so they will have to pay the same rent, food prices, childcare costs, tax and insurance, and all the other costs of living. Facing the same prices, the both the immigrant and the firm would find it sustainable to pay someone ‘barebones’, because the immigrant would probably leave and the firm would increase its turnover rate, discouraging other people to apply their in the first place, foreign or domestic.

I could go into why the idea that British construction workers and ‘waste management professionals’, to name but two heavily affected groups, are undercut by foreign labour, is a fallacy, but it is sufficient to say that the above arguments apply. This means that the first tweet is correct insofar as, the statement ‘immigration holds back earnings for many British workers’, is speculation. None of the data suggests this is the case in the medium to long term, which is the timescale in which earnings are determined.

Response to second tweet:

I think the second tweet requires a less technical response, because the ‘free movement of people’ means different things to different people. An ordinary lower middle-class British citizen would probably support a visa-free, temporary worker agreement with Europe, and indeed a lot of British people believed that this was what the ‘free movement of people’ meant.

Some businesses in Britain (as mentioned earlier) saw this as a cost-cutting opportunity.

The European Commission (and perhaps other EU institutions and signatories) understood full well that the free movement of people, literally meant that –  not restrictions on stay nor work. In this I would say that the lack of understanding among large sections of British society, about what the EU is really about (more integration; not necessarily a bad thing), is unprecedented. Only after the largely Eastern European immigrants had arrived and stayed for very long periods, did the British people really turn against the idea of ‘free movement’.

So even though a lot of people thought free movement (or their understanding of it) was a good thing early one, a lot of people almost certainly turned against it, because they realised they didn’t want it (for reasons of employment competition, the recession or simply because they had become a tad more xenophobic  over time).

To conclude, greater European harmony and integration, the apparent ‘EU dream’, free movement of goods and people, is an ideal that would be difficult to talk down, but it seems a lot of people who think it’s a good thing in principle, certainly don’t believe it’s good for their country.

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