Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 16 May 2016

Brexit, immigration and £100

With so many heavyweights, from Barack Obama to Mark Carney, saying that we will be worse off with Brexit, why are the polls still neck and neck? There seem to me two reasonable explanations: that the tabloid media have a strong influence, and that immigration is a big issue among voters. But perhaps the two are connected, for reasons that will become clear.

It is a well known result that worries about immigration tend to be greatest in areas where there is little immigration. In areas where there are a high proportion of migrants, like London, UKIP do rather poorly. For most, immigration is not a problem that is facing them directly, but rather an issue they feel is facing the country.

For some this concern about immigration is cultural, but for others it is economic. But if it is economic, on what is this concern based? All too often I come across arguments that make simple economic errors. Like more migrants put greater pressure on public services. Study after study suggest exactly the opposite: because migrants tend to be young adults who work, they pay more in taxes and take less advantage of public services or benefits than the average non-migrant. To his great credit, when Jonathan Portes (from the non-aligned research institute NIESR) was confronted in this Newsnight debate by nonsense from someone from the Centre for Policy Studies (right wing think tank, rated D for funding openness), he did not attempt to win the argument by quoting statistics or academic studies, but by trying to show why what he was saying made common sense once you explain it.

Sometimes it is simply false correlations: austerity has put pressure on public services and the recession and productivity slowdown has held back real wages, but both have happened at a time of high immigration. For a very good and simple explanation of the facts about recent EU immigration, see this LSE analysis. (For those that can access it, here is a similar take from Gemma Tetlow at the FT.) The only area where there might be some negative effect from migration is on the wages of unskilled labour, but even where a negative impact is found it seems to be small as the chart in this post shows. As Portes suggests, this negative impact could be wiped out by positive effects from higher growth and better public finances. 

In some sense what we have is very similar to the austerity problem, with the combination of simplistic ideas and non-causal association. It feels right that governments should tighten their belts when households are doing the same, and the ‘clearing up the mess’ idea is reinforced because the deficit went up when Labour was in power. With both austerity and immigration we have a visual media that normally makes no attempt to ‘educate and inform’, and a tabloid media that actively reinforces these mistakes. (If I open the MailOnline as I write this, here is the top story.) We have a governing party that does the same, and in the past an opposition that was reluctant to say that immigration benefits the economy as a whole. [1]

So the referendum debate amounts to economics versus immigration. But here is a revealing bit of information from the YouGov analysis cited earlier.
“We recently conducted an experiment in which we asked people to imagine how they would vote if they knew Brexit would make them just £100 worse off per year. This instantly changed a neck-and-neck result to a 12 point victory for ‘Remain’. The effect is even stronger among undecided voters, who flip 18 points from veering towards ‘Leave’ to veering strongly towards ‘Remain’ in this scenario.”

It is of course a classic technique economists use to quantify how strongly people feel about an issue, and it suggests the immigration concern is not worth that much to many people. Given that the economic assessments of the costs of Brexit are of the order of at least 10 times £100 a year, the economic argument is key. Which is why it is worrying that the BBC seem to ignore the consensus among academic economists, as expressed in the letter from the 196 (who cannot be accused of being part of the establishment) but instead find time to publish a 'fact check' that is, to put it politely, misleading.

[1] Labour’s line should be (and occasionally is) to note that recent immigration from the EU has benefited the economy, but not every part of the economy, and government needs to be active in spreading the benefits.


  1. First of all, it is best to read the whole study by the LSE researchers.

    So, for example, if you look at Figure 7 in the study it becomes clear that from 2004 to 2008 wage growth declines significantly, at the same time as EU migration goes from 2% of labour force to about 4%.

    This was a boom time in Britain, and there is no reason why wages should not have gone up even higher if there had been no migration. (after 2008 picture is not clear, because of recession, and the conclusion of the LSE study is there is no influence on wages.).

    So that simple graph shows up clearly, what everybody suspects, without immigration, workers would be better off.

    Then, the LSE study also states that there is empirical evidence that increased immigration leads to a fall in house prices! (Sa 2015).

    They are just two very crass examples, that when looking at some of the evidence cited the conclusions drawn from them do not add up.

    So the population as a whole is right to question the benefits of immigration with these dodgy conclusions which go against the basic simple rule of economics. We are told in the LSE study that

    a) increased supply through immigration does not lead to lower prices (in the case of wages) or
    b) increased demand through immigration does not lead higher prices (in the case of housing).

    Plus, economists think that GDP increase is good, no matter what, they have no regard in this discussion to distribution of GDP (seems to go all to the top 1%) and effect on income (which has stagnated over the last years)

    They also completely ignore externalities - do we want to concrete over more countryside to make room for 25% more people in UK?

    Unless these issues are addressed by economists (distribution/externalities/basic supply-demand equations), there is really not much point of getting any of the economists to explain anything about immigration.

  2. Felicity Lawrence describes a situation where immigrant labour surely would depress wages for unskilled workers, as well as having very little offsetting positive effect on the wider local economy. The situation, that is, of borderline criminal gangmasters keeping immigrants in what's effectively bonded servitude, working in un-unionised and under-regulated industries. The pity of it is that local people seem to look at this situation and see the ill-mannered people with poor English, not the lack of union recognition, inadequate law enforcement and absence of effective regulation. Why this should be I don't know - it may be that prejudice against outsiders is bound to kick in quicker than political analysis - but I can't help feeling those years of a Labour government intensely relaxed about people getting filthy rich played some part in reducing some people's political vocabulary.

    Unrelated plea for help: can anyone point me to the blog post I read a while back analysing Osborne's budget in terms of shifting government revenue from one period to another for short-term political advantage? The example that stuck in my mind was the promotion of ISAs vs pensions as savings vehicles - make ISAs attractive enough to put people off investing in pensions and the government gets your income tax now, at the expense of losing it later. A really blatant "YBG, IBG" approach, which is pretty alarming from somebody at the heart of government - the British people won't be gone, after all. Anyway, I thought the post was either here or at FCFT, but I haven't been able to find it - anyone remember the one I mean?

  3. There’s a big weakness in most claims to the effect that immigrants paymore tax than natives. It’s that if the amount of infrastructure per head is to remain constant, extra infrastrucutre has to be built for each net immigrant. Infrastructure of all sorts comes to about £30,000 per head. According to my back of the envelope calculations, immigrants do pay for their share of infrastructure by the end of their working lives. But by that time they more or less cease to be immigrants, and their children are certainly not immigrants as per the normal definition.

    There was one paper that tried to quantify that point about ten years ago (apart from mine), but we need an up to date version - unless one already exists that I don’t know about.

  4. "As Portes suggests, this negative impact could be wiped out by positive effects from higher growth and better public finances."

    Simon you are conflating austerity and immigration. Concerns about immigration started before austerity, they started in fact in the mid 2000s.

    The problem is this: we have a long term unemployment/underemployment problem. We need to get labour skilled up and in to the workforce if we are to deal with this labour market hysteresis. With an infinite supply of Eastern European labour (which has been trained up since the old communist system which negates the need for private firms to implement costly apprenticeship schemes) and downward pressure on wages this hysteresis is even harder to deal with. Listen to what people are saying. Foreign workers accept whatever wage is going and go into bedsits. A room in London (where the jobs are) costs approx 800 pounds per month. How can a low wage income earner support a family on that? Want to know why local workers and opponents to immigration are where they are - I've just told you. Try and listen to what the people are saying, don't always trust your models. The raw data also conceals a lot of what is going on; you need to know the social (largely unquantifiable) context. Job centres reported that local workers were being squeezed out by A8 workers right back as far as 2006. This is primary documentary evidence - much more concrete than models.

    I am also glad that Jonathan Portes has at least tone down his rhetoric about how wonderful this A8 immigration would be. Although he has played down the social and other effects on inequality, he at least does not make wild protestations about how it would greatly increase real GNP per capita.

    Pressures on public services are a real problem; I suggest you make a trip to a London maternity ward or primary school. People are concerned about a huge building boom in London because it will mean loosening hard won regulations for environmental protection. The pandoras box will be opened for future abuse.

    I agree that the Brexit Referendum was something we do not need. But this is a good example of the connection between academic economists and the rest of the establishment. The Foreign and Cabinet Office wanted an expansion of the EU (for good security reasons - although some people say this unnecessarily rattled Russia). Portes and Dustman came a long with a silly forecast about what the implication for immigration would be (no one would move). The government believed them (because it wanted to) and did not even put in transitional controls. The mass immigration that resulted and pressures on the labour market (I admit later made worse by austerity) gave the Tory Eurosceptics the card they needed to force the referendum.

    My main concern is that Brexiters win, which gives the Tories a free reign to remove all labour market and human rights protection that does exist which is now tied to EU rules. A scary prospect - and I suspect that is the reason that Corbyn supports the remain side.

  5. You say that pressure on public services that some claim to be caused by immigration is really just a function of government cut, but in reality they are two sides of the same coin (market).

    Yes the government should have spend more on public services, but the separation of different policy instruments between different groups with different agendas makes it hard for anyone to achieve anything.

    Consider the idea of Policy Coherence. It seems possible that squeezing NHS spending would have been fine (or at least less worse) if immigration had been in the 10s of thousands as targeted and so the policy put forward by government could have been coherent. Without the power to limit immigration much policy loses all coherence undermining trust in the political system at many levels.

  6. As someone once said, 'If you have to explain, you are losing'. Many of the those who want to vote to leave, will not seek out, or even listen to economic arguments. They are not interested, and vote from an emotional, cultural, gut reaction.

    re the BBC, the Today prog, the news, -TV and radio - and Newsnight, all of which I listen to every day, have all give good coverage to high profile figures making the economic case to remain. The problem is, as I think you have mentioned before, this idea that there must be a balance with that view and that of the 'flat earth' brexiteers.

  7. You've been committed to openness and liberal discourse in the past, so let's see if it continues. You say "..because migrants tend to be young adults who work, they pay more in taxes and take less advantage of public services or benefits than the average non-migrant.". This is a much more finely crafted version of the University College London evasion that migrants "pay more in taxes than they claim in welfare". I've pointed out before why this is nonsense. To recap, "more" is meaningless (£1 more would count), working age welfare is 12/78ths of total government spending and working out the lifetime impact on the state of a cohort of 18-30 year olds entails more than looking at their impact at one moment in time. As the Bank of England was forced to conclude from its own research, EU migrants are much more likely to take low-skilled work. Most of the indigenous population aren't net contributors, and one plausible view of the British state is that it involves massive benefits to those who happen to be the descendants of those born into the first industrial nation. This windfall gain has been overwhelmingly spent on a small cohort of workers. If we see it as something owned by Man in common then the present turn of events is rather wonderful. Diminishing marginal utility tells us that taking the wealth that flows from Britain's first mover advantage and dividing it between twenty million of the indigenous poor and fifty million poor Europeans will produce far more total happiness than leaving the twenty million to gorge themselves on £8,000 secondary school places, £2,000 per head NHS services and £3,000 per month tax credit payments. So bring it on, I say. I'm university educated, I have investments, I can live on a quarter of my dividends and I'm suitably internationalist. I can't help but think, however, that a fair slice of the chattering classes haven't thought through what the end game is here. If I'm right that, 1) the UK makes massive transfers to the poor way in excess of anything you'd find in most other countries, and 2) the UK population isn't increasing across all income sectors at the same rate (and nor will it), then - as Marx would say - the internal contradictions will burst asunder. To all the Guardian readers I say, "Keep going". Continue to sneer. Continue to win merit badges. But, whatever you do, don't buy a house anywhere near the indigenous working class. Because anyone prepared to think about it for two seconds know that the Kaiser Chiefs will be proved right.

    1. If that hypothesis were true, why hasn't the UK become progressively poorer as the population has grown?

  8. "positive effects from higher growth and better public finances."

    As to the 'public finances', it is completely false that migrants 'improve' that. The public finances have no connection whatsoever with migration. Whatever the government chooses to spend will cause about 90% taxation and 10% increase in private saving - migration or no migration. That varies depending upon how much net saving the private sector is undertaking.

    Migrants will only alter the distribution of taxation as they become part of the economic flow. And of course the government has to spend more if there are more people in the country, which is where the extra figures come from.

    It's totally disingenuous to involve the 'public finances' in this debate - particularly for an economist. Money should be the last issue on the list.

    You can create jobs and boost growth via migration without engaging any of the pre-existing unemployed.

    "Like more migrants put greater pressure on public services. Study after study suggest exactly the opposite: because migrants tend to be young adults who work,"

    The issue is not migrants *as an aggregate* as the whole EU debate is
    about migrants who wouldn't get a Visa.

    Unlimited immigration of *unskilled* workers suppresses the wages, housing and public services available to equivalent skilled workers in the UK.

    The trick the Portes of the world use is to aggregate the skilled and unskilled immigrants together and refuse to talk about that set of people that would be excluded outside the EU - those who wouldn't otherwise get a work visa.

    "To his great credit, when Jonathan Portes (from the non-aligned research institute NIESR) was confronted in this Newsnight debate by nonsense from someone from the Centre for Policy Studies (right wing think tank, rated D for funding openness), he did not attempt to win the argument by quoting statistics or academic studies, but by trying to show why what he was saying made common sense once you explain it."

    What was the need for all that other stuff?

    It's a bit like saying the Scientologists are completely independent, receive no government funding and have existed since 1954. They have no party affiliation.

  9. The reason people don't seem to care about economics is because it distracts from the main issue with the Brexit debate - which is that the European Communities Act 1972 puts the principles of EU law above those of the UK.

    That means two things.

    - during proposals civil servants say: "That would be very nice minister but it contravenes EU law and is unenforceable". So most of the laws never get off the drawing board.

    - once implemented ordinary citizens can take the laws to court and have them overturned. I shouldn't be able to question the decisions of the UK elected parliament.

    So *every* law made in the UK is made by the EU and shaped by the EU. Unless it fits that shape, it simply doesn't happen.

    1. This draws a false contrast. EU law constrains UK law but so do the rest of the more than 14,000 international treaty obligations that the UK has signed up to. The EU treaties would themselves have to be replaced by new agreements. A post-Brexit UK parliament would not have a completely free hand, even if it sought to retreat into an autarchy that not even North Korea has achieved.

      The legal right to challenge Parliamentary decisions, in UK or international courts, is a safeguard against arbitrary government, particularly where ministers abuse delegated powers. The prospect of Gove, Johnson and the wilder Tories running roughshod over the rights we have gained over the centuries is not attractive.

      We also need to recognise trade-offs. Under treaties, such as the European Convention on Human Rights (outside EU law), the UK accepts certain constraints in return for other countries also accepting those constraints, which was why the UK pushed for the ECHR after the war.

  10. “With so many heavyweights … saying that we will be worse off with Brexit, why are the polls still neck and neck?” One reason is that, for a sizeable minority, being told what to think by “the great and the good” has itself become a reason to do the opposite. This is evident in the support for Trump in the US and more widely in the growth of both populism and abstention. For those who are struggling or fear they will be, “heavyweight” views are often seen as just another example of being lied to by those pursuing their own interests. Why should somebody who has spent the last decade on the margins of the labour market believe what Mark Carney says? There is a lot of disillusionment out there.

    On the tax/benefit argument, it’s correct that most migrants pay more in taxes than they gain in benefits or services, but those extra taxes do not directly fund extra spending. This is particularly true at a local level, where additional migrant taxes are not immediately used to provide more housing or school places. That feeds into a perception that “someone might be gaining from migration, but it’s not me”. As you argue in your footnote, Labour needs to emphasise spreading the benefits.

  11. Random - you most definitely *should* be able to question the decisions of the UK parliament, if those decisions result in injustice. And you (and the rest of us) have always been able to do so (although this government has made it a lot harder); judicial review isn't a 'European' invention.

  12. John McDonnell has just given a speech to the TUC, arguing against Tory Brexit that it would mean more austerity. He confronts the anti-migration argument directly, pointing responsibility for cuts at the Tories and defending the right to free travel and employment, which is of direct benefit to young people living in Britain who want to study or work abroad. He illustrates how EU law has been used to challenge the government. But he argues for a thoroughgoing transformation of the EU, wanting a positive vision rather than the dominant negativity.

    Worth reading at

  13. Economists are a funny lot. To prove that EU-immigration is good it seems they do the following: Forget about cultural effects. That could be seeing your area undergo a fundamental change, your children becoming the only English speaking in the class room, being subject to racism from the new arrivals etc. etc. Disregard externalities such as the ecological damage from urban expansion caused by mass immigration. Turn to the economic effects and explain away the decline of wages for unskilled labour by saying that it is not so much. Leave out of your analysis those natives who cannot find a job. Then you propose that the decline of wages may be offset by rising growth. Let's call the argument "trickle down" and "A rising tide lifts all boats". Publish your results, moan that the unlearned laugh at you, and complain in your blog that nobody listens to experts anymore.

    1. "being subject to racism from the new arrivals etc."

      This has not only been going on in schools. On Polish and Romanian dominated construction sites remaining native workers have been complaining about being ganged up on. Of course this is difficult for the establishment media to handle - bullying of white English native men! But it is consistent with observations that the big losers of mass immigration have been (native) white working class men.

      We need immigration, but it should target skilled immigration and refugees. Mass eastern European immigration undermines low income workers and reinforces the worst aspects of the class system.

  14. Some depressing but unsurprising commentary on that Telegraph letter from 'business leaders' at Byline.

  15. "austerity has put pressure on public services and the recession and productivity slowdown has held back real wages, but both have happened at a time of high immigration"

    Blaming everything on austerity seems to be a slightly reoccurring theme on this blog.

    The cause of large immigration, I think you would agree, is the real wage difference between here and Eastern Europe. But would have happened if expansionary policies were in place? Yes, immigration would have increased even more. A lot actually. During austerity these flows actually reduced a little. They quickly skyrocketed again when growth finally returned. We are talking about an infinite and highly elastic supply of foreign labour. So when growth returned, employment increased, but at the same unemployment/underemployment remained high. Furthermore, taking into account population growth, there was much less growth in GNP per capita. Given the increased population growth that would have occurred with counter-cyclical policy, I also doubt the supply of public services made available by increased expenditure would have kept up with this.

  16. The answer to your question about why the polls put Remain and Leave neck and neck is simple. Everyone knows that in 10-50 years time the EU will be governed like a single country.

    Those people who really do not want to ever lose self government will stick to brexit whatever anyone says.

    The media have been suppressing Eurogroup Union Stage 2 - political union. This starts in 2017 which is why the referendum is in 2016. It will be complete by 2025. What will the UK do then? Most vetoes were removed in 2014 so we will be faced with another referendum by 2025.

  17. Like most economic eggheads, this writer has forgotten the most basic law of economics: supply and demand determine price. If supply goes up, and demand remains constant, price will come down. This works for the labor supply too. Duh. If supply goes up because of more migrant workers, wages (the price of labor) will go down. And that does not even take into account that migrant work for lower pay across the board. This writer does not think working people who are for the Brexit understand this concept since he apparently does not.


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