Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday 26 February 2020

Low paid jobs for British born workers

I have always had a problem with those who focus on the need to reduce low skilled immigration. Skilled migrants are OK, so the argument goes, because the UK needs their skills, but we don’t need low skilled immigrants because British workers can do those jobs. At a microeconomic level it makes sense, and in a world where there is widespread unskilled unemployment it may make sense. But in a high employment economy like the UK today, it makes no sense at the macro level.

To see this, let’s think about a stylised example. Suppose there are a fixed number of jobs at each skill level. You will always need the same number of engineers, care workers and so on. To make things easy suppose 50% of jobs are skilled and 50% are unskilled. You then allow some skilled immigration but not unskilled immigration. These immigrants demand goods and services like anyone else, increasing the overall number of jobs in the economy but not its skill mix. That has to mean that among British born workers, less than 50% are now skilled and over 50% are unskilled. The immigration system is shifting the British born workforce into more unskilled jobs.

It gets worse if we recognise that a skill based immigration system is, in essence, about pay, not skill. With the exception of those with a recognised qualification like a PhD, it is hard to measure how people's skills compare. What you can assess is how much they will be paid in the job they have been offered. So in the first instance an immigration system that is designed to exclude unskilled workers is actually excluding low paid workers. If you combine that insight into the stylised example above, it must mean that the immigration system is shifting the British born workforce into lower paid jobs.

So when people call for an end to unskilled immigration, they are in effect calling for more British born workers to be low paid.

That is a necessary conclusion from the assumptions I have made, but are my assumptions wrong? Home Secretary Priti Patel says there are 8.5 million economically inactive people in the UK who could do these unskilled jobs. By implication, unskilled migration is preventing these people getting jobs. The ONS estimate that only 1.9 million of those people want a job, and it is an open question how many can actually do the kind of jobs we are talking about, as very few are discouraged workers and many more are students, the sick, carers, or have retired early.

A second key assumption I made is that the number of high and low paid jobs does not change. Could stopping most low paid immigration force firms who pay low wages to pay more, or invest in labour saving machinery? For example, in talking about the care sector, the recent MAC report says
“We remain of the view that the very real problems in this sector are caused by a failure to offer competitive terms and conditions, something that is itself caused by a failure to have a sustainable funding model.”

But as Polly Toynbee points out, working in the care sector (which should be classed as skilled but isn’t because the pay is so bad) is poorly paid because the money comes from the government via local authorities. Restricting immigration will not push up wages because the government ensures there is no money to pay higher wages. All that would happen is firms would be unprofitable and close down. A social care disaster is a very expensive way of getting the government to pay more.

But there is a more general point to be made here. We have a more efficient way of raising low pay than starving particular sectors of overseas workers, and that is by raising the minimum wage and enforcing that minimum. Take the food processing sector, which is another area that depends on many low paid workers from overseas. If you steadily raise the minimum wage, and pre-commit to doing so, you give firms time to adjust through mechanisation or raising wages. If the flow of workers suddenly dries up, it is more likely the firm will decide to locate its production overseas, which in turn may damage domestic supply industries.

One Brexiter, the CEO of the Scottish Seafood Association, has already said the plans would be disastrous for the Scottish fishing industry, for exactly this reason. As Jonathan Portes points out, the government’s plans largely follow MACs recommendations, and they could have been a lot worse. In practice the number of sectors where some unskilled immigration is allowed in is likely to expand from industry pressure.

If it doesn’t, then the UK food processing industry is not the only one that is likely to shrink. The UK tourism industry, that brings in lots of export earnings, will also be hard hit. Some industries cannot be so easily shifted overseas. The construction sector may just have to delay completion of some projects. I have already noted the problems in the care sector.

Why has the government chosen to go with the 'skilled immigrants good/unskilled immigrants bad' idea? As Bronwen Maddox says, it is a political rather than economic choice. It reflects the fact that the economic case for immigration cuts through. As I noted here, the salience of immigration has been falling since just before the referendum vote. It is easy to put that down to voters thinking that Brexit has solved the immigration problem, but an IPSOS/MORI poll suggests that is not the most important factor.

Half the people surveyed are less worried about immigration because they have understood the importance of the contribution immigrants make. Now immigrants with skills, in many people's minds, provide a clear contribution to the economy because of their skill, particularly if there are not enough workers with similar skills from the UK. That does not apply to unskilled workers, hence the focus on stopping unskilled immigration. In addition, all the negative stories they read about immigrants involve those who are unskilled.

As a result, politicians who want to appear ‘anti-immigrant’ focus on stopping unskilled immigration. But if you asked voters do they want British born workers to do more low paid work, the answer would be an overwhelming no. Thinking in macro terms is not easy. The reality is that, unless the government is planning to close down whole industries, restricting low paid immigration implies lower pay for British born workers.

Monday 24 February 2020

Guardian article on flooding

A very short post linking to my article in the Guardian on flooding. Long time readers will probably remember that I have written about this before. I even naively thought at one point, after the floods at the end of 2013, that this would be Cameron's Katrina. It wasn't, and my naivety was about the UK media. That is why my Guardian article talks not just about a political failure of successive Conservative governments, but also a failure (with only the occasional exception) of the broadcast media.

Some on the left might dismiss this as political bias in the broadcast media, but it is more complex than that. In the article I write
An obsession with breaking news has crowded out memory and background research. Flood victims ask why this keeps happening to them – but ministers simply respond with statistics that their interviewers have not been briefed about. No interviewer asks ministers why they have ignored the Pitt review, because they don’t know that the Pitt review ever existed.”

You cannot hold politicians to account if the broadcast media collectively forgets the past. Each episode of flooding will be treated as if nothing like this ever happened before. In addition there is an inability to handle numbers. Any reporter who looks at the numbers on flood defences (available here) should immediately notice the large increases in spending in 2008/9 and 2009/10. Why is that they should ask. That in turn should lead them to the Pitt review, or they can just ask someone who knows about this stuff.

That process does not happen. The journalist doing the interview has been sent off at the first opportunity to a flooded area, and crucially no one has been feeding them background research. As a result any minister that is available for comment will talk about how the money allocated for flood defences has increased, and the interviewer knowing no better will move on. If by chance any journalist is reading this, the killer fact is that spending in 2018/9 is a lot lower as a share of GDP than at the end of the Labour government, when it should have been much higher given the correct predictions in the Pitt review.

What has happened, it seems to me, is that broadcast media has farmed out background research to the press. Which might work, if the press was unbiased and was not battling to stay afloat. This is all part of a process of disconnecting the media from any source of expertise. As the last line of my article says
If much of the media is bereft of the information that can hold the government to account, then don’t be surprised when people elect governments that ignore experts.”

The result of this media failure is countless flooded homes that might have been kept dry, if the media had done its job in holding the government to account.

Tuesday 18 February 2020

The left needs to campaign for social liberalism

The continuing expulsion of the Windrush generation from their home country to a country they hardly know, splitting up families in the process, is just a deliberate act of state cruelty. Why did the government go ahead with these deportations despite sitting on a report suggesting they should stop? Their pretext was that these individuals had at some stage in their lives committed a ‘serious’ crime, yet all had served their time for these offences. This act of cruelty is part of the Conservatives attempt to appeal to socially conservative voters, both traditional Tories and one time Labour voters. What do we call splitting up families just to make a political point? 

As Paula Surridge shows here, voters who were thinking of leaving Labour for the Conservatives in June 2019 were both more right wing and more socially conservative than loyal Labour voters. Those 2017 Labour voters thinking of voting Brexit were not more right wing, but were much more socially conservative. We have to wait for the BES survey before we can tell whether these were also the voters who finally broke Labour’s ‘red wall’ of northern constituencies, but it seems likely they were.

Brexit was an issue that split voters along the social conservative/liberal axis rather than the left/right axis (apart perhaps from Lexiters). Like immigration, these issues that sort liberals from conservatives are very useful to right wing parties on one condition: that right wing liberals vote on economic grounds but left wing conservatives vote on social grounds. That condition has so far seemed to hold. Furthermore in the UK’s FPTP system, the concentration of liberals in cities will favour social conservatives. So while Labour and Democrat party members obsess about internal disputes over economic policy, to win elections the left needs to focus on winning over social conservatives. [1]

It is tempting to relate the social conservative/liberal divide to basic psychological traits. Liberals tend to value individual rights and embrace change, while conservatives value community cohesion and order. Liberals look to a better future and conservatives look to the past, and so on. However it is a mistake to think individual views on particular social issues are things they are born with. Liberal attitudes often spring from an environment of security while conservative attitudes come from insecurity.

Social attitudes may also reflect experience. It is often noted that attitudes to immigration tend to be hostile in areas of almost no or recent immigration and tolerant in areas where immigrants have lived for some time. A similar effect may come from a university education. The two main predictors of attitudes to Brexit were age and education. This chart, also from Surridge, suggests having a degree is the more important factor.

Here Silent = 75+, Boomer = 54-74, Gen X = 40-53, Gen Y 25-39. There is some age effect among those without a degree, but the defining factor in generating liberal attitudes is having a degree. Surridge argues here that a lot of this effect simply comes from the socialisation that a degree brings.

All this raises an obvious question. Why have we seen a national divide over ‘culture’ emerge as the dominant political divide recently, while in the past the right/left divide seemed to be what mattered? One answer goes back to Windrush. I’m (just) old enough to remember Enoch Powell’s Rivers of Blood speech in 1968. Powell advocated a policy of voluntary repatriation for immigrants and their descendants. Today we have selective but involuntary repatriation.

The key point her was that Powell was sacked as a minister of a Conservative government for that speech, and repatriation remained something that only a few on the right and extreme right groups advocated. The Times (not yet owned by Murdoch) condemned the speech and subsequently recorded incidents of hate crimes against immigrants immediately after the speech. This was despite the popularity of the speech among many groups: famously a thousand London dockers went on strike in protest of Powell's sacking and marched from the East End to the Palace of Westminster.

Ted Heath sacked Powell because he feared the damage the speech might do to race relations, and he was absolutely right to do so. Today’s Conservative party is a very different animal, but so is our press. Racism, xenophobia and social conservatism more generally are seen by today’s Conservative party as constituencies to cultivate, in part because on many issues the country is more left wing than the government (e.g. size of the state, nationalisation). The right wing press helps them do this. 

However I think this is not everything. When I used to describe Cameron’s government as very right wing, I got quite a few responses saying nonsense and using gay marriage as proof that Cameron had moved left. I thought it was nonsense at the time, but on reflection it made me think about the extent to which social liberalism has both triumphed and moved forward over the last 60 odd years. At the beginning of the 1960s we still had the death penalty, while homosexuality, abortion and blasphemy were all crimes.

The 1960s Labour government saw a whole raft of liberalising legislation passed, but it is probably fair to say that was mostly not driven by popular opinion. The data we have from the British Social Attitudes survey shows public opinion moving in a more liberal direction from the start of their data period. Here are just two examples.

One interesting feature here is the liberalisation surge that began around 2010. Paula Surridge has aggregated a number of questions from the survey, distinguishing between respondant’s levels of education

The gap between attitudes by education is clear, and there is a suggestion of a widening gap from 2011. (The education gap on left/right questions is much smaller.)

One reason for the overall trend in liberalisation, and perhaps some of the reaction against it, is that the broadcast media is largely populated by those who have a degree. This allows certain right wing newspapers to talk about a ‘liberal elite’ which ignores those with a less liberal attitude, and on this they are largely correct. More recently the broadcast media has attempted to counter its own biases by endless VoxPops and other devices. 

Immigration is part of this liberal/conservative divide. One incredible (for a liberal like me) recent YouGov poll throws a strong light on where this divide comes from.

It is too easy, and I think a mistake, to describe this as reflecting xenophobia, as if you are describing some immutable characteristic. Better to note that it would be very hard to be bothered by foreign languages if you heard them all the time, as many city dweller would.

This evidence suggests two important but provocative conclusions, which for me represent tentative hypotheses rather than anything firm. First, the key division in UK society today as far as elections are concerned is the social liberal/conservative divide, rather than ABCD class divisions or how left wing economic policy is.[2] Brexit was not an aberration but part of a trend. The big divide in the UK is partly age but mainly education. [3] The political right understands this, which is why elections will be fought on proxies for this divide. It is a divide they can exploit because social conservatives feel they are not in control, in part because the tide has been towards liberalisation. An interesting question is what the proxy for this divide will be in 2025 after 15 years of Tory rule.

Second, social conservatism is not immutable. Leavers are becoming more liberal than they used to be just as Remainers have, even if the pace may be slightly different. One clear example is immigration, where attitudes are becoming more positive regardless of Brexit. This means that the left can and must argue the case for more liberal attitudes, rather than regarding social conservatism as a problem to appease while dealing with economic issues, or worse still romanticising older class divisions.

Both the Blair/Miliband left (the control immigration mugs) and the Corbyn left are equally at fault here. The idea that Brexit represented protests from the economically ‘left behind’ has dominated thinking on Brexit, moving the debate on to a more comfortable economic frame. It is far from clear that improving incomes will change people’s socially conservative attitudes, as the large Brexit vote outside 'left behind' areas shows. Left parties must fight for social liberalism, rather than vacating that ground to the right.

[1] Just to be clear, winning them over does not mean adopting socially conservative policies. This does not work for various reasons that I have mentioned in earlier posts. Labour voters are socially liberal, and they have alternatives in the Liberal Democrat and Green parties as 2019 showed. The left needs to challenge socially conservative myths, not validate them.

[2] This is not to say that economic divisions are unimportant - far from it. My point is about where the key divisions are as far as elections are concerned.

[3] Part of the age division may also represent economic rather than social divisions, as Rachel Shabi discusses here.


Tuesday 11 February 2020

The UK’s place in the world

As an economist, I naturally focus on the economic aspects of the EU. The EU is mostly about economics. To counterpoise sovereignty as an alternative perspective to economics misses an important point: most EU rules stem from the economics of free trade within the EU. The EU wants common regulations to make it easier to trade. The EU wants restrictions on state aid to prevent countries giving their own firms an advantage over others in the union. Much the same applies to labour market and environmental standards.

Economics is also involved in another aspect of being in or out of the EU, and that is how the UK sees its place in the world. Is the UK’s identity partly a European identity, or does the UK ‘stand alone’, independent of all multinational blocs. Anyone interested in this question should read an excellent and compact essay by the ‘Red Historian’, Robert Saunders.

Those who want us out of Europe need to address why the UK became part of Europe in the first place. After the war, the UK had tried a different strategy. After all, being part of Europe did not look very attractive in the aftermath of a war that had destroyed large parts of it. Instead the UK tried to forge its place in the world based on its history, a history of empire.

This involved three elements: the remains of Empire, the Commonwealth, and our special relationship with the US. Harold Macmillan spoke of Britain playing ‘Greece’ to America’s ‘Rome’, acting as a wise counselor to its idealistic but naive successor. But that strategy failed, because neither the Commonwealth or the US were particularly interested in playing their allotted roles in this scheme.

Two quotes from Saunders’ essay are indicative. The American Dean Acheson said ‘The attempt to play a separate power role’, he declared, ‘a role apart from Europe, a role based on a “special relationship” with the United States, a role based on being the head of a “commonwealth” which has no political structure, or unity, or strength … this role is about played out’. Privately, Harold Macmillan agreed: ‘all our policies at home and abroad’, he lamented, ‘are in ruins’.

This is why we became a part of the EU. The UK wanted to continue to play some significant role in the world, and our attempt to do so independently of Europe had failed. So now we have left the EU, is there any coherent vision of an alternative strategy?

In the Brexit debate you can hear an echo of the failed post-war strategy. No trade deal with the EU is now apparently called the Australian relationship, because that sounds better. We also hear an echo of an even earlier history, when appeals are made to the UK’s buccaneering spirit. However, as Adam Curtis explored in a 1999 documentary (HT Adam Tooze), there is a modern counterpart to this, which is the story of how we ended up selling weapons to Saudi Arabia. But as Robert Shrimsley points out, this vision conflicts with the government's new found need to worry about left behind regions with what some ministers call 'legacy industries'.

Yet stories and exceptions apart, the truth is UK industry is not particularly buccaneering. This has nothing to do with being constrained by the EU, as a comparison with Germany makes obvious. In fact the opposite is the case. One of my first jobs after I graduated was looking at the steady and significant decline in the UK’s share of exports in world trade, which was something of an obsession among UK policymakers.

The UK’s weakness is perhaps not surprising in a country where the middle classes regard an engineer as someone who fixes your washing machine. What the UK does well is produce financial, business and other services. But to successfully export these often requires pretty deep trade agreements, like the EU single market. Which is why our export share within the EU rose so substantially after the Single Market was formed. Which major economies are going to enter into the equivalent of the Single Market with the UK?

There is little sign that the current government, and particularly those who lead it, understand anything of this. Comic book stories substitute for solid evidence. They have shown us nothing to suggest that the UK can continue to have any voice among those of dominant players like the US, EU, China, India, Russia and Japan. As Robert Saunders writes
“In writing a history of Britain as a small power, it pretends that nothing has changed: that a nation stripped of its colonies, its industrial power and its control over global finance has the same options today as in the age of its pre-eminence. That means that we are not being serious about the choices in front of us.”

Does the UK need to have a special place in the world? Can we not accept that others will take the key decisions, and we will just have to do what we can in a world over which we have no control? As Saunders notes, in a benign world this might be tenable, but we no longer live in a benign world. This is where the economics of trade re-enters the equation. A UK with no big country or union to help protect it will be at the mercy of any big global player that wants to gain some trade advantage at our expense.

For many in the ERG the implicit answer to this problem is the United States. They are encouraged by Trump’s enthusiasm for Brexit. They fail to see that his enthusiasm is based on antagonism towards the EU and his desire to exploit our weakness. For those who have a nostalgia for days of glory that weakness will be hard to take, as it will be when our legacies of empire are gradually taken off our hands along with the trappings of international influence.

For all these reasons, Brexit is not tenable in the long term, as those who tried and failed to make it work after the war finally understood. Their conclusion will be our conclusion after Brexit: for the UK to flourish in a secure environment it has to be part of the EU. The only question is how long this realisation takes and the manner of our rejoining.

Tuesday 4 February 2020

What causes concern about immigration

It is part of folk lore among politicians and most social scientists that concern about immigration is governed by the number of immigrants. So how do we account for the decline in the relative salience of immigration since the EU referendum (source)?

There are of course many explanations for this decline. Perhaps people now see the benefits of immigration after all the post-referendum talk of nursing and doctor shortages. A rather more straightforward explanation is that people think that by leaving the EU the immigration 'problem' is being solved (i.e immigration numbers are much reduced). If it is the latter, then their knowledge is incomplete.

Immigration from the EU has declined dramatically, which is not surprising, but this has been partly offset by a significant rise in non-EU immigration (source). Are people really more concerned about EU immigrants than non-EU immigrants?

Roy Greenslade notes that the newspaper articles full of stories of immigration peril have all but disappeared. He writes
“It was the press phenomenon of the age 10 years ago, and for at least the following six years – right up to the EU referendum. Since then, however, immigration has all but disappeared from newspaper pages.”

Could it be that the explanation for the diminished salience of immigration is the very simple one that it is no longer in the news?

The folk law comes from the fact that the increase in concern about immigration at the turn of the century coincided with the increase in immigration numbers, first from outside the EU and then from the A8 countries joining the EU. However, as I note here, there is a two or three year lag between the initial increase in immigration and public attitudes. The lag is much shorter with a time series for the number of stories in the press about immigration.

This shouldn’t be a surprise. Much of the concern about immigration is in areas that see very few immigrants. If people are getting their information ‘first hand’ from friends or relatives living in areas of high immigration you might expect a relatively short lag between numbers and concern, but if people are getting their information from the media you would require some change in how the media covered this issue before salience changed. Or to put it more crudely, salience to some extent is inevitably going to reflect what is ‘in the news’.

This does not mean salience is completely divorced from what people think. You could fill newspapers with stories about the housing problems of the very wealthy and it is unlikely that housing would start climbing the salience ranking. It is also true that rising immigration numbers helped newspapers write stories of 'floods' and 'waves'. But what it does mean is that if stories about immigration start disappearing, salience will gradually decline.

The more interesting question is why newspaper headlines about immigration, which in newspapers like the Sun and the Mail were explicitly or implicitly hostile to immigration, should decline sharply after the referendum vote. Roy Greenslade writes
“Yet the undeniable truth, the sad, sick, unvarnished truth, is that migration is off the media’s central agenda for two reasons. Firstly, it is no longer a political issue. With the pro-Brexit vote having been achieved, there is no need to keep on injecting the same poison into public debate. Job done. Secondly, seen from the newspaper editors’ perspective, it is not a sales-winning topic at present. No need to play to the gallery. There is no “value” in running anti-immigrant stories.”

In other words, newspapers are not publishing alarming stories of waves of non-EU immigrants coming to the UK because there is no political or sales motive for doing so. It is like saying if people who are hostile to immigration think leaving the EU means job done then let them. Increasing immigration salience was politically important for these newspaper owners while Labour was in government and to push the Tory government to support Brexit, but no longer.

Which, in turn, is why a Conservative government not led by Theresa May and without immigration targets can contemplate a fairly relaxed immigration regime, as Jonathan Portes notes. The other reason is that opposition to immigration (rather than salience) has been declining since a couple of years before the referendum, as the Migration Observatory also shows. Since 2017 more people think immigration has had a positive impact on the UK than think the opposite.

As Rob Ford notes, we don’t know why the public are feeling more positive about immigration, but equally too many have failed to notice how things have changed. I would add that too few also realise how changes in the salience of immigration tells us a lot about what has been in newspapers, and rather less about the underlying views of voters or, indeed, the number of immigrants coming in to the UK.