Select Committee on Economic Affairs Minutes of Evidence

Memorandum by the Trades Union Congress (TUC)

INTRODUCTION AND SUMMARY

  1.1  This document presents the TUC's submission into the inquiry into the economic impact of immigration being conducted by the House of Lords select committee on economic affairs.

  1.2  The TUC is grateful for this opportunity to submit comments to the Committee. The TUC is the voice of Britain at work, representing six and a half million workers in 63 unions. We represent workers in every industry and occupation, in every town and district and from every community in Britain. Unions are currently increasing their efforts to recruit and organise migrant workers, and developing innovative strategies and tactics to represent migrant workers. In this submission we concentrate on economic evidence and arguments, as we believe that is the brief the Committee has given itself, but we can provide supplementary evidence on unions' involvement with migrant workers if that would be helpful.

  1.3  In this country, the overall economic impact of immigration is limited but positive. Migrant workers contribute more in taxes than they receive in services, and migration probably leads to slightly higher levels of employment and wages for native workers. Migration may possibly be linked to an increase in wage inequality in this country, but the evidence is not conclusive. There is anecdotal evidence that jobs may be lost and wages depressed in certain, specific sectors of the economy, but this is hard to verify and further primary research is needed.

MIGRATION BASICS

  2.1  In 2005 there were 1.505 million foreign migrants working in the UK, accounting for 5.4% of all employees. In the past 10 years the number of migrant workers has increased by about 600,000.

  2.2  Most migrant workers live in the South East of England—45.3% live in London and another 18.5% in the rest of the South East. This preponderance has, however, become a little less noticeable recently: in the 1990s about 45% of new immigrants settled in London, but in 2002-05 this fell to 40%.

  2.3  Immigrants are, on average, younger than the native-born population: 38.4 years compared with 39.9 years; 90% are aged between 15 and 44 (figures for all immigrants, not just those in employment). Migrant workers tend to be more likely than UK nationals to work at either end of the spectrum—in professional or routine jobs—and less likely to work in intermediate jobs:

Table 1

PEOPLE LIVING AND WORKING IN THE UK BY SOCIO-ECONOMIC CLASSIFICATION, 2005

	UK nationals (%)	Foreign nationals (%)
Professional, employers and managers	40.1	42.2
Intermediate	32.1	24.5
Routine	23.7	27.1
Other	4.1	6.1

  2.4  This pattern may be changing: recently arrived migrant workers are less likely to work in professional occupations and much more likely to work in routine jobs. This is illustrated by the data for people who were living outside the UK a year before the survey:

Table 2

FOREIGN NATIONALS LIVING AND WORKING IN THE UK NOW BUT OUTSIDE THE UK ONE YEAR PREVIOUSLY, 2005

Occupation	Proportion (%)
Professional, employers and managers	30.2
Intermediate	15.6
Routine	44.0
Other	10.2

  2.5  This shift has taken place despite the fact that migrants continue to be better educated than native workers. A study for the Bank of England looked at the age when people left full-time education:

Table 3

AGE AT WHICH IMMIGRANTS AND NATIVE-BORN PEOPLE LEFT FULL-TIME EDUCATION, 2005

Age left full-time education	UK-born (%)	All immigrants (%)	New immigrants (%)
Under 16	17	12	6
16-20	66	52	49
21+	17	36	45

  2.6  In recent years immigrants' wages have on average been lower than the wages of those born in the UK, and "new" immigrants are more likely than previous immigrants to enter low paid jobs:

Table 4

PROPORTION OF WORKERS EARNING BELOW £5 AN HOUR, 2005

UK born	All immigrants	New immigrants
10%	9%	16%

MIGRATION AND UNEMPLOYMENT

  3.1  Economic theory would lead one to expect that immigration should increase total demand, and thus the number of workers employed in the economy. The empirical evidence tends to back up this theory. In 2003 a Home Office-sponsored study summarised US and European research: "the common conclusion of this work, apart from a small number of exceptions, is that immigration has only very small or no effect on employment ... of workers already resident."

  3.2  2006 research for the Department for Work and Pensions found "no discernible statistical evidence to suggest that A8 migration has been a contributor to the rise in claimant unemployment in the UK." Treating the arrival of the A8 workers after 2004 as a "natural experiment", the authors argued that, if these migrants were responsible for the increase in unemployment in 2005-06, then those districts where Worker Registration Scheme registrations had been concentrated should have seen the largest increases in unemployment. They found that there was a very slight correlation, but it was not statistically significant.

  3.3  This does not mean that any individual's job is going to be unaffected by migration. Overall the impact of migration will be to increase employment for native workers, but some employers are clearly recruiting migrant workers in preference to British workers. The Bank of England's business contacts have been telling the Bank that "the availability of immigrant labour has been rising in the United Kingdom." The Chartered Institute for Personnel and Development has been reporting for some time that migrant labour is popular with employers; in their 2006 recruitment survey they noted that 15% of organisations had targeted East European migrants, and another 12% intended filling vacancies from foreign countries more generally. The survey showed just under half of employers believing that this approach was a successful in dealing with recruitment difficulties.

  3.4  It seems clear that immigration does not threaten the jobs of British-born workers overall, but there can be transitional problems, and the most disadvantaged workers may be the most likely to be disadvantaged in this process. Anecdotal accounts suggest that in specific sectors there may be job losses—in the construction sector, for instance—although we know of no survey that verifies this.

MIGRATION AND WAGES

  4.1  Economic theory says that an increase in supply of one factor of production will cut the relative price of that factor and raise that of the others. Increased immigration by low skilled workers (or by skilled workers who are willing to work in low skilled jobs) should therefore cut the wages of low-skilled native workers, but raise the wages of skilled workers and increase profits.

  4.2  Much of the academic debate about migration concentrates on whether the theory is empirically true. The debate is most developed in America, where in 2005 Borjas and Katz found that overall wages were unaffected by immigration, but this average was the product of gains for better-educated US-born workers and losses for high school dropouts, whose wages fell 4.8% during the 80s and 90s as a result of immigration.

  4.3  Card, however, found quite different results when he looked at the impact of the 1980 "Mariel" exodus, when Cuba briefly allowed unchecked emigration and Miami's population grew by 7% in one year. Despite the fact that these immigrants definitely earned less than other workers and had higher unemployment rates, the unemployment rates and wages of unskilled whites and blacks were not affected, and even the decline in wages and employment rates observed for Cubans seem to have been a compositional effect, with the Mariel immigrants bringing down the overall Cuban average, rather than causing any adverse changes to the labour market for Cubans already in Miami.

  4.4  British studies are less divided, and find little evidence of a negative impact. The US debate has taken place against the backdrop of a low minimum wage that has been declining in value; this is very likely to have exacerbated any adverse impact of migration on low paid workers. British economic studies of migration are a more recent phenomenon than in America—the first UK report to consider this issue in detail was published by the Home Office as recently as 2003—and have all taken place after the minimum wage was well-established; this may well explain why it is harder to find evidence of a negative impact. Using data from the census, the Labour Force Survey and the New Earnings Survey, the authors of the first large study found that:

"The main result of the empirical analysis is that there is no strong evidence of large adverse effects of immigration on employment or wages of existing workers. . . . Insofar as there is evidence of any effect on wages, it suggests that immigration enhances wage growth."

  4.5  A more recent independent study found that "an increase in the number of unskilled migrants reduces the wages of unskilled domestic workers. However the quantitative impact of this increase is small. No discernible impact of migration is found for skilled native workers."

  4.6  A study which considered the impact of the accession of the eight East European countries to the EU noted that the data for wages did not show any evidence of a decline in wage growth either across the whole economy or for major industries.

  4.7  Another DWP study of the impact of the new EU member states, published at the end of 2005, also found that there was no evidence of wage growth slowing in most industries. A partial exception was agriculture, where AEI data shows no decline but the LFS does. The authors admit that the evidence is mixed, but point to the fact that, compared to other sectors, employment in agriculture has grown very rapidly since 2004. This makes it more difficult to claim that migrant workers are displacing British-born workers, and one interpretation is that farmers are now able to recruit workers to jobs that do not pay enough to attract British-born workers, or where the terms and conditions are not sufficiently attractive.

MIGRATION AND TAXES AND SERVICES

  5.1  The fiscal impact of migration is complicated, but a Home Office study using 1999—2000 data found that migrants to the UK:

—  Paid £31.2 billion in taxes.

—  Received £28.8 billion in public goods and services.

—  Making a net contribution of around £2.5 billion—worth about 1p on the basic rate of income tax.

  5.2  In 2005 the IPPR updated this work to cover the five-year period from 1999-2000 to 2003-04. The study presented similar findings in a different way: immigrants consistently made a higher net annual fiscal contribution than British born people. During periods when the budget was in surplus, immigrants made a higher net contribution; when the budget was in deficit immigrants' net negative contribution was lower:

—  In 1999-2000, immigrants' net annual fiscal contribution index (NAFI = the ratio of contributions to consumption of public services) was 1.06, five points higher than the 1.01 NAFI for those born in the UK.

—  In 2003-04, the gap had grown to 11 points as immigrants' NAFI stood at 0.99, while that for the UK-born was 0.88.

  5.3  Although migrant workers have a broadly positive fiscal impact, there can be acute problems at grass roots level. Local councils' expenditure varies in line with the number of people who need their services, but their revenue grants from central government are in part determined by estimates of how many migrant workers and their families live there now and projections of how many there are going to be. If the estimates are wrong there can be severe pressures on housing, schools and other services. There are similar issues for other public authorities.

  5.4  The calculation of the central government grant is a more important issue in the UK than in other countries because it accounts for such a high proportion of local authorities' funding. While most of the positive fiscal impacts of immigration accrue to central Government (through a higher tax yield), a high proportion of the negative fiscal impacts are borne by local authorities, so the accurate calculation of the revenue grants is very important. Accurate calculation of the number of migrant workers and their families in each area is obviously important, though that is not the only issue: the formula used for calculating the revenue grant to each authority does not take account of extra expenses resulting from having a large population that is transient or only resident for short periods, including language needs and the extra expenses resulting from the "learning curve" of meeting the unexpected needs of new groups.

POLICY IMPLICATIONS

  6.1  Overall, immigration has been good for this country. We have more jobs, higher wages, better services and lower taxes than we would have had without immigration and it would be a mistake to attempt to reverse the immigration that has taken place. It is important not to over-state these benefits. Other factors, such as trade and macro-economic policy, have had a more substantial impact on the level of prosperity; but it is not negligible either. The Treasury sees inward migration as accounting for 10-15% of forecast trend economic growth.

  6.2  But this overall impact will not necessarily benefit everyone. There are more jobs and higher wages on average, but low-skilled native workers may find it harder to get jobs and that their wages are lower as a result of immigration. There is not much survey-based evidence that this has actually happened so far, but there is a great deal of anecdotal evidence. Low-skilled workers who worry about the impact of immigration on their employment prospects are therefore not being irrational, and the rest of us should be concerned about the implications for inequality.

  6.3  To some extent the threat to native workers can be addressed by action against exploitation. Migrant workers may lack proficiency in English and be unaware of (or unable to enforce) their employment rights, which can make them especially vulnerable. As exploitation harms both migrant and native workers there is an opportunity for a win-win solution. For migrant workers, the elimination of exploitation might make them less attractive to employers, but this would be more than compensated for by improved job quality. Unions are therefore right to seek to recruit and represent migrant workers, and the Government should devote more resources to the enforcement of employment rights such as the minimum wage, entitlement to paid holidays, payment of National Insurance Contributions et cetera.

  6.4  These arguments apply especially to undocumented workers, who are especially at risk of being exploited. The answer to this is not to "crack down" on migrant workers: this will not stop the UK being an attractive destination and it risks penalising large swathes of the economy to protect very limited sectors that may be suffering problems. In addition, tougher penalties for undocumented migrant workers will simply leave them in a weaker, more vulnerable position, more likely to be exploited. Instead a union response will be to call for more effective policing of employers who deny basic employment rights to any group of employees, combined with a clear route to regularisation for undocumented migrant workers.

  6.5  A final element of the union response is to call for improvements in the social wage. British society generally gains from migrants' impact on output and their net fiscal contribution; it is only fair that the bulk of any gains should be used to enhance social security and services for those workers who may lose out, especially through extra rights to training and higher social benefit rates. The Treasury has recognised the case for "appropriate social protection instruments" to "prevent the most severe effects" of "short-term adjustment costs". Unfortunately the Treasury confines its discussion of the social purpose of social protection to the prevention of absolute destitution—this is not a fair bargain, and unions will insist that an open economy can only be operated fairly if the gains are distributed more fairly.

September 2007

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