Examination of Witnesses (Questions 489
- 499)
TUESDAY 8 JANUARY 2008
Dr Dhananjayan Sriskandarajah
Q489 Chairman:
Good afternoon.
Dr Sriskandarajah: Good afternoon.
Q490 Chairman:
Thank you for coming along and talking to us this afternoon. Thank
you, too, for your written submission. I will ask you to introduce
yourself very briefly and then I do not know whether you want
to make any introductory remarks or not, over and above your written
evidence.
Dr Sriskandarajah: A very brief one, if I may.
Q491 Chairman:
Okay. Over to you.
Dr Sriskandarajah: Thank you. I am Danny Sriskandarajah,
I am Director of Research Strategy at the Institute for Public
Policy Research, the IPPR, and, also, head of our work on migration.
I wanted to say by way of opening that we certainly welcome this
inquiry into the economic impacts of migration. At IPPR we have
spent the last few years trying to contribute fresh evidence in
an area—the economic impacts of migration—where robust
evidence has been scarce, at best, and misrepresented quite grossly,
at worst. So we have tried, through the various documents that
I believe have been circulated to the Committee, to contribute
some fresh analysis and fresh evidence on what I think is a very
important question. I also wanted to say by way of opening a little
about what I think is, perhaps, one of the biggest dangers when
anyone turns to the question of the economic impact of immigration,
and it is something that I call the "lump of immigrants fallacy".
I think it is a very legitimate exercise to ask whether immigration
has caused this or that in an economy. Unfortunately, the lack
of nuanced data often means that we are left to analyse the impact
of immigration by looking at all immigrants taken together, and
then the subsequent danger is that we use the evidence that we
gather when we look at all immigrants together to make decisions
about what sorts of immigrants a country needs; that we take the
characteristics of all immigrants and make conclusions about their
impacts on, say, GDP, rather than look, as our colleagues from
the OECD said, at discretionary immigrants—in their words—who
have come primarily or exclusively for economic reasons. In other
words, it seems unfair to include groups like refugees or spouses,
or, indeed, anyone else who is admitted not on any economic grounds,
in the assessment of the economic impacts of immigration and,
therefore, draw conclusions on what sorts of immigrants an economy
needs. It is analogous, I would say, to a football manager making
a decision about what sorts of players are needed by looking at
the number of goals scored by each player and making a decision
based solely on that criterion. I make the analogy for two valid
reasons: one is that the economic criterion—or the goals
scored—should not be the only criterion on which we assess
immigration, and of course it may not be the most appropriate
criterion for many immigrants—or indeed non-striker positions
in a football team.
Q492 Chairman:
Can I ask you the opening question, and that is: you have recently
argued that diversity brings "huge cultural and economic
benefits". I wonder if you could explain how the economic
benefits from diversity can be quantified. Can you provide examples
of cases where increased diversity has led to economic gains for
the pre-existing population?
Dr Sriskandarajah: I do think it is very difficult
to quantify diversity. As the previous witness, Professor Martin,
pointed out, beyond theoretical literature in this area there
is very little. However, I do think that we have evidence to suggest
that in terms of innovation, entrepreneurship, international trade
and knowledge networks, and indeed competitiveness, some sectors
in the UK have benefited from international migration in recent
years, and by inference the host population has also benefited.
If you think of examples like finance, a quarter or so of all
professionals who work in banking and insurance in this country
are foreign-born. The fact that that sector, which is so critical
to the UK's competitiveness, can attract a diverse workforce,
which comes with international networks and with knowledge of
working across the world, I think, is critical to the success
of that sector and, therefore, has positive spin-offs for the
rest of the economy and the host population. Higher education
is another example; again, a quarter of all academics working
in UK universities are foreign-born. The fact that the University
of Oxford can access Austrian economists is good not just for
the University of Oxford but for any student who attends that
university and, indeed, taken together, for the competitiveness
of the UK's higher education sector.
Q493 Lord Kingsdown:
Your submission raises the question of what would have happened
if immigration had been considerably lower in recent years. Perhaps
more important, what do you think would be the economic consequences
if employers' access to migrant labour from outside the EU was
significantly reduced in the coming years?
Dr Sriskandarajah: The counterfactual is always
incredibly difficult to articulate, but I think it is important
in this context. We spend a lot of time, and we have collectively
spent a lot of time in recent years, talking about the impact
of recent immigration, but little of that time has been spent
thinking about what might have happened otherwise. I think conditions
in the early part of this decade, such as high levels of vacancies,
very low unemployment, especially in particular parts of the UK,
high growth and low inflation, would have been very difficult
to sustain without the addition of substantial numbers of migrant
workers across the skill and wage spectrum. We would have seen,
if we had not had the injection of skilled and other workers from
outside the EU and workers from within the enlarged EU, reduced
output, we would have had some sectors, I think, shrinking, and
we would have had the export of some jobs. I think it would have
been very likely that in an open economy, an open and enlarged
Europe, if employers in sectors like hospitality, catering, agriculture,
had not had access to large or sufficient numbers of workers in
recent years, some of those jobs—not all—would have
been exported. I think it comes back to a fundamental choice that
an economy such as the UK faces, which is: do you import the workers
to do some of those jobs or do you export the jobs if you cannot
access those workers?
Q494 Lord Lawson of Blaby:
What is wrong with exporting jobs? We live in a globalised economy.
There are many British companies who outsource abroad a lot of
their activities—call centres in India, for example, and
there is a lot of IT in India. The whole world economy benefits
from this. What is the problem?
Dr Sriskandarajah: I think there is absolutely
no problem in exporting jobs. I suspect, though, that in some
sectors—for example, agriculture where there is a stated
policy priority in terms of food security and keeping and sustaining
rural economies through a healthy agricultural sector—there
will be many people who will have complaints about a desire to
export large sections of our rural economy. My point here is that
we do need to think about the bigger picture; that instead of
spending a lot of time discussing how many people have come, what
exactly they are doing and what those impacts are, we should be
thinking about the bigger picture, which is that we have some
sectors where there seems to be sustained demand for workers to
do jobs which British workers do not seem to be prepared to do
at the going wages and conditions. The question, I think, that
we should be asking is: what shall we do about meeting that demand?
Is it the case that those sectors should be shrunk sufficiently
so that the supply of British workers does match the demand? Or
should we have the import of some—
Lord Lawson of Blaby: Should they be
paid more?
Q495 Lord Lamont of Lerwick:
You used the phrase "do not seem to want to do", which
is quite an interesting phrase. "Do not seem to want to do".
Might not the answer actually be welfare reform and labour market
reform to actually price people into jobs?
Dr Sriskandarajah: I think, in the long term,
the answer has to involve both of those things. It is very tempting
in this area to think of migration as somehow part of an "either/or"
strategy; that we either have migrant workers or we skill-up our
domestic workers, and I think that anyone who has paid attention
to policy and empirical debate in this area would realise it has
to be about both. In the long term, we do have to do much more
about increasing the employment rate of British workers, but,
at the same time, that does not mean that we should shut the door
to migrant workers. We have to establish some form of complementarity
whereby, at least in the short term, where price mechanisms and
labour markets may not respond so quickly, we will need to have
some supply of migrant workers to meet the demand that is being
generated.
Q496 Lord Skidelsky:
I wanted to take you up on a counterfactual arising from the last
question. In your paper you say that neither the assumption that
the UK only needs high-skilled migrants, nor that the UK will
be able to access sufficient numbers of low-skilled migrants from
within Europe, is correct. I just want you to elaborate on that.
Had you in mind particular qualities, maybe of innovation or other
things, that are brought from non-European migration into the
UK?
Dr Sriskandarajah: My point there is fairly
simple. I think that it is two-fold. The first part of the point
is that there is often an assumption that we can somehow get rid
of all low-paid or low-skill jobs. The best evidence I have seen
suggests that there will continue to be sustained demand for some
of those jobs that migrant workers seem to be doing at the moment;
that even in the most proficient of knowledge economies someone
will continue to have to clean offices. There will be some jobs
that cannot be mechanised, that cannot be exported and will therefore
need to be done, and unless you have a very flat wage structure
they will be unattractive, or relatively unattractive, jobs. That
is the first part of the point. The second point of that observation
is simply that there is, I think, a misguided assumption that
the new Member States of the European Union will continue to supply
large and sufficient numbers of low-skilled, low-paid migrants
to this country. That certainly has been the case since May 2004,
but I am confident that it will not be the case for much longer.
As economic conditions in the new Member States improve, as they
too go through demographic change, as the rest of the existing
Members of the EU open up their labour markets and, importantly,
as those vanguard migrants learn enough English and get familiar
enough with the UK, they will probably not want to be picking
fruit on a cold winter's morning but go back to the job that they
have always aspired to do, which might be teaching or being an
IT engineer, or whatever else it is. There is a combination of
factors that suggest that even in an enlarged Europe the UK cannot
rely on intra-EU flows to meet some of those low-skill, low-wage
job demands.
Q497 Lord Best:
The Evening Standard of last Thursday has the headline:
"Cutting number of immigrants will put 9p on tax". This
quote is attributed to you, but could you say a bit more about
how you have calculated the impact on Income Tax of having a zero
net migration policy and, in particular, whether you have calculated
in the fact that migrants will get older themselves and become
dependent in old age. Would changes in the retirement age be a
more effective way of dealing with population ageing than trying
to do so through bringing in migrant workers?
Dr Sriskandarajah: The relationship between
migration and demographic change is a complex one and one that
is not, I fear, altogether well-understood generally. We have,
I think, unfortunately, got ourselves into a situation where the
pubic and, perhaps, the media frenzy around migration is at such
a height that there are people who are starting to call for what
is called "zero net migration"; that there are people
in lobby groups, even in this building, who have started to suggest
that the best way forward would be for the UK to have a policy
by which the numbers of people coming in every year should match
the numbers of people who go out, rather than, as we have seen
in the last few years, have net immigration of 100,000 or so,
per year. The point that we make in our submission, and it has
been reported in today's Standard, is simply that, given
what we know about demographic change and given what we know about
how long it will take to tinker with retirement ages, a situation
in which we have zero net migration could actually lead to substantially
increased demand on the working age population in the UK, in terms
of fiscal contributions. We have already started to see the first
signs that the UK-born, working-age population is shrinking. In
the year to the second quarter of 2007, the UK-born, working-age
population fell by over a quarter of a million people. Not surprisingly,
the number of UK-born people in employment fell by just over 200,000
people. That led, in the latter part of 2007, to headlines that
foreign workers are "taking" British workers' jobs.
I think the real story there is that we are starting to see some
of the demographic change that we know is inevitable happening
already; that women born in 1947/48, who are amongst the most
numerous age groups in our society, are about to hit, or have
just hit, retirement age. Demographic change is upon us and to
have a situation in which we have zero net migration would mean
that the process of a rise in dependency ratios would be just
that much quicker and would mean that those who are in work, British
or otherwise, would have to work harder and pay more to finance
public services and pensions, and so on. The modelling that we
have done is very basic and makes the same sorts of assumptions
that the Government Actuary's Department makes in terms of the
age profile of the resident population and immigrant population;
it simply compares zero net migration with the principal projection
that GAD makes in terms of net migration, which is somewhere in
the order of 150,000 people in net terms into the UK a year.
Q498 Lord Lawson of Blaby:
Following on from that question, the overall calculation is obviously
nonsense, because you assume, for example, that once people reach
retirement age they cease working and earning, which is nonsense.
Indeed, since as Chancellor I abolished the earnings rule, they
have been carrying on working without any penalty. In addition,
you said in an earlier answer that you think we should focus just
on the immigrant and ignore spouses and other dependents when,
obviously, it is well-known that, if you look at it rationally,
if we are going to allow immigration that means you allow, quite
rightly, spouses and other dependents. Let us forget your figures.
May I ask you a simple question? Do you think there should be
any restriction on immigration? If so, what should the basis for
that be and what sort of numbers would you recommend?
Dr Sriskandarajah: Can I just come back to the
criticism you made of our calculations, simply to say that we
have made the same sorts of assumptions that the best projections
in this area make. Unfortunately, I agree with you, many of those
do assume that retirement age is what determines whether someone
continues to work or not. However, there are factors that we have
not yet considered. For example, emigration is yet another source
which will speed up the effect of demographic change. By our calculations
for a project we did last year on Brits who emigrate, we have
calculated that Britain loses about 60,000 working-age people
per year—British nationals. In net terms, the UK loses 60,000
working-age people, and the most dramatic rise in the number of
British emigrants in recent years has been in that group of people
aged between 45 and 65. The hypothesis, tentative at this stage,
is that emigration is yet another source by which older working-age
people, people nearing retirement, are either seeking employment
opportunities overseas or early retirement in the sun. Yes, there
are lots of assumptions being made but I think there is an obvious
point about the fact that migration has to be part of the solution
in responding to demographic change. In answer to your question
about limits, I think there is very good reason for having limits
or some way of managing the numbers of immigrants, depending on
the category of immigrants that we are talking about. There are
some groups of immigrants that I hope we will never have numerical
limits applied to. I would never want to live in a country which
says, on August 1, to the person fleeing persecution in Iraq,
or wherever else: "I am sorry but on July 31 we met our quota
for the number of asylum seekers we will admit this year".
I would never want to be in a situation where a university admissions—
Q499 Lord Lawson of Blaby:
I was talking about what our previous witnesses called "discretionary
immigration".
Dr Sriskandarajah: I think there are discretionary
cases, for example international students, where I would be hesitant
to place numerical quotas. Given how increasingly reliant UK universities
have become on international students, I would hope that we will
continue to encourage full fee-paying international students coming
to study in the UK and not impose a numerical limit. Having some
way of managing work-related economic migration could make sense,
though I would join with the previous OECD speakers in saying
that the Government should not kid themselves that micro-managing
or manpower planning economic migratory flows will be effective
or sustainable in the long term. Perhaps some form of flexible
way of managing labour market need and migratory flows for work
is the best way forward. We have done some work which is reported
in this week's Economist looking at the flexibility that
seems to have been apparent in the last 30 or 40 years of the
existing work permit scheme. The existing work permit scheme in
this country is an employer-led, demand-driven visa scheme. If
you look, at least in an initial way, at the numbers of people
coming on work permits compared to labour market conditions in
the UK, this system has been pretty responsive, but in times when
unemployment has been low and vacancies have been high the number
of work permits issued has been relatively high. It was not particularly
surprising that we have seen that increase in the last five or
ten years because we know that labour market conditions have been
such. So I think limiting numbers or managing the numbers of people
coming in to work in the UK is a sensible thing to do. However,
crude numerical quotas might be unsustainable and unhelpful in
terms of economic dynamism and flexibility.
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