- 5 Nov 07, 11:41 AM
Here’s a multiple choice question. Try and answer it before you read on.
What effect do you think it has, if a British bus company employs a bus driver from overseas?
a) it takes away the job of a British bus driver?
b) it increases the number of bus drivers we have?
c) it undercuts the wages of British bus drivers?
d) it reduces bus fares for British passengers?
A lot of people will probably choose (a), so let’s discuss that first.
Much of the recent coverage of migrants in the labour force has been written in a way that implies there is a fixed stock of jobs, so the more that migrants take, the fewer there are for native Brits.
A headline that says “Britons lose out on jobs and housing” or a write-up describing how “The number of British nationals in work has fallen in the past two years as 540,000 foreign workers have replaced them and taken all the net new jobs in the British economy” can easily give the impression that the labour market is a kind of musical chairs with only so many places to go round.
Economists are sceptical of this view of the world – they call it the “lump of labour fallacy”. In essence, they argue that if a migrant takes a job, they may well create a job that would otherwise not have existed too.
For example, they may fill a gap that no-one British was available to fill. They may demand a lower wage, creating a job that would otherwise have been unviable. Bus company employers would certainly argue this is the case, and point you to answer (b) in our question above.
Even better, if a migrant bus driver allows a bus to operate that would otherwise remain idle, then many other jobs could potentially be created for people who could then travel to new workplaces more flexibly and easily.
In practice, we do not know whether the labour market effect of any particular new migrant employee is to create many other jobs, to create the one job they themselves fill, or to create no jobs at all, and hence to displace one domestic worker.
We can’t be sure, and it is likely that some migrants displace, others don’t.
But if pushed, I would tend to adopt the simplifying assumption implied by a fully functioning, competitive labour market, that on average migrants create exactly as many jobs as they fill. If 1.1 million migrants are employed, there are probably 1.1 million extra jobs.
It’s only an assumption, but it’s not a bad one. And perhaps I can defend it by using an analogy. If migrants eat 8% of our food, it would be silly to think that in the absence of migrants, the native British would eat 8% more.
Far more realistic is the idea that the supply of food adapts to the demand of migrants. Similarly, it is realistic to assume the demand for labour adapts to the supply of migrants. That’s where a competitive labour market gets you.
That deals with options (a) and (b) in our bus driver multiple choice question, but many of you might have been inclined to adopt option (c).
It is very plausible that competition from migrant bus drivers undermines the wages that British bus drivers can attract. Indeed, one reason why the presence of migrant bus drivers can create new jobs is that they make it cheaper to hire bus drivers.
And businesses are pretty open about admitting that the low cost of migrant labour is one of its attractions.
But if you are right to tick option (c), don’t you also have to tick option (d)? After all, if there are more buses driven at lower cost, one would imagine that competition or regulation would create lower bus fares too.
And that’s important.
If the presence of migrants on the buses pushes down wages and fares, it pushes up the spending power of everybody using the buses. So the bus passengers’ real wages – their wages after inflation – tend to go up.
You might tell where this is going. A second simplifying assumption. Like the first, it is reasonable if one assumes fully frictionless and competitive markets. It says that on average the presence of migrants has no effect on the real wage level of the British workforce.
The wage cuts of some workers are offset by the real wage gains of other workers.
In fact, if migrants were dispersed uniformly across the economy (which of course they are not), all of us in work would lose a bit in facing more competition for our own job, but would gain a bit in being able to buy other things more cheaply. Net it all out and we are back where we started.
My two assumptions are a bit extreme in their simplicity, but they are not extreme in their implication. They end up with a rather simple conclusion: that migrants are neutral.
They don’t do the harm that some think, nor the good that others like to pretend. They expand the population, the workforce, employment and national income by more or less the same proportions. The rest of us get on with what we do.
Or, to put it another way, my assumptions imply that the employment rate and incomes of a country with 30 million workers are probably about the same as an otherwise identical country with 31 million workers.
Of course, in reality, I am assuming away all the interesting things migrants have to bring. They have different skills, work in different industries, use housing in different ways to the rest of us, and take up the scarce space of the UK.
To draw a more realistic picture we would need to engage in detailed empirical study as to what the actual effects are, not the supposed effects.
When more sophisticated economists perform more rigorous work, using more complex economic models, they invariably come to the conclusion that migrants modestly benefit the domestic population on average. But that does not preclude them hurting some particular groups.
However, I’ve taken 1,029 words and have yet to answer the multiple choice question I started with.
As is so often the case in multiple choice questions, none of the four answers are quite satisfactory. I would say, (e), all of the above. In the short term, (a) might be true, but in the long term, (c), (b) and (d) come in to play.
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