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The Progressive Policy Think Tank

What would an economically just immigration system look like?

Hard Brexiteers claim to have the answer: once Britain leaves the EU we should continue to welcome highly skilled migrants but heavily restrict the low skilled. Leaving aside the wider implications of a two-tier system for the Brexit negotiations and Britain’s economic relationship with the EU, it is worth asking whether immigration policies which favoured highly skilled migration at the expense of the low skilled could indeed deliver greater economic justice?

The case for facilitating highly skilled migration is straight forward. Most studies suggest that highly skilled migration is productivity enhancing because it tends to complement, not undermine, domestic workers. This is particularly the case in sectors where there is a high level of specialisation, whereby migrants help address skills bottlenecks. Highly skilled migration can also foster healthy competition – pushing domestic peers to invest in their skills and progressions.

The situation for low skilled workers is different. The evidence suggests that the impact of large-scale immigration can be regressive: while overall the skilled benefit and the worst paid lose out. These effects are small but real, and could be significant for some sectors. So could the hard Brexiteer therefore have a point? Would starving firms of cheap labour force them to invest increasing wages and in training their workers?

The strategy is overly simplistic and carries with it major risks.

Whilst economists may disagree about the differential impacts of migration, most agree that the economic risks associated with a shrinking population are considerable. The fact is that wages have generally fared worse (and levels of unemployment remain higher) in the parts of the UK where populations are contracting (such as in the North East). Moreover, investment in skills and capital have also been comparably lower than in areas which have experienced high immigration.

The risks of simply choking off the supply of unskilled migrant labour are high and could simply result in fewer jobs overall. IPPR analysis shows that the occupational groups which have become most dependent on EU migrant labour are indeed those where vacancies are hardest to fill. It is not inconceivable that labour shortages would force these employers to shift their business models to spend more on wages and improved conditions (particularly in the service sector where relocation is not a choice). However, the burden of evidence suggests that for many of these employers, cutting off the supply of low-skilled labour could pose a threat to their very viability. This is in nobody’s interest.

Finally, this binary system provides a poor reflection of Britain’s complex labour market. For example, reality is that some of the most serious labour shortages in Britain currently affect jobs which straddle both categories. Construction and health workers can be highly specialised but would not necessarily meet the criteria of highly skilled (especially if wage levels are used as a crude benchmark for defining skills levels, as is currently the case for non-EU migrants). Of course, exceptions could be made for certain skills, but the risk would be that this would breed impossible levels of complexity (which would both end up favouring large vested interests at the expense of smaller groups and SMEs, and would be very costly).

So what is the alternative?

Guest worker schemes are an option favoured by Brexiteers. But these sorts of schemes come with a heavy cost, both fiscal and social. Indeed a recent study by a former CEO of the UK Borders Agency deemed such schemes unviable due to the cost associated with their enforcement. Putting to one side the long track record of abuse and exploitation associated with such programmes, such a strategy could prove counterproductive: institutionalising low paid work rather than generating a wholesale shift in the way the British labour market operates. The challenge is therefore to find other ways of incentivising he kind of shift that is needed from employers.

Others have proposed sector-by-sector, skill level-by-skill level immigration system. But each employment sector is likely to lobby for a certain number of migrants within the government’s 100,000 target to cope with Brexit. This would lead to an even more complex, unwieldy and bureaucratic system which is unlikely to be able to accommodate the economy’s immigration needs with complete accuracy. 

Skills policy is undeniably a better starting point than the immigration system: rather than starving employers of foreign workers we should allow them to draw on a supply of trained and job ready local workers. And the most vulnerable workers should be offered a direct support (for example via the provision of a jobs and training guarantee, as IPPR has argued elsewhere). Justifying greater expenditure on the tightening of borders while cutting back on government training budgets for domestic workers would be illogical. Without the necessary investment in skills it will be very unlikely that low paid workers will be in a position to capture the opportunities of a tighter labour market.  

Alongside, policies should be put in place to incentivise employers to seek out skills domestically wherever possible and make recruitment from abroad the exception not the default. Indeed, the Government already makes it as hard as possible for employers through high costs visas, new levies and the burden of a complex bureaucracy. A better alternative could be to link the entitlement to work permits to employers who can demonstrate high standards and a commitment to investing in skills.

Finally, labour market reforms should incentivise fair treatment of workers – both British and foreign. A fair economy would reduce the job precariousness that means employers can make jobs so insecure and with such poor pay and conditions that the bad employers rely on cheap EU labour to maximise profits, rather than investing in staff, their pay, and technological improvements. The case of Sports Direct scandal, using Eastern European migrants to replace UK staff while driving down wages to below minimum wage levels for all is a clear indication that reliance on cheap foreign labour is a symptom, not a cause, of a dysfunctional labour market.