Productivity vs immigration

Some figures out today suggest that immigration controls are a bad idea.
I’m referring to the productivity numbers. These show that output per worker hour is lower now than it was at the start of 2006. This is not because of a lack of productivity growth in the public sector; these figures refer to the market  sector, which excludes most government activity.
We cannot blame this solely upon the labour hoarding that occurred in the recession. For one thing, productivity growth was slowing before the recession: output per worker grew just 1.4 per cent in the year to 2007Q4. And for another, you’d expect labour hoarding to be reversed in the upturn. But so far, it hasn’t been; productivity rose a feeble 0.3 per cent in the year to 2010Q4.
It’s possible, then, that we have a deep-seated structural problem here. And one thing at least suggests it might continue. This is that large amounts of productivity growth comes from firms entering and leaving the market. But with companies unable or unwilling to raise finance, the effect of firm entry upon productivity is likely to be weak in the near future at least.
Which raises the question: what happens if low productivity growth is here to stay?
It does not mean we are doomed to low GDP growth. It just means that, if GDP is to grow, firms will have to take on more workers.
This, though, is potentially inflationary. If higher output requires more workers, it means higher costs, which in turn mean higher prices.
In this context, the shape of the labour supply curve is crucial. If this is significantly upward-sloping then a firm wishing to increase output must increase wages for everyone, which is a big cost. This would either deter the firm from expanding at all, or would cause it to raise prices.
If, though, the labour supply curve is flat, the firm’s marginal cost is much lower. A non-inflationary expansion is therefore more possible.
And here, of course, is where immigration comes in. If firms can hire workers from abroad, then the labour supply curve is obviously flatter than if it has look only in the UK.
Free migration is, in a sense, a substitute for productivity growth. If we don’t have the latter, then non-inflationary economic growth requires more migration.
Now, you might reply here that the upward-sloping labour supply curve that we get with immigration controls is good for native workers. I’m  not sure. For one thing, if it deters firms from expanding, no-one benefits. And for another thing, some - albeit higher-skilled - UK workers are complements for immigrant workers, and so would actually benefit from immigration.

Comments

[Phil]

I've translated this post - with some difficulty - into my native workerese, and it seems to be saying that true economic expansion requires one of three things: workers doing more work in the same amount of time (and, needless to say, for the same amount of pay); workers doing the same amount of work for less pay, so that more workers can be employed at the lower rate; or 'native' workers being undercut by 'migrant' workers, who can be induced to do the same amount of work for less pay.

Perhaps part 2 of this post will explain what's good about any of these things. I'm left with the impression that capital accumulation is inextricably linked with exploitation, so that one rate can't increase without the other also increasing.

[chris]

No Phil. Economic expansion requires either that workers work harder - whether for higher or lower pay is not important for my purpose - or that there be more workers.
If productivity isn't rising, then workers can't produce more (this is a tautology), so expansion requires increased employment. But if this raises wages, it is less likely to happen - because firms will be deterred from hiring by those higher costs. Immigration is one solution to this.
agree that capitalism requires exploitation - though whether this is a bad thing is moot - but this is a separate issue.

[Metatone]

I think you're building this castle on soft ground. You say:

"productivity growth was slowing before the recession: output per worker grew just 1.4 per cent in the year to 2007Q4."

But that looks on the graph as mere slowing down of the cycle, noise and fluctuations in the metric, and the real productivity crash parallels the financial crisis.

[Anna]

It is important that productivity is kept up at all times and if we need immigration to help us keep up with our productivity levels, then that should be allowed.

[AJ]

It's growth in GDP per capita that gives rise to improved living standards. Having growth in GDP as an economic goal is a bizarre idea.

Without your alleged complementarities between immigrant workers and domestic workers immigration does not help GDP per capita to grow. It's plausible that these exist for highly skilled immigrants, but not for low skilled.

How does this square with your earlier contention that immigration has minimal impact on the wages of domestic workers?

I fear this is one of your weaker arguments for immigration.

[Straus]

It is easy to see that recent large-scale economic migration from Eastern Europe had a beneficial effect on productivity. These workers were young, energetic and highly motivated, unlike many or most of their British counterparts competing for the same jobs. The problem is that their entry into the labour market meant that it was more likely that during a period of strong economic growth in 2004-2007 that more of the native population would remain economically inactive. These people not only remained a charge on the state and suffered from ever diminishing life chances, they also failed to learn or, perhaps, unlearned important lessons about self-discipline and personal responsibility that come from work. Furthermore, the way the benefits system works means that many of them are not discouraged from having large numbers of children, who will grow up in an environment where work is an alien concept and who are, therefore, quite likely to repeat the sorry cycle. So, while I accept that immigration has significant economic benefits, given the way our social security service works, it can also contribute to very dire social effects.

[Carl]

I'm curious number-bods, what happens to that workforce when productivity is raised too high - i.e. when demand cannot satisfy growth?