Immigration & capitalism

John Harris writes:

Perhaps those who reduce people’s worries and fears [about immigration] to mere bigotry should go back to first principles, and consider whether, in such laissez-faire conditions, free movement has been of most benefit to capital or labour.

Let's do this. Here are some first principles:

 - Factor price equalization. Foreign workers can bid down British wages through trade. Whether they come here or not, their effect on wages is much the same.

 - Complementarities. Some foreign workers are complements for native ones, and so raise wages of the latter. For example, Polish roofers allow British plasterers and electricians to do more work.  

 - Adjustment. Insofar as immigrants do reduce wages, this will also reduce prices. This allows interest rates to fall, which boosts demand for labour and hence wages. Also, a drop in the price of labour relative to capital should lead to rising demand for labour relative to capital. On both counts, labour demand should increase, thus reversing the initial adverse impact of immigration.   

These principles imply that free movement won't much tilt the balance between capital and labour.

In the unlikely event of anyone wanting empirical evidence, my chart provides some. It shows that the ratio of the wage share in GDP to the profit share hasn't much changed in the last 10 years even though the number of foreign-born workers has risen. In fact, the wage share is higher than it was in 1997, even though the number of foreign workers has almost doubled. This is consistent with our first principles.

Now, some people might be surprised by the stability of the wage share. If the wage share hasn't changed, how come real wages have fallen and so many workers are struggling?

Simple. Workers aren't suffering because the balance of class power has shifted to capital. There are (at least) three other things going on, on top of unnecessarily tight fiscal policy:  

 - Job polarization. The number of decent middling jobs is falling, relative to low-paid ones.

 - Decorporatization. There's been a shift from the corporate sector to the self-employed. This has squeezed profits and - to the extent that they are in part a share of economic rents - wages too.  

 - Falling productivity. Output per worker-hour is lower now than it was in 1997 - in part, perhaps because of lousy management (pdf). A smaller pie means less for everyone.

Wages, then, are being squeezed not by immigrants, but by some fundamental trends in capitalism.  

In this context, the "modern left" that Harris sneers at should be a lot angrier than it is. Those who seek to link immigration with falling living standards are guilty not just of (perhaps wilful) ignorance. They are trying to shift the blame from capitalism to some of the least powerful members of society. That's not just racist. It's fascist.  

Comments

[Donald Smith]

So good you posted it twice!

[pablopatito]

"Foreign workers can bid down British wages through trade."

Only in certain industries, surely? Brick laying, for example, can't easily be traded.

[Dave Timoney]

Harris also wheels out the well-worn canard that immigrants increase pressure on public services: "There have also been inevitable problems surrounding how far schools and doctors’ surgeries have been stretched".

Given that immigrants reduce the dependency ratio in the short-term, as well as being net contributors to public finances, this "stretching" clearly owes more to other factors, such as secular trends like ageing or austerity cuts.

It looks like the "anti-modern left" have decided that pandering to bigotry and ignorance is inescapable, at least this side of the 2015 election.

[e]

Okay there are those scapegoating immigrants for the realities of the UK’s jobs market, that’s more than clear. But John Harris can hardly be said to be one of them.

There are those using ill-informed commentary (public opinion – no less) to close debate down with a cry of “bigotry” not that I’m not suggesting this of you, to be sure.

John Harris may be wrong on the basics, but his article would indicate that since the basics don’t encompass the realities of people’s lives, they don’t cure anything either.

[Luis Enrique]

public services are stretched when capacity doesn't keep pace with population growth. If the NHS, education, social housing and other state planners have failed to plan for immigration levels, state services will be stretched.

If immigration is a net benefit to the Treasury, this just tells us the planners need to plan better

[Dave Timoney]

@e,

Harris concludes his piece with this: "There again, do the shrill voices accusing them of pandering to prejudice have any convincing stance of their own? Or is the fashionable metropolitan option still to cast aspersions on millions of people, and then look the other way".

In its snidery ("shrill", "metropolitan") and accusations of impotence, this is the sort of tripe that Richard Littlejohn et al have been trading in for years (by the way, this modern style owes as much to Lenin as Hearst).

The point is not that Harris is wrong on the basics (we're all wrong about some things), but that he appears to have decided that racism (which inescapably informs views on immigration) is a marginal issue compared to the iniquities of the neoliberal EU.

This is like telling women to pipe down about Ched Evans because footballer salaries are a more important issue than rape.

[An Alien Visitor]

"This is like telling women to pipe down about Ched Evans because footballer salaries are a more important issue than rape."

I was at the Sheffield Utd game vs Yeovil on Tuesday and some women were chanting his name. I must say I hope we get him back.

I broadly favour no immigration controls, however, surely your list of first principles needs extending considerably?

[e]

@from A to E

I don’t think Harris is concluding racism is a marginal issue. He’s not actually discussing racism per se is he? He’s talking about public support for blocking free movement, and questioning the easy label of racism which leads to a useful political cul-de-sac. A cul-de-sac which requires nothing of substance need be discussed – least of all “Neoliberalism”

Opinion polling fed by rhetoric – policy promises – is a laughable basis on which to suppose knowledge of British working class bigotry or lack thereof. But this is what many a commentator, indeed most, seem to be doing. Harris IMHO is quite right.

And far from inviting people to pipe down, he’s actually inviting people to speak up?

[Bill Posters]

One way to look at that graph is to say it has taken a massive increase in the number of foreign born workers to keep the ratio of wage share to profit share relatively constant.

[John]

Surely immigration can contribute to the productivity shortfall by making cheap labour a more attractive alternative than investment? At least in the short term or a stagnating economy? I´m sure I´ve seen that very point made elsewhere on this blog.

Also public services will likely be far less elastic than the movement of labour due to it´s top down hierarchical structure? So the nationwide average will be fine but individual areas could suffer shortages.

[Dave Timoney]

@e,

Harris is trying to find acceptable reasons to support "blocking free movement". The problem is that the utilitarian claims (e.g. impact on public services) are specious while the ideological objection (i.e. the point about capital vs labour that Chris addressed) is dubious.

By sneering at "people from upscale London postcodes" he is borrowing a caricature from the right in order to distract attention from the role that xenophobia and racism play in popular attitudes towards immigration.

[Igor Belanov]

It's just another example of lazy, irresponsible journalism. He doesn't come out and extend his arguments by saying Britain should leave the EU, but thinks it's satisfactory to say that we need a 'debate' about free movement of people, a measure that, if implemented, would lead directly to withdrawal, or getting thrown out. I've never been to Wisbech or King's Lynn, but if conditions there are akin to capitalism at its most Darwinian then Harris really needs to be writing "The Condition of the Working Class in England Revisited". On second thoughts, given that his opposition to this 'Darwinian' capitalism seems to be that it encourages foreigners to settle here, then maybe he shouldn't bother.

[e]

@ from A to E

In his article Harris says “millions don’t like it. [Free movement] For the sake of Britain remaining in the EU, they will probably have to lump it, and this option will be by far the best for the country as a whole.”

Reluctantly I’m concluding you perhaps have a preference for sneering at the generally ill-informed rather than ill-informed commentators.

[Dave Timoney]

@e,

I'm not sneering at anyone. I am pointing out that Harris, in accusing the nameless members of "what passes for the modern left" of being uniformly blase and shrill, is employing a stock sneering trope, ironically one beloved of the right. This not about him being ill-informed, but about him displaying bad faith to prop up a weak argument.

[Dipper]

Immigration is a proxy issue. The underlying issue is lack of political representation and ambition for the working class, specifically the white working class.

Years ago fairly average but unmotivated girls would, on leaving school, go down to the hospital and become SEN's where they would do much of the menial tasks required for nursing. Then nursing was made a degree only profession, then students were charged for degree study, and now we import nurses and average but unmotivated schools work on zero-hours contracts in supermarkets.

[aragon]

Where to start?

Is employment where oversupply and competition does not reduce prices(wages)?

1. Job Polarisation: where one good job becomes multiple poor ones (e.g zero hours)

2. Decorporisation: Self-employment is the loss of employee benefits and casualisation and underemployment.

3. Productivity: As per measured per worker an increase in number of workers to produce same output is a loss of productivity.

4. Wage share: More workers, same share of GDP, smaller wages for each individual.

Immigration increasing the number of workers appears to explain some of the changes, and more people means more demand for public services, and compete for limited resources.

Complimentaries: or substitutes?
Trade is not a perfect substitution.

Adjustment: Demand is constrained. Rising demand for workers but lower wages.

Simples!: Supply and demand.

Manual Car wash vs Automated.
Human Labour is very cheap in current economy.

[Phil]

I found your analysis a bit complacent - yes, things will sort themselves out over time, but equally it's in the nature of the beast that employers will try to beat the odds here and now (e.g. taking the cheap labour without also dropping prices) and people without much power will suffer as a result.

What I thought was extraordinary was that Harris assumes that "free movement" equals "impoverished migrants working for gangmasters in borderline illegal conditions" - or, at least, that the only way to protest against the second of these is to reject the first. It's like hearing a news story saying "twenty Lithuanians were found to be living four to a room, paid a pound an hour by a boss who had confiscated their passports" and thinking "twenty Lithuanians, you see - no wonder British workers can't get jobs with all that competition!".

[Dipper]

not to bang on, but the very reason that an economist thinks something is almost a reason why a politician shouldn't think it.

To an economist, all people are the same, and money and work just flow round the world according to economic forces in some kind of marginal equilibrium way. By definition economics doesn't put the interests of someone in Essex above the interests of someone in Poland. But the elected politicians of Essex should put the interests and ambitions of the people of Essex above the interests of the people of Poland and fight for those interests (And vice versa for the elected politicans of Poland)

[aragon]

p.s.

Chris's guilty and ignorance (links) disagree on the effects on low paid workers in the UK.

"In other countries like Luxembourg, Ireland, the UK, and Switzerland, less educated natives gained between 2% and 5% in their wages" guilty.

"UK research [...] low-wage workers lose while medium and high-paid workers gain." ignorance

http://www.migrationobservatory.ox.ac.uk/briefings/labour-market-effects-immigration#kp2

"Over the next 15 years more than half a million new homes will have to be built in London as the capital’s immigrant population is expected to soar by over a million. Even this massive building project is based on the assumption that one million Londoners will leave for other parts of Britain during that period."

http://www.migrationwatch.com/briefing-paper/7.17

No resource squeeze then?

http://www.migrationwatch.com/press-article/107

"The central issue is not whether immigration is good or bad, but what is a desirable scale. — given that 77 per cent of the public want it reduced, 50 per cent “by a lot”."

[Icarus Green]

Immigration as a topic of discussion is intolerable for me. Mainly because its not liberal (as in left wing, not classically) to be opposed to immigration, when actually I would argue true liberals from the left should oppose it. Not for ideological or racist reasons of course but for practical ones.

To me there's 3 main disadvantages to unregulated immigration:

1. Despite the theoretical points made above, most economics courses that stick with basics of supply and demand generally show most of the surplus going to capital. I've always found the complementarity point stupid as it assumes lower skilled workers weren't already complementing higher skilled ones adequately i.e. we're led to believe that apparently immigrants filled an unskilled worker void that supposedly existed before immigration (this goes back to whether sewage workers would exist without immigration and the historical record suggests they did). The adjustment theory verges on sophistry in my opinion without good empirical evidence on causation: You're basically arguing that reducing wages, increases wages. The equalisation theory doesn't take into account the untraded sector. Meanwhile more advanced theories I've studied like Heckscher-Ohlin make me question that if we make labour the abundant cheap resource in a country (i.e in relative prices), the country's industries will start converging on using this as the main factor of production for selling goods on the world markets. Perhaps that why we've seen such a drop in productivity. (Also: may there be such a thing as reverse Baumol's disease? - low wages in the traded sector pulling everyone else down). Finally the problem with your graph is that wages have remained steady - isn't it much more conceivable that wages would have actually risen far more as a % of profit if there had been no immigration?

2. It fractures class cohesion. Aristocrats have no problem welcoming Boris McBillionaire-ovsky into the yacht club, because wealth is how they measure a man. Is a working class builder going to slap his arm around Mohammed Jamal and ask him to join the revolution? I imagine the elites have thought about this and aside from the fact that immigration kills wage growth probably also really liked the way it fractures the working class into sub groups and clans with non-economic characteristics. No wonder union membership density has been declining.

3. The studies on immigrants being net contributors to the public purse usually don't price their consumption of public goods like infrastructure, healthcare, education, legal system etc. Because they're impossible to quantify. My hunch is that if we were to somehow quantify it, they would be a complete net drag. Immigrants generally have larger families, require education the most and use public transport the most.

But in saying all that, I am an immigrant!

;)

[Luis Enrique]

actually I have changed my mind, I now vehemently oppose immigration on the basis that closing the borders might make house prices crash. Sorry immigrants.

[AHB]

Am I missing something obvious? If wages have been suppressed by depolarisation, decorporatisation and falling productivity, why isn't the wage share of GDP falling? Is it that decorporatisation has suppressed profits so much (i.e that part of self-employment counted as profit) that it has kept the ratio constant? Seems implausible.

[Anders]

Chris: "a drop in the price of labour relative to capital should lead to rising demand for labour relative to capital"

Is Chris 'reasoning from a price change'?!

[Doug]

In whose interests is it when one group of workers is overwhelmingly hostile to another group of workers and the ones with real political and economic power get a free pass? As the saying goes 'Immigrants don't lower wages, employers do.'

[Luke]

In respect of the oft-repeated stuff about schools, can I just say that the primary school closest to me (Drayton Park) has added a building.

Who would have thought that in times of high graduate unemployment you could recruit people to a secure and relatively well paid job? Who would have thought that in times of unemployment and low interest rates that you could add a couple of classrooms relatively cheaply?

[Churm Rincewind]

John Harris' original article strikes me as pretty much incoherent, so I'm not sure what the fuss is about.

There seems to me no doubt that the UK electorate's current problems with immigration are based on questions of social cohesion. But because these issues are not readily susceptible to data collection and analysis, public discussion has been overtaken by fruitless controversy about numbers, and in particular levels of immigration and assessments of economic impacts.

This is simply displacement activity - q.v.

[Chris]

Harris's (rhetorical) question was: "whether [...] free movement has been of most benefit to capital or labour". It would be an interesting model in which an increase in L didn't increase the productivity of capital, in the short term at least. (Oh, and how consistent is factor price equalisation with observed cross-country differences in wages?)

Check out the various public pronouncements by business owners about how their businesses could not function without relatively cheap foreign labour.

[Slob]

No amount of stumbling, mumbling of figures and clever factoring can dissuade the populous from their perception of rampant immigration into UK. Both Labour and Tory/LibDem coalition governments are proved to be completely incompetent, impotent, powerless against multinationals and other employers who recruit abroad into UK a cheaper labourforce.

[theOnlySanePersonOnPlanetEarth]

"don't price their consumption of public goods like infrastructure, healthcare, education, legal system etc. Because they're impossible to quantify"

Impossible to quantify? Are you serious? Can I introduce you to the concept of the average.

incidentally aragon is an imbecile.

[Magpie]

Chris,

I don't think migration restrictions, per se, would achieve anything good. So, I'm not writing this in support of John Harris. In fact, I found his article really crappy.

Having said that, and truth be told, your argument is pretty weak, too. The best point you make is about factor price equalization. From that on, I'm left rather cold.

The points about complementarities and adjustment are really very weak. In fact, I wouldn't be surprised you yourself knew it. So much so that, unlike with FPE, you offer no link whatever to support that.

Then comes the chart. You say: "Now, some people might be surprised by the stability of the wage share."

Actually, what surprises me is that you consider small fries an almost continuous fall since 2000 Q1. Roughly speaking and in terms of percentages of GDP, your chart shows that the wage share fell from over 71% to less than 69% in 14 years, including the pre-recession period.

About job polarization: the article you linked to does say that "recovery" has not favored middling jobs:

"Employment growth has been strongest in the high-skilled and low-skilled occupations, but the number of jobs requiring mid-skilled workers – skilled tradespeople, machine operatives and administrative and secretarial workers – is shrinking."

But it makes clear that, with recovery or without it:

"As the chart shows, it is very rare for real wages in the UK to fall continually over a seven-year period. They have done so only three times in the past 150 years: after a deep recession in the late 19th century; in the 1930s, following the Great Depression; and again in the past seven years."

Now, from all this, how can you conclude that "workers aren't suffering because the balance of class power has shifted to capital" is beyond me.

[bob]

let's outsource sandwich making to warsaw