Resolution Foundation

There is no simple story of migrants down, wages up

The UK needs a post-Brexit, post-Covid economic strategy, not another argument about immigration

We ask a lot of migrants. They make up almost one-in-five of our workforce, run many of our biggest businesses, and disproportionately clean our homes, care for our sick, and carry ever-growing online purchases to our doors. If that wasn’t enough, we’re now asking them to solve a rather big problem: the UK’s absence of an economic strategy — and to do so by disappearing.

The Prime Minister promises not to return to the UK’s “old broken model with low wages, low growth, low skills, and low productivity”. Avoiding all four seems like a very good idea — even if some Conservatives may quibble with his description of the economy the party has overseen for a decade. His solution? “The answer is to control immigration”. Apparently, this is all it will take to raise wages, after the weakest decade for pay growth since the 1930s.

The argument is powerful but confused.

Both defenders and opponents of migration overstate its impact. Those favouring migration talk as if the levels can’t change, ignoring big shifts through history, or imply migration is a significant driver of GDP per capita. It is not. Meanwhile, those blaming migration for all our ills say it lowers wages by increasing labour supply, forgetting that it also drives up demand for labour. Migrants spend as well as produce.

Wages are rising fast for HGV drivers, in part because of lower migration. You can’t increase supply or cut demand swiftly so a critical shortage leads to price surges. But this is really a change in relative wages, with HGV drivers earning more, but everyone else less well off as prices rise in response to higher delivery costs. Big increases are also unlikely to last given the underlying pressure on drivers’ wages is unchanged: power lies further up their supply chains.

HGV drivers make up less than 1 per cent of the workforce, but Brexit means big change for other sectors heavily reliant on migrant labour. Covid has accelerated that change, punishing our lack of preparation since 2016. And the effects will play out differently across sectors: this is definitely not a simple story of migrants down, wages up.

Companies can respond to lower migration by raising prices, cutting profits or investing in capital. Or they can shrink. Several can happen together, as we’ve seen in response to minimum wage rises.

Boris Johnson is right to say resetting the UK’s economic strategy is the task we face. Stagnant living standards and high inequality make it desirable; the profound changes of Brexit, Covid and the net zero transition make it unavoidable. But he needs to adopt one, not just identify the need for it.

Yes, we need to tackle sectors where few labour market rules and next-to-no enforcement has combined with readily available migrants to support low productivity business models, such as government-funded social care. But lower or higher migration will not address the root causes of wage stagnation: awful productivity growth.

A more useful approach would involve improving the labour market, with a new settlement for the low paid to provide more security and control, alongside higher wages. That requires wrestling with trade-offs, not ignoring them. It would reverse this century’s slowdown in raising skills, and the post-2016 flatlining of private sector investment. Our social security system could insure us against risk and reduce poverty — rather than causing it as with this week’s huge cut to universal credit. It would mean resisting the urge to badge everything as “levelling up,” instead focusing on the specific challenges holding back some of our great cities in the North and the Midlands.

Johnson wants to “wean” firms off low paid, immigrant labour. But the top priority is to wean British politics off something much more dangerous: the idea that a migration policy is the same thing as an economic strategy.

Watch Pastures new: Is lower migration the route to a new, higher wage, British economy?, our recent panel event with Alan Manning, Professor of Economics at the LSE and Minette Batters, President of the National Farmers’ Union.

First published in the Financial Times