Migration might well determine the outcome of the referendum on whether Britain should leave the EU. That is because immigration is tangible and personal. It challenges people’s sense of identity in a way trade does not. The unexpected upsurge in immigration from the EU since its enlargement in the early 2000s has driven the rise of the UK Independence party and so the decision to hold the referendum.
Economists tend to think it evident that immigration is beneficial to all parties. I am not convinced. High net immigration imposes significant negative externalities: greater congestion, more stress on social services, higher land prices and a need for significant investment in infrastructure and housing. If necessary investments are made, people suffer significant costs. If they are not, the costs will be higher still. All this cannot be entirely ignored. Moreover, while I fully accept the arguments for the benefits of diversity, I understand why many differ, even feeling that they are “losing” their country. Some would argue that this idea of having inherited property rights in a country is illegitimate. I feel it is politically fundamental.
The report on Brexit, launched this week by the OECD, states that: “Immigration accounts for one-half of UK growth since 2005, with more than 2m jobs created. Curbs to the free movement of labour from the EU and, more importantly, a weaker UK economy after exit, would gradually reduce the incentives for economic migration to the UK and would be a cost to the economy.” This is true, but not compelling.
The aim should not be to increase the size of the economy. The test of whether the immigration was beneficial to the UK should be whether it raised the living standards of those residing there.
Fortunately, this is probably true for EU immigrants. They have higher employment rates than both UK citizens and immigrants from most other parts of the world. Immigrants from the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia even have higher employment rates than average EU immigrants, while immigrants from Bulgaria and Romania have employment rates comparable to the EU average. Furthermore, EU immigrants make a positive contribution to the public finances, despite access to welfare.
In his comment on the Treasury’s analysis of Brexit, which lacked quantitative analysis of the impact on immigration, Jonathan Portes of the National Institute of Economic and Social Research argues that immigration will have raised productivity. But this is largely because “immigrants to the UK are relatively highly skilled compared to the native population”. That is likely to be particularly true of immigrants from the EU, of whom more than 40 per cent have had tertiary education.
Net inflows from the EU turned out to be far larger than was expected in the early 2000s. But immigrants from all existing members now have had access to the UK for some time. The previously pent-up desire to migrate has probably now been sated. The likely new members are small Balkan countries. Partly because of the obligation to accept free immigration, EU membership by Turkey and Ukraine now seems inconceivable. Thus, those most concerned by the continuing net inflow should take comfort that it is now likely to slow, provided the eurozone does not collapse in chaos.
Moreover, neither Norway nor Switzerland has been able to avoid the obligation to accept free movement of labour. Should the UK decide to impose controls on EU migrants, it would almost certainly lose preferential access to the single market. It would also have some difficulties in designing a new policy of its own. Presumably, it would be substantially more restrictive than at present overall, while being open to immigration of highly skilled immigrants. While the latter make relatively large net economic and fiscal contributions, their impact on house prices is likely to be particularly large.
In sum, concern over uncontrollable EU immigration is understandable. But immigrants from the EU create few problems over integration and are relatively economically valuable. Even if one believes negative spillovers from immigration are large, as one can, one should also recognise the folly of leaving the EU over this issue. The country should instead refocus its energies on policies for managing the costs, principally by increasing the supply of housing and improving infrastructure.
A dynamic economy can gain from importing people who both want to work and have the skills to do so. Immigration is indeed a challenge. But it is not a good reason for choosing Brexit.
