Umunna, Reeves et al are wrong on free movement. Its bad politics and worse economics

by Sam Fowles

For Rachel Reeves, immigration from the EU has caused a “slight drag” on wages. So Labour best represents the working poor by calling for an end to free movement. This is both simplistic and wrong. It represents only the loosest grasp of political strategy and no grasp of economics at all.

Labour will never win the fight to be “tough on immigration”. If voters want to kick out immigrants, they’ll vote for the parties that have been dog whistling about immigration for years. No one buys the cheap knock off when they can get the real thing for the same price.  Labour must address the real causes of the low wage crisis. This strategy has two advantages: It targets voters that might actually vote Labour, and it’s not economically illiterate.

The overall impact of immigration on wages is generally positive. By contributing more in taxes than they take out, EU immigrants ease financial pressures in the public sector. Immigration can create downward pressure on the wages of low-skilled workers. But this is negligible. Reeves relies on a study that found a 10% increase in immigration creates a 1.8% drag on low-skilled wages. To put that in perspective: the largest increase in immigration since 2006 has been around 7%. This works out as costing low skilled workers 1p per hour.

But immigration is equally likely to have a positive effect on low-skilled wages. Migration increases demand: The more people in an economy, the more goods and services they need: The more goods and services required, the greater the demand for labour to provide them: The greater the demand for labour, the more employers are prepared to pay for it.

But this hasn’t happened in the UK: Why?

Because successive governments have chosen policies that drive down wages.


Austerity creates unemployment. This increases the supply of labour so employers don’t need to pay as much for it. Every cut to public services means more individuals out of work. Every time a library is closed, a hospital lays off staff, or a council can no longer to afford to provide basic services, the number of unemployed people grows. Austerity also drives down consumer confidence: we’re worried about losing our jobs so we cut back on spending. When the private sector isn’t benefitting from our spending, it can’t support as many workers:  more people are unemployed. Those who still have jobs are so scared about being replaced that they don’t ask for the raises they deserve.

Austerity led to a massive expansion in part time workers who can, and would like to, work full time (“part time for economic reasons”, PTER). A 1% increase PTER creates a 0.4% drag on wages. For comparison, a 1% increase in immigration creates a 0.2% drag: The impact of immigration on wages is half that of PTER. In 2013 18% of the UK workforce was classed as PTER.

Anti-union laws

When workers are represented by strong, democratic trade unions, they have greater bargaining power against employers. The voice of the majority of the workforce has more impact than the voice of a single employee. This means that strong trade unions are able to negotiate higher wages for workers. Workers (like tube drivers), that still have strong trade union representation, consequently enjoy comparatively high wages. Unions are particularly important for low-skilled workers. High skilled workers are difficult to replace, so they have other sources of bargaining power. Low-skilled workers are easy to replace, their only chance of a good deal is to work together through their union.

Since the 1980s, governments have legislated to reduce the effectiveness of unions. They have made it harder to strike, harder to recruit new members, and harder to provide day to day representation for current members. This has decreased the bargaining power of the workers in most industries. There is no consensus among economists that unions slow economic growth. But there is clear evidence that they drive up wages for low-skilled workers.

Anti-worker labour market policies

After the Second World War both Labour and Conservative governments sought to ensure that the unemployment never rose above 3%. That was abandoned in the 1980s. Since then, successive governments have permitted employers to exploit employees. Despite much talk, they have failed to regulate zero-hours contracts. The minimum wage has not been raised in line with inflation since 2009. These both drive down wages.

Governments have embraced trade with states that have little or no respect for workers’ or human rights. When industry can operate in states where it can pay starvation wages, employ children, and not worry about workers getting injured, there is little incentive to pay higher wages in the UK. Low-skilled British workers are competing in a race they can never win.

The low-wage crisis is the fault of governments, not immigrants. Labour can win the votes of low skilled workers by addressing real problems with real solutions. But policy must be based on economic reality, not tabloid fantasy.

Sam Fowles is a researcher in International Law and Politics at Queen Mary, University of London and the University if Sydney. He blogs for the Huffington Post and tweets at @SamFowles

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14 Responses to “Umunna, Reeves et al are wrong on free movement. Its bad politics and worse economics”

  1. Yellow Submarine says:

    I agree with this wholeheartedly. However you sound worryingly like an expert Sam. If serious centrists like Reeves and Reynolds have concluded FoM is politically indefensible then the game is up. No good will come of it. We’ll become less free and slightly poorer as a nation. It’s Labour Leave voters who will be hit the hardest by the lowering of trend growth. But it is sadly the new political reality. The main Centre Left party in a FPTP system can no longer support FoM if it ever wants to govern again. It’s tragic but true.

  2. David Walker says:

    This is all very well, but these are not the concerns most people have about immigration. The immigrants you are talking about here are largely only bringing down wages for crap jobs in the East of England.

    The issue for the rest of England is the number of Muslims arriving. Millions of British non-Muslims are afraid of Muslims. They believe that the religion is barbaric and that Muslims do not like them.

    Very few believe that all Muslims are violent. I think that a significant number (perhaps more than half of all non-Muslims) do believe that the majority of non-violent Muslims are in no way angry about Muslim terrorists and see some justification in terrorist attacks.

    Many non-Muslim women feel that Muslim men see them as sub-human and do not feel safe around them. Every day, online newspapers are full of images/videos of Muslim men executing people who’s actions have defied their faith. That’s a much more powerful motivator, when it comes to voting, than the economy getting a few % better or worse.

    Rightly or wrongly, many British non-Muslims believe that it will only take a few generations before Muslims are a majority in Britain, due to the sheer number arriving and the number of children that Muslim women have in comparison to non-Muslims (particularly white women who are not dirt poor, who are often still childless and holding out for Mr Right in their late 30s or early 40s).

    Labour’s strategy appears to be to tell these people that they are simply racist and that any fear is illegitimate. Unless the party addresses this, it is surely doomed.

    Labour needs to win seats like Nuneaton, if it is ever going to return to power. Ask yourself this – what do you think non-Muslims in Nuneaton think about Muslims? Not what they might say in a focus group, but what they really think.

  3. It’s nice, for a change, to be able to write a comment that is in general agreement with the initial posting on Labour Uncut.

    “The low-wage crisis is the fault of governments, not immigrants.” Exactly right.

    I know more neo-liberally minded economists will huff and puff about how wage levels are set by “the market” and not by government but, as Sam says, this is bad economics.

    The economy of the UK is £2.016 trillion. This means that it needs £2.016 trillion of SPENDING, whether by the government or everyone else, every year to keep it functioning at close to full capacity and therefore full employment. If the government wants some growth it has to either spend more itself or encourage everyone else to spend a bit more. But, not too much more which could cause inflation.

    We don’t have to be economic masterminds to see that lowly paid workers won’t have the necessary spending power to keep the economy moving. They simply won’t be able to afford the goods that they themselves have made and the system no longer functions effectively.

  4. Mark Livingston says:

    Rachel Reeves has a tendency to reach for Tory-lite solutions to complex problems. Is she in the right party?

  5. Anon says:

    This article is absolute rubbish.

    John Reid, ex-Labour Cabinet minister, told us that Labour deliberately increased immigration because – “The Treasury insisted on having a free flow of labour because they thought that brought down the cost of labour….” There was a deliberate policy of reducing wages.

    We have to remember also that it was Labour who set a minimum wage, and that was an open invitation to multinationals to come down to that low bar – and also remember, that it was the UK tax payer that had to bail out those low wages with tax credits.

    There is also the point that imported workers may well export their wages – money leaves the country; this applies to benefits also.

    The thing that galls me about this subject is that Labour should be about representing and caring for their people. That just doesn’t include health care and all other vital services, but the requirement to nurture and train our people.

    If Labour thinks that a model of importing people to do the work and, allowing many thousands to lounge around on the dole, is somehow nurturing our people – then what is the Labour party for?

    Many employers have been allowed to go for the easy way out; they’ve been allowed to get away with not training our young people, and importing the cheaper option – and Labour, when in power, encouraged them to do so.

    As for the net wealth that the influx has produced – I have seen many Labour personnel get very rich; at local and national level.

    But under New Labour there was no trickle down to a generation of non-university youngsters; those poor blighters didn’t have a chance.

  6. Martin says:

    I’ve worked numerous jobs from the lowest level to (fairly) high up, in several organisations in the public and private sectors. I’ve always worked alongside immigrants, and never did I feel that they were harming my pay or conditions. So on the basis of personal experience, FWIW, I agree with the article.

    In the absence of anything resembling a plan from the brexiteers, the most important thing for this country right now is to stay in the single market, otherwise we will be royally, utterly screwed. We can’t have that without freedom of movement, so Labour needs to start forcefully making the case that what many people think of as immigration issues are actually issues of employment law and government policy. This is a thankless task, as Ed Milliband found out, but someone’s got to stand up to the torrent of xenophobic crap which is tearing our country apart. If not us, who? It would help, of course, if the Unions represented people other than the public sector salariat these days.

    To add my two penn’orth on Islamophobia, a muslim colleague of mine once told me that something the government should do is stop mosques importing imams from Pakistan. He said “these guys don’t speak English, they live in a religious dream world and they’ve got nothing to say to the youth except “The West is evil”. This makes them easy prey for the Al Qaeda headbangers.” (It was a few years ago).

  7. Tafia says:

    The overall impact of immigration on wages is generally positive. By contributing more in taxes than they take out, EU immigrants ease financial pressures in the public sector. Immigration can create downward pressure on the wages of low-skilled workers. But this is negligible. Reeves relies on a study that found a 10% increase in immigration creates a 1.8% drag on low-skilled wages. To put that in perspective: the largest increase in immigration since 2006 has been around 7%. This works out as costing low skilled workers 1p per hour.

    Well for starters, Labour – by virtue of what it claims to be – should show more concern about the wages of the unskilled and semi-skilled indiginous workers in this country than any other group. Then there have been other studies – such as the one by the GMB, that found the impact on the low and semi-skilled has been massive.
    Then there’s the other little fact that you claim they put more in in taxation than they take out. Once the cost of educating their children is fed in, liabilities for state pension, liabilities to employers for occupational pensions (and the tax relief on those contributions that buisnesses get) the demand for housing and the affect on rents and the fact that every positive study always neglects to incude housing benefits, child benefits, tax credits etc etc whereas every negative study quite rightly includes them – and some even include the cost to the economy of the fact that many of them only come for a couple of years, save and scrimp then leave, taking all that money out of the UK with them. A country is little more than a glorified business. If you think there is no net cost then you will have no problem excluding them from the NHS, state education, social housing, all forms of in and out of work benefits for a suitable period – say 5 years? After all, if you believe what you said then it will have no effect on them will it.

    Martin – In the absence of anything resembling a plan from the brexiteers, the most important thing for this country right now is to stay in the single market, otherwise we will be royally, utterly screwed. Errm we aren’t actually. As an example the EU exports £69Bn more to us than we do to them. Should they impose WTO tariffs they are reciprocal and the Treasury will make a killing from the tariffs levied on their exports to us whilst at the same time the EU would slump into a catastrophic recession. So bring it on I say.

    Just remember, Brexit means exactly that – Brexit. The people that voted Leave (of which I am one) voted for three things:-

    To leave the EU
    To end Freedom of Movement
    To restore the sovereign primacy of the UK parliament in all matters.

    We will leave the EU. We will leave freedom of movement and if that means we have to leave the single market then so be it.

  8. paul barker says:

    This is an excellent piece but its in the wrong place at the wrong time. For this site, now, there is only one important question : prepare to form a New Party or join The Libdems ? I suppose you could argue that the utter uselessness of The Labour Centrist “Leadership” is a relevant factor in that they would presumably be “Leading” a New Party but we dont really need more evidence do we ?
    All the talk by Progress of “Staying & Fighting” is just bluster & hot air, Labour Centrists will have to go, the only real questions are where, when & how.

  9. Jon da Silvs says:

    Certain people have proved the mediocrity they claim.

  10. Roderick says:

    This is a simple matter of supply and demand. If you increase the number of unskilled workers available for work, then unskilled wages will fall. By opening our borders to all-comers (not just those from the EU, note) the supply of labour vastly increased while the demand did not. Politics, Jack Straw and fellow diversity demagaogues apart, have nothing to do with it.

  11. Martin says:

    @Tafia: Think you may have swallowed a UKIP leaflet. Do you seriously think that trade with Europe will continue unaffected by the imposition of tariffs? Many of our exports will become unaffordable to people in the EU, and vice versa. Trade is very competitive these days – the Chinese are just waiting to take everyone’s lunch money.

    Also, The loss of the EU financial passport will devastate our financial services industry which is now the bedrock of our economy, whether we like that situation or not. I am informed by a friend who works in the highly lucrative euro pensions market that that business will be repatriated to the EU in the event of a “hard” Brexit, (he’ll probably go with it) so the business will be taxed outside the UK. The loss to the exchequer will be, he estimates, three or four times our current EU contribution, and that’s just one specialist area.

  12. Tafia says:

    Martin – The EU exports to us 69Bn more than we export to them. Any imposition of tariffs is reciprocal and as a result hurt them far more than us – in fact the Treasury would make a killing.

    And the City now thinks the loss of the financial passport will have minimum effect on them and even then only temporarily. But what would they know eh?

    Incidentally, in the Welsh Assembly yesterday, Labour, the Tories, UKIP and the sole LibDem all voted against Single Market membership.

  13. James says:

    It’s not just low wages that are a problem, housing costs are a major issue and the UK has been underbuilding for its population growth for decades leading to a supply shortage. And before you tell me the answer is to build more homes, firstly there is a finite supply of land so there is an absolute limit on the number of new homes that can be built. Secondly I see no evidence the Labour party is going to make the tough decisions needed to solve the crisis, such as the abolition of the greenbelt.

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