Europeans Are Leaving Britain (Poorer)

(Bloomberg Opinion) -- Even before Britain has left Europe, Europeans are leaving Britain. The latest figures confirm the trend: Since the 2016 Brexit referendum, net migration from European Union countries into the U.K. has been declining, while that from non-EU members has been climbing.

But the most striking of the figures published last week are those showing that more central and eastern Europeans are leaving the U.K. than arriving for the first time since Poland, Czech Republic, Hungary, Estonia, Latvia, Lithuania, Slovakia and Slovenia all joined the EU in 2004.

It’s not hard to guess why. A declining pound means the value of the earnings migrants send home to support their families is now much less than if they found jobs on the continent.

And then there is the persistent sense of unwelcome, even xenophobia, and occasional violence, that many have experienced here since the Brexit vote. They got the message loud and clear: Foreigners go home.

Europeans Are Leaving Britain (Poorer)

While it's unfair to say that all Brexit-supporters are anti-immigrant, many voted to leave the EU precisely for that reason. Even as anti-immigrant sentiment has softened considerably since the 2016 vote, many continue to believe that ending low-skilled migration will be a boon to Britain’s economy, forcing employers to hire native workers and driving up wages. Since a large share of the eastern European workers are lower skilled, this will be seen as a victory instead of the opposite.

It’s an argument that Theresa May hasn’t just bought into; it’s at the very heart of how she has defined Brexit. Her post-Brexit migration policy seeks to all but eliminate low-skilled migration. Under controversial plans being considered by the government, applicants for five-year visas would need to prove they are earning at least 30,000 pounds ($39,825) a year.

Politically, the appeal in the age of populist politics is obvious; Donald Trump has, indeed, fetishized the idea of rigid immigration controls. But while the large U.S. economy can probably afford it for now, Brexit Britain’s can’t.

Shutting out low-skilled labor will likely lower GDP growth for years to come in Britain’s heavily service-focused economy. It’s particularly striking when you think that up to nearly a quarter of hospitality sector employees are EU nationals; but the numbers are high in social care and other service sectors, too. PWC estimates that a 50 percent reduction in future EU migration could reduce the level of U.K. GDP by 2030 by around 1.1 percent, or 22 billion pounds in 2017 values.

Repeated studies have shown that immigrant workers contribute positively to the economy and often enjoy higher rates of employment than natives. That’s not an easy message to sell politically, however. Meanwhile, the argument that lower numbers of immigrants will lead to more work and skills training and higher wages for the native population feels intuitive.

It’s not surprising that there are a lot of misnomers about the impact of low-skilled workers given how difficult it is to measure. For example, migrants tend to go to places where demand for labor is highest, so it’s hard to separate the positive demand shock from the migrant impact on the existing labor pool. Some existing workers may emigrate. And because migrants then become a larger proportion of the overall labor force, it’s difficult to distinguish cause and effect. Migrants could be paid less than non-migrants but not affect the wage of U.K.-born workers and still the average wage may be lower because of the proportion of migrant workers is growing.

Still, in a 2017 paper studying the effects of low-skilled immigration on U.S. native workers, Adriana Kugler and Mutlu Yuksel managed to control for a lot of these factors and found that the influx of Latin American immigrants in the period they studied had positive effects on the wages of high-school and college-educated natives and no impact on employment, suggesting unskilled immigration compliments skilled native workers.

U.K. research suggests a small impact on the average wages of existing workers (with low-wage workers losing more and higher paid workers gaining) – but even these generalizations are misleading. Much depends on the skills that are in demand and the stage of the economic cycle. And short-term effects are not the same as longer term effects. Immigration increases the demand for labor, as migrants are consumers too and require goods and services. So over time, any negative impact on the wages and employment prospects of U.K.-born workers are offset by rising wages and employment.

It’s possible that gradual improvements in training and education, infrastructure and business investment will indeed create a bigger and better local labor supply to fill jobs. But that will take a decade or more. In the meantime, demonizing low-skilled immigrants makes it hard to focus on the underlying causes of Britain’ lagging productivity and rising inequality: poor investment in education, skills training and infrastructure. And of course, the greater the social mobility in a society (something Britain struggles with), the more opportunity migrants will have to thrive.

All countries have to set limits on immigration, and will want to strike a balance in deciding who to let in. Britain has set the bar too high and is already paying the price.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

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