Cheap foreign labour has ruined our productivity. After Brexit, that will finally change

- Tuesday, 21st November 2017

 

The Telegraph

This article was written for The Telegraph.

 

For decades it has been cheaper to hire EU workers than to train British ones, with disastrous effects for our economy

 

This is the first budget for decades where the Chancellor, if he seizes an opportunity created by Brexit, can boost Britain's long-term growth rate. That should certainly be his priority because incomes have stagnated since the 2008 financial crisis and were growing below their potential long before that.

 

Average incomes can only grow as fast as output per person rises. Only two things enable people to produce more goods and services: improved skills and increased investment per head. Yet we have pursued a policy, initially voluntarily and then because of EU rules, which systematically undermines the incentive to upskill and invest while reducing the capital stock per person. That policy is reliance on mass immigration.

 

To utter such a statement is heresy. It has become an article of faith that all immigration,­ particularly skilled immigration, makes us better off. That doctrine has dominated debate because of an unholy alliance between business wanting cheap skilled labour while reluctant to undertake training, and a virtue-signalling intelligentsia who attack immigration controls as racist, reinforced by Europhiles defending freedom of movement.

 

In fact, letting employers import skills which British people could acquire undermines the incentive of employees to upskill, and of employers to train and invest, while reducing the stock of capital per person.

 

This is not just theory. British employers were reluctant to train staff and invest as much as their competitors long before mass migration. Far fewer Brits have technical and vocational qualifications than in our major competitors. But it has worsened since Blair opened our borders first to more non-EU labour, then all East Europeans. Training time per worker halved between 1997 and 2012. And in the six years after allowing in East Europeans, business funding for training fell 15 per cent.

 

To reverse this trend our immigration policy must change our current priorities. Instead of the first option for businesses being to recruit (cheap) skills from abroad and only train our own citizens if foreigners are not available, we should reverse that. We should train up British people if possible and only import skills where that is not feasible. Sajid Javid¹s admirable apprenticeship levy can at most stem the decline in training so long as employers can import skills from abroad.

 

Of course, we should not prevent all immigration from Europe or elsewhere.  There are categories of skills which Brits could not acquire from their employer or college, above all "company-specific skills". Successful companies develop their own production processes, accounting systems, marketing methods and so forth. When they set up in the UK they need to send staff to implement these processes.   

 

For example, Japanese car companies sent managers and technicians to introduce just-in-time supply systems, Kaizen management, and quality circles. They transferred their expertise to local staff (before returning to Japan so there was no net immigration). Subsequently those skills spread through British industry. So we should allow intra-company transfers, and limited other categories, for EU as well as non-EU employees.

 

Of course, tighter immigration controls designed to encourage upskilling British employees and increase investment will be met with squeals from business groups, who employ several spurious arguments. First, they say it is not economic to train British workers. When the Brexit Select Committee visited Sunderland we were greeted by the local councils, CBI, IoD, etc who said their main concern about Brexit was that they might no longer be able to recruit skills from the EU.  

 

Nissan, the largest local employer, was not present, but I recalled visiting their plant when I was Trade and Industry Secretary and asking if they had difficulty recruiting skilled employees. They were too polite to say that was a stupid question – there were no skilled car workers in Sunderland! But, being Japanese, it never occurred to them to recruit from abroad. They trained local people and now Nissan's 7,000 British employees are among the most productive car workers in the world. Had the doctrine of the CBI and co prevailed there would be 7,000 East Europeans in that plant and those Geordies would be flipping hamburgers.

 

Second, they say there are shortages. Blair claimed that we needed more immigrants to fill 600,000 vacancies. Four million immigrants later there are still 600,000 vacancies! Immigrants consume as much goods and services as they produce, creating demand for as much labour as they provide. Moreover, in a free market shortages only exist where pay is held below the market clearing level. If we limit immigration where there is a domestic shortage of skills, pay would rise somewhat , increasing incentives to train, acquire skills and invest: precisely what is needed.

 

Third, we are told that British people refuse to learn the skills we need. The NHS card is invariably played: "we need foreign nurses and doctors because too few Britons are willing to do these jobs". This is untrue. Until last year over 30,000 British applicants for Nursing courses were turned away annually, according to the Nursing Labour Market Review 2016. Universities can take unlimited numbers for all courses from Art to Zoology ­– except nursing and medicine where numbers were strictly limited.   

 

That was because bursaries came from the NHS budget, and it was cheaper to recruit from abroad (including nurses trained using our foreign aid) than train more domestic applicants. You have almost certainly never heard this on our liberal media who seem unconcerned about thousands of young Britons prevented from pursuing their vocation. Inconvenient facts which undermine the case for mass immigration get no airtime.

 

Fourth, estimates of the economic impact of migration usually ignore the impact on the capital stock per person. Both our productivity and our quality of life depend on the amount of capital invested in our factories, offices, roads, hospitals, schools, houses etc. According to our national accounts that investment amounts to £129,000 per head. To equip the 5.1 million people added to the population by migration since 2000 with a similar capital stock would cost £660 billion ­in investment we have failed to make.

 

Hence the housing crisis, congested infrastructure, crowded hospitals and lack of school places, all of which are visible. Hence also the inadequate investment (for the enlarged workforce) in plants, machinery, software etc, which shows up only in the productivity figures. We should not blame migrants for this but those who, for profit or political correctness, ignore simple economic truths and hard economic facts.

 

 

Current Location:

 

Home / Publications / 2017

Cheap foreign labour has ruined our productivity. After Brexit, that will finally change

 

Search this Site

 

 

Contact Peter Lilley MP:

 

E-mail

feedback@peterlilley.co.uk