15 March 2018

Auction visas to build a better immigration system

By Daniel Pryor

Who is best placed to determine where the skills and labour of immigrants can create the biggest boost to our economy? It is the businesses who actually employ immigrants, not a government that lacks local knowledge and is beholden to lobbying by special interest groups. Just as central planning leads to shortages and inefficiencies in other areas of economic policy, our current approach to non-EU immigration fails to allocate labour to places it’s needed and wanted the most.

Brexit is an opportunity to change that. Some free-market Leave voters may downplay the influence of immigration concerns on the referendum result, but the oft-cited motivation of “sovereignty” was intimately linked to anti-immigration sentiment. Any post-Brexit immigration system must maximise the economic benefits of immigration while restoring people’s trust in the system. Unfortunately, the current inaction suggests we will fail to achieve either of these aims.

Points-based approaches, already ruled out by the Government, end up prioritising those who look good on paper without regard for employers’ needs. Visa lotteries, while more beneficial to lower-skilled immigrants who stand to gain the most from moving to the UK, are unlikely win back public support for immigration or boost the UK economy to a significant extent. Simply extending our current tiered system to EU countries would deprive businesses across the country of vital workers and skills, hurting consumers and jeopardising any economic gains from Brexit.

We should instead implement a visa auction system, using prices to ensure foreign workers are employed in places where they create the most value for the UK economy. In a new paper for the Adam Smith Institute, Madeline Zavodny and Pia Orrenius, two leading labour economists, spell out the case for letting employers bid for a limited number of work permits, leaving separate immigration paths for students, refugees and family reunification intact. These permits could be traded between employers, meaning immigration will respond to businesses’ needs and the state of the economy.

While an auction system would boost the economy and win back public support for immigration, some may complain that the right to work shouldn’t be bought and sold. Short of open borders, every single immigration system is subject to the same criticism; UK visa applicants already pay thousands in application fees and legal costs. Not only would an auction system allocate foreign labour more effectively—it would also capture funds currently going to high-paid lawyers navigating our immigration bureaucracy.

The potential revenue windfall from visa auctions could also be used to bolster our public services in areas experiencing higher levels of net migration, or top up the wages of low-paid workers by boosting tax credits. In doing this, the government could easily make the economic gains from immigration more explicit to the general public.

The price mechanism isn’t just an effective means of allocating scarce resources. It also acts as a signalling device. By monitoring the price of visas, the Migration Advisory Committee could respond to changes in demand by adjusting the number of permits in future. High prices would indicate significant unmet demand for foreign labour, and mean the quota of work permits should be expanded.

We can safeguard against the possibility of low-skilled or seasonal labour shortages by introducing separate auctions for these two additional categories. This would remove the risk of employers of high-skilled immigrants outbidding those who employ low-skilled immigrants in attempting to secure more economically valuable work permits.

Winning back public support for immigration is vital for our continued prosperity and for improving the wellbeing of individuals across the world. The economic case for more immigration is clear: it deepens the division of labour, alleviates skills shortages, and is an extremely effective means of alleviating global poverty, giving more individuals access to the liberal institutions that allow them to achieve prosperity.

Just as women entering the workforce did not destroy male jobs, the best economic evidence (reviewed in our paper) shows that immigrants entering the workforce do not destroy native jobs. They have little to no impact on native wages: EU migrants since 2004 have caused around a reduction in wages for the lowest paid workers of around a penny an hour. Welfare tourism is largely a myth and has little impact on our fiscal position, which is generally bolstered by immigration on net. There is also little evidence to suggest that immigration affects NHS waiting times.

If we want to reap the economics benefits of immigration after Brexit and restore public trust in the system, visa auctions are the best chance we have. Politicians extol the benefits of market forces in the trade debate, they should apply the same logic to immigration.

Daniel Pryor is the Head of Programmes at the Adam Smith Institute.