Think broccoli pickers being paid £30 an hour is the sign of a healthy economy? Are you convinced that regularly queuing up for hours to fill your car with petrol is a tough but necessary step on the road to ‘levelling up’? Do you believe that supermarket shortages are in fact in our long-term economic interest? If so, you might find common cause with the Conservative Party’s narrative of Britain moving towards a high-wage, high productivity economy: freed from the oppressive shackles of cheap EU migrant labour.
Since we’ve only heard ministers tell this story for the past few days, you’d be forgiven for thinking that it’s a hastily concocted, post-hoc rationalisation of successive failures to effectively mitigate fuel shortages and supply chain disruptions. The recent U-turn on emergency visas to ‘save Christmas’ indicates a worrying lack of planning and also demonstrates how the UK’s new centrally planned immigration system is a sluggish, bureaucratic downgrade from EU free movement. And even within the confines of this immigration system, the Government is needlessly risking further disruption to sectors such as construction and food manufacturing through wrong-headed visa restrictions.
Unfortunately, the low-migration, high-wage narrative is divorced from economic reality. The fundamental error at the heart of their thinking is the implication that (contrary to the best available evidence) EU free movement had a significant negative impact on UK wages and held back productivity growth. Although immigration affects the economy in a variety of complex ways, the most common and important mistake in this area is the classic ‘lump of labour fallacy’: the idea that if more people are competing for a static pool of jobs, they’ll bid down wages. But migrants don’t just supply labour, they increase the demand for it too.
Despite its obvious flaws, the Tory story is undoubtedly a seductive one when wages really are going up in specific, much-discussed sectors like HGV drivers – but this neglects the bigger picture. Sector-specific, and in many cases temporary, wage hikes do not translate into a broader shift towards a high-wage economy, nor do they necessarily boost productivity. At best, they are a particularly inefficient form of redistribution.
Employers are likely to pass on these increased input costs to consumers, pushing up prices and leaving average real wages unchanged, or simply cut jobs. Most Conservatives seem to intuitively grasp that artificially restricting labour supply by, for example, implementing a £15 minimum wage, is economic madness. But they don’t seem to apply the same logic to artificially restricting the labour supply through shelving a market-based, flexible immigration system.
This sort of unsound thinking on immigration and wages is part of a wider problem with the Conservative Party’s approach to our current economic woes. Yesterday, we heard the Chancellor arguing that tax hikes, or at the very least a refusal to cut taxes, was essential to repairing the damage caused by the pandemic to public finances. The idea of raising taxes during a fragile economic recovery, while debt interest repayments as a proportion of GDP are at historic lows, isn’t just bad economics, it risks Labour replacing the Tories as the party of low taxes – a sentence few could have imagined writing until relatively recently.
The Government may also end up with egg on their faces if they double down on their hostility towards migration. Recent polling shows that the majority of Brits support relaxing immigration rules to tackle the driver shortage, and voters won’t respond kindly to promises of rising wages going unfulfilled. We’re not going to return to free movement any time soon, but it’s vital that the Conservatives recognise that immigration is part of economic life, not a dangerous, wage-depressing boogeyman.
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