A Hard Brexit – One Without Free Movement – Will Raise UK Wages

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So, Britain has record low unemployment, record high employment to population ratio and yet pretty anaemic wage growth. What the hell went wrong? Actually, it’s freedom of movement of labour within the EU:

Brexit is about to give us a problem with this, though. Karl Marx was right: wages won’t rise when there’s spare labour available, his “reserve army” of the unemployed. The capitalist doesn’t have to increase pay to gain more workers if there’s a squad of the starving eager to labour for a crust. But if there are no unemployed, labour must be tempted away from other employers, and one’s own workers have to be pampered so they do not leave. When capitalists compete for the labour they profit from, wages rise. Britain’s reserve army of workers now resides in Wroclaw, Vilnius, Brno, the cities of eastern Europe. The Polish plumbers of lore did flood in and when the work dried up they ebbed away again. The net effect of Brexit will be that British wages rise as the labour force shrinks and employers have to compete for the sweat of hand and brow.

It’s that which explains this:

That’s actually the highest it’s been since we started measuring it. And given the likelihood of stay-at-home mothers before that starting date as high as it’s ever been. This means that we can’t say that the low unemployment rate is because many people have dropped out of the labour force entirely. That’s just obviously not what is happening. So, given that this is all true, then where the heck is that wage growth? Well, the answer is that the reserve army of the unemployed, to use Marx’s phrase, have all gone home. Or, if you prefer, they’re still out there and available, just not being counted as being in the UK because they’re not at present. This is an effect of the freedom of movement of labour within the European Union. Well, that and Wizz Air and the like offering £50 return fares from Eastern Europe to the UK.

And the solution is?

That’s right. If you want to raise UK wages then you want to stop freedom of movement of labour. A hard Brexit it is then, right?

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Jonathan Harston
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Jonathan Harston

Freedom of movement results in them calculating the wrong unemployment/employment rate. It has to be calculated over the whole area that people can freely move around, so the UK unemployment rate is actually the EU unemployment rate. It’s like in the old days when the unemployment rate didn’t count you if you were a primary carer, the real unemployment was hidden in another accounting category, nowadays the real unemployed are hidden overseas.

Chris Hughes
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Chris Hughes

Yes – thats the problem with explaining Brexit in terms of figures and economic theories (which can be disputed indefinitely). It’s not about that. It’s about people resenting having mass immigration imposed. It was imposed for economic reasons with no concern for immigrant or host communities.

Chris Hughes
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Chris Hughes

See my rolling blogpost, “Brexit and free movement – the east European elephant”. (I say rolling, but I haven’t updated it since January, because nothing real has happened since then.)