Realist, not conformist analysis of the latest financial, business and political news

It’s Not So Much That I Told You So But I Did Tell You So

Thanks for all the fish, obviously

It is a standard economic assumption that immigration doesn’t lower wages. This is because while immigrants do bring their labour with them they also bring their desires. So, demand is added to the economy as well as supply. This has the useful attribute for an economic observation of being true.

However, this is not true of all forms of importing foreign labour. The trick is being able to differentiate:

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.

If people only arrive when there is work and then leave when there isn’t then we can have full employment here but no upward pressure on wages. Because there is that reserve army, elsewhere, that can still be drawn upon.

That article in The Times is from two years ago. Today:

Then there is Brexit, which makes it harder for EU workers to make the move.

Ian Stewart, chief economist at Deloitte, says: “In the last 20 years, employers have got used to operating in a labour market where there is a ready supply of overseas workers, and that has changed as a result of Brexit.”

Either way, the shortage of labour is having an obvious effect: employers have to pay more.

Shouting “I told you so” is most unbecoming but, you know, I did tell you so.

One effect of Brexit is going to be rising wages at the low end of the employment spectrum. And the problem with this is?

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John B
John B
3 months ago

One effect of Brexit is going to be rising wages at the low end of the employment spectrum. And the problem with this is?’

Not just at the lower end either – pay differentials. Unions are big on this, but even those not in unions understand it. If the person on the rung below is catching you up pay-wise and closing the gap, you want more, then the one above you wants more, and so on.

Phoenix44
Phoenix44
3 months ago
Reply to  John B

Which is a problem those advocating large increases in the minimum wage never seem to consider. Quite why those currently earning twice as much as the minimum wage would be happy to have those currently on minimum wage earning the same as them is never discussed. I’ve got five years’ experience and training and you are just starting but we earn the same…

jgh
jgh
3 months ago

The Remainers promised us Brexit would result in wages going up and house and food prices going down. What’s not to like? Vote Leave!

And it was the *Remainers* that promised us this!

bloke in spain
bloke in spain
3 months ago

“It is a standard economic assumption that immigration doesn’t lower wages. This is because while immigrants do bring their labour with them they also bring their desires. So, demand is added to the economy as well as supply.” Shows you how much economists know then. Do you get it all from books? Never interface with the real world? Have you ever known any immigrants? OK, let’s start with that Polish plumber you mentioned. What do you think he does with his earnings? Buy himself a semi in the suburbs? The Polish plumber I know lived as cheaply as he could… Read more »

bloke in spain
bloke in spain
3 months ago
Reply to  Tim Worstall

Tim, it’s hard to see why it’s the standard assumption. Unless economists are clueless about actual immigration. It would only be true if the immigrants were coming from economic circumstances similar to those they’re going to. Or were severing all ties with their origins. Maybe it’s the first. I’ve no doubt middle class economics graduates from Poland have a lot in common with middle class economics graduates from the UK.

Phoenix44
Phoenix44
3 months ago
Reply to  bloke in spain

No, your assumption is only true if Poland is largely following autarky rather than open and global trade.

Spike
Spike
3 months ago
Reply to  bloke in spain

Moreover, much immigration is not based on work, including refugees, refugees of bad economies, refugees of Climate Change, and the US Diversity Visa (“It’s our fault for not bringing in enough of youse before, so no need to assimilate.”) Immigrants who work have never been a problem. The current recruitment of welfare clients is a huge one, designed to be electorally unfixable.

Phoenix44
Phoenix44
3 months ago
Reply to  bloke in spain

And you think that spending in Poland then all stays in Poland? They buy a Chinese blender and then the Chinese worker buys a US computer and then…

More people working more productively in a global economy doesn’t stay local.

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