TWO years ago, as the recovery stalled, a number of commentators suggested that the main problem with the UK economy was too much “red tape” preventing employers creating jobs.
In response, the government commissioned a report from Adrian Beecroft on labour market regulation. It was deservedly mocked for ignoring the evidence – and, in particular, the fact that the UK has one of the most flexible labour markets in the developed world.
Fast forward, and the Beecroft report has been buried, while few would seriously argue that red tape (in employment law – planning is another matter) is inhibiting recovery. In fact, our flexible labour market has meant that employment has held up remarkably well despite the intervening two years of economic stagnation (which is hopefully now coming to an end).
Unemployment is still far too high, but the fact that it is relatively easy to hire and fire employees to meet business needs, and that workers and employers have adjusted working patterns and practices to cope with the weakness of demand, means that the UK private sector continues to create roughly 4m jobs a year, as our recent research has shown.
However, this comes at a cost. Real wages have fallen sharply. Up to a million workers are on zero-hour contracts. The weakness of trade unions means that the balance of power in private sector workplaces is less favourable to workers than at any time in recent economic history.
It is in this context that we should examine shadow immigration minister Chris Bryant’s speech yesterday about immigration and the labour market. Bryant is right to worry about the employment prospects and wages of less-skilled Britons – particularly in less economically successful areas – and high levels of youth unemployment. But there is little or no evidence that immigration has much to do with it. In fact, the data shows that between 2004 and 2010, youth unemployment for native-born Britons rose faster in areas where there were fewer immigrants.
It’s true that employers – as Bryant claims Tesco and Next did – sometimes end up hiring high numbers of migrant workers, because they find it difficult to recruit locally. But that’s a symptom – of educational underperformance and a lack of proper pathways from school to work for those not going on to higher education – not a cause. Nor should it be exaggerated. Of those 4m new private sector jobs every year, the vast majority – perhaps five out of six – go to native Britons, not immigrants.
So immigration policy is not the answer. Restricting immigration, or putting barriers in the way of employers who recruit immigrants, will achieve little except to make British business less competitive; the result will be slower growth, a larger deficit, and fewer jobs overall, rather than more jobs for native Britons. In any case, for low-skilled workers, it is virtually impossible to restrict access to the UK labour market in any significant way without leaving the EU.
Bryant and the government probably know this. Bryant’s speech yesterday was embarrassingly light on actual proposals, while the government is reduced to the unpleasant gesture policies we have recently seen in London. But even if nothing much comes of this, damage is still done because the real issues are obscured.
If Bryant, or indeed the government, want to do something about these issues, then they should start with policies to improve schools and training, especially in those areas which have fallen behind. If they want to help young unemployed people, then they could introduce a compulsory jobs guarantee for young people not in education or work, based on the successful Future Jobs Fund (cancelled before the government’s own evaluation showed it to be a great success). And if they think that workers are being exploited by unscrupulous employers – or simply that the balance has shifted too far – then they could regulate zero-hours contracts or increase the National Minimum Wage.
Of course, none of these options is a free lunch – unlike vacuous speeches or “eye-catching initiatives” about immigration – which is why politicians duck them. Increasing worker protection would reduce flexibility, while a significant rise in the minimum wage would benefit most low-paid workers but might cost jobs. In an increasingly stratified labour market, providing good career paths for people who don’t go to university is a real challenge for business and government.
Instead, politicians seem to want to talk about nothing but immigration. But blaming immigration for long-standing economic and social problems, when it is unlikely to be the main or even a significant cause, is bad for British politics and for policy-making.
Jonathan Portes is director of the National Institute of Economic and Social Research.
Follow on Twitter: @jdportes