Higher immigration hurts blue-collar wages more than graduate jobs
There was a moment when I realised that Nigel Farage, besides the rhetoric, was a different kind of politician from those he derided. It was in the run-up to the 2016 referendum, when he was quizzed about the IMF’s gloomy forecasts if Britain opted to leave the EU. “The IMF has lost its way” Farage intoned, merrily discarding the forecasts of an organisation which, for politicians across the political spectrum, had been beyond reproach. “This is all about the big banks and the establishment protecting their interests within a cosy EU cartel that looks after multinational corporations” he tweeted that same day.
Politically speaking, this was a masterstroke. Most of the electorate doesn’t recall more than a handful of British politicians — something generally lost on Westminster-obsessives. So the idea they would have the slightest idea what the IMF is, or what it stands for, was outlandish. Farage’s dismissal of elite orthodoxy prefigured that phrase which encapsulated why many would soon back Brexit: take back control.
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Last week it was the turn of the IMF to address the British public. Speaking to Newsnight, Gita Gopinath, the Fund’s deputy managing director, outlined how higher immigration could reduce price rises. “With inflation as high as it is,” she said, “having workers who can fill shortages in some sectors […] will help in bringing inflation down”.
“But why would higher immigration reduce inflation?” should have been the follow up question from Ben Chu. Had Gopinath chosen candour over evasion she would have replied with something like this: “Because, under certain circumstances, and for certain professions, higher immigration can help depress wages.” Of course, nobody as senior as her at the IMF, or the World Bank, would overtly say that. The recent backlash against Huw Pill, the Bank of England economist who told a podcast that Brits should accept getting poorer, had the force that it did because such honesty is exceptional.
The IMF sees a causal relationship between rising wages and Britain’s inability to get inflation down. We know this because it said so in a report published in May. In that report it upgraded its projections for the UK economy this year from a contraction to growth of 0.4%. This unexpected turn of events, the report detailed, was partly the consequence of energy prices settling down but was also the result of surprisingly robust demand. This demand, in their words, was because of “stronger wage keep-up with inflation”. Workers were doing surprisingly well, often through trade unions and collective action, in not getting too much poorer.
But while Jeremy Hunt used that moment to highlight his success as Chancellor, what wasn’t mentioned was that rising wages — while good for growth — won’t help get inflation under control as rapidly as the Government would like. For that to happen, a small recession would be ideal, but of course no Tory minister would dare say as much.
There was another question Chu should have asked. If higher immigration can help reduce inflation, then how come the UK saw the largest net migration of any European country last year yet is also experiencing some of the sharpest price rises? The answer is that other European countries did more to keep energy prices down earlier on than us. France, for example, capped electricity price increases to just 4% in 2022. Other factors include Europe having a tighter market for energy suppliers than Britain — which was also more exposed to gas prices to generate electricity.
So does immigration necessarily lead to falling wages? For graduates and comparatively higher earners not really, but the evidence does indicate that for those without an education beyond secondary school it does. And it is precisely in the sectors which employ those people where wages are now going up. Pay rises are accelerating faster than inflation for pub bartenders, where wages rose 11.3% in the last year, and supermarket workers, with Lidl recently awarding its staff a 13% pay rise. It’s the same story for truck drivers. Indeed, labour shortages for HGV drivers became so profound that a restructuring of the industry has taken place in recent years, with this leading to pay being as much as 30% higher compared to 2019. A newly qualified HGV driver can now expect to earn as much as £40,000.
While the political establishment still defers to the IMF as if it were the Oracle of Delphi, the Fund isn’t especially interested in raising living standards for the average person. But the BBC is a public service broadcaster. It should be able — after Brexit, Covid and the price shock of war in Ukraine — to interrogate some of the sacred cows of a failing economic consensus rather than uncritically accept them. If it can’t then people will continue to turn away from it.
I support generosity for refugees — far more so than the UK has shown in recent decades. But the fact that workers’ wages have risen more than expected, particularly in occupations denigrated and forgotten for so long, is something to be celebrated. Trade unions, rather than borders, are the best way to manage the labour supply and guarantee good wages for all. But that’s a debate the Left needs to make and win in the UK. For now, we shouldn’t conflate the class war of the IMF for internationalism and progressive values.