02 Jun Immigration, wages and employment. Part 2
In the previous post on immigrants, wages and employment, I explained that there is no empirical evidence that shows that immigrants put significant pressure on wages or that they take away jobs from native workers. Why then is the belief that immigrants lower wages so widespread? Let me start off by giving an example. The theory comes next.
In 2015, Stephen Nickel and Jumana Saleheen authored a paper that has been heralded by Brexiters as evidence that EU immigration undermines native British wages. Iain Duncan Smith, former Secretary for Work and Pensions, cited the article to argue that workers’ average wages fell by 10 per cent (!) because of EU immigration over the past decade. This outright lie was – unsurprisingly – repeated by Boris Johnson and many other Conservatives. Theresa May repeatedly claimed that EU immigrants lower wages and that Freedom of Movement must therefore end. Jeremy Corbyn, scandalously, spoke about the “whole-scale importation of underpaid workers from central Europe in order to destroy conditions, particularly in the construction industries” (see here).
Nickell and Saleheen, however, had said something completely different. Their actual results suggested a 1 per cent fall in the wages of low-skilled workers due to immigration and this impact had been spread over a period of eight years.There was no negative impact found from immigration on the wages of skilled workers and professionals. “The wage impact is very small … (Low-skilled workers) lose out by an infinitesimally small amount,” Nickell said in an interview with The Independent.
The authors also explained why they didn’t speak out sooner against the abuse of their findings. Until December 2017, Nickell was a senior official at the Office for Budget Responsibility. He was, he told The Independent, “not allowed to get cross” about the public bowdlerisation of his research findings by the pro Brexit anti-immigration camp. His co-author Saleheen, an employee of the Bank of England, had also been unable to speak out publicly to correct misleading statements.
Several other studies reached similar conclusions to the one of Nickell and Saleheen. A study from the London School of Economics showed that EU citizens in the UK make a large positive contribution to the UK’s tax take, that they are less likely to be out of work than the native population, less likely to use the NHS and less likely to make use of social services (including social housing). They are, on average, higher educated than the natives, they are more likely to start their own businesses and more likely to employ people. The evidence shows that, instead of immigration undermining average UK living standards, it enhances wages.
To come back to the original question: why is the belief that immigrants lower wages so widespread?
For decades, Western governments provided capital with everything it demanded – there has been, among others, full-scale economic globalization, financial deregulation, tax cuts for the rich, the liberalisation of labour markets, the flexibilisation of work, the privatisation of public services, receding welfare states and ecological stalemate policies. Massive levels of household and public debt had been created to guarantee consumption levels that could no longer be afforded by wage growth. This, in turn, created the enormous bubble of toxic money which led to the financial crisis of 2008 (Streeck 2015). The failure of these policies is clear. Today, in the US, the real wage of the non-supervisory blue-collar worker is two percent lower than in 1974 (Desilver 2018). Notwithstanding a recent recovery (which today seems to be a thing of the past, as manufacturing output and productive investments are falling), productivity growth in the US and Europe remains lower than at any point since the early 1800s, except for the crises of the 1880s and the 1930s and the two World Wars.
These developments severely delegitimized the political systems of the core North. Today, and for some time already, the political mainstream finds itself somewhere in a fugacious middle between being incapable and being unwilling to fight the ‘populist revolt’ and the political rise of the extreme right. The resentment and anger that underlies the populist revolt is not the recent patent of the illiberal, authoritarian, uneducated, conservative and xenophobic working class – a point that has been repeatedly rehearsed by Dani Rodrik and Robert Reich and many others liberals. It has, instead, become an intrinsic and structural contradiction of the capitalist state-beyond-modernism (Latour 2018; Bauman 2015).
What does that mean? Bauman (2015) wryly writes that the political system needs the racists at the fringes. In this view, the extreme right is functional to the mainstream because it canalises discontentment, frustration and oppositional activism away from the mainstream policies that have been implemented in the West for the last 30, 40 or even 50 years. That this view is as good as absent in the mainstream literature is not a coincidence. The tragedies of globalization and outsourcing for workers, the emergence of working poor, increasing inequality, the privatisation of public services, receding welfare states and austerity on the one hand and the rise of illiberal populism and the extreme right in ’left-behind’ areas such as the north east of England, Germany, France and Italy on the other are too obvious to be ignored. Both neoliberal and social democratic parties adopted some of the anti-social and anti-immigrant policies of the illiberal right and the extreme right, admittedly in a milder form (Lucassen 2015). Policies constituting a massive regression towards ethnically inspired, exclusionary ideologies are nowadays being promoted even by the left. Oskar Lafontaine’s diatribes against Fremdarbeiter or communists and socialists in Italy supporting Salvini’s Lega are sad cases in point.
Illiberal populism was born in the industrial areas that globalization made uncompetitive. Work disappeared and for many nothing came in its place except lower wages, declining welfare, gentrification sometimes, communities were broken up, some never found work again, poverty increased and became intergenerational, inequality rose within countries for decades by now. To some, it looked as if immigrants took jobs and housing, that they lowered wages, that they benefited from welfare. With every election, the social democrats lost a little and the extreme right won a little more. It is around that time that the pernicious argument was born in the mainstream parties that if people want anti-immigrant policies, who are we, democratic parties, to object? It might make no economic or any other sense. Indeed, it might be counterproductive (cf. Brexit), but what if this is what they want? This point has, literally, been made by Labour MPs. More importantly, the party strategists asked themselves, if we would tell extreme right voters in these deprived, de-industrialised, left-behind areas that they are wrong, how many votes would we risk losing?
Another factor complicating things further was that the rise of the extreme right was of course worrisome, but it seemed manageable. Since neither the left nor the traditional right profited electorally from the rise of the extreme right, the political balance stayed more or less the same. Still, the question remained how to react to the extreme right and their growing electorate. In accordance with the calculations of the party strategists (they were all wrong), Miliband went to the election in 2015 (which he lost) with Labour distributing mugs with ‘Vote Labour. Control Immigration’ on it (as if immigration was not being controlled) (see also here).
In 2017, Corbyn went to the election (which he lost, after seven years of the harshest austerity ever and the slowest recovery since the Napoleonic wars) while talking about immigrants putting pressure on wages. It was all about immigrants now. The whole Brexit discussion has been mainly about immigrants. The public discussion has almost never been about industrial reconversion, low investment, failing productivity growth, declining competitiveness, trade deficits, the condition of the Pound or austerity. It is very likely that, without the effects of austerity, there would have never been a Brexit.
In the early 1990s, I went to a lecture of Maurice Allais. Allais had won the Nobel (Riksbanken) prize for economics in 1988. Allais explained that we were effectively un-developing our countries. The battle of globalization, based on labour costs, could not be won. We faced a stark choice: we had to redefine and renegotiate the terms of free trade (if this was possible – and according to him it was) or we had to abandon the goals of full employment, upward social mobility, equality and poverty reduction. In one word, the price of globalization was abandoning the social democratic model.
Many people didn’t like Allais’ message. Meanwhile, an enormous amount of studies confirmed his prediction. Dani Rodrik wrote that when trade causes work to disappear, some groups will take a hit and their losses will not be transitory: in the US, income losses are estimated to lie between 8 and 25 percent of pre-displacement earnings of skilled workers. Free trade advocates admit that some people will be hurt, but that in the long run everyone will be better off. In fact, there is nothing in economics that guarantees this and reality suggests otherwise. Stopler and Samuelson proved that unskilled and low skilled workers and high school dropouts necessarily suffer long-term losses in income from trade liberalization. Rodrik (2011) quantified the ratio of redistribution-to-efficiency (meaning buying abroad for cheaper than we can produce ourselves): in the US, a move towards complete free trade would reshuffle $ 50 of income for each dollar of efficiency. For each dollar, someone gains $ 51, leaving someone else $ 50 worse off. The problem is exacerbated by the fact that trade is different from technology. While one can argue that most people are better off over the long run by the introduction of new technology, the same does not hold for trade. For people with low skills and little education, trade – competition on the basis of labour costs – is bad news throughout their entire lives.
No other European country than Sweden has witnessed faster increases in inequality since the 1990s. Sweden has now the fastest growing income gap of all 34 developed (OECD) countries. Today, 16 per cent of Sweden’s population – 1.5 million people – are at risk of poverty. Swedish households are among the most indebted in Europe. According to Goran Therborn, eighty years of progress have been wasted: in 2018 Sweden’s inequality was at the level of the 1940s, if not the 1930s. Therborn adds that the country’s poorest 30 per cent have no net wealth at all, merely net debts. Sweden does not tax gifts or endowments, it has no property tax, no wealth taxation and one of the lowest corporate tax rates in the EU. Bad macroeconomic policies are what made the Swedish Democrats grow, not immigrants, not the 2015 refugee ‘crisis’.
Goran Therborn speculates that Stefan Löfven realised during the election 2018 campaign that the never ending talk about immigrants only plays in the cards of the Swedish Democrats. Things definitely looked bleak. Polls gave the Swedish Democrats 22% of the vote, even 24%. According to Therborn, the Swedish Democrats did not break through because during the last months of the campaign the Social Democrats assertively opposed them on immigration. The battle of Swedish and immigrants workers is the same battle. The right and the extreme right want more and worse of the same: policies that have been proven to work nowhere, anti-union, anti-labour, anti-immigrant, anti-feminist, anti-democracy, more unrestrained capitalism that only benefits the rich. The extreme right loses when it is being radically opposed, not when it is being appeased or tolerated.