Tuesday, 26 April 2016

Are EU Ready for the Referendum? Part 2: Immigration

In my previous blog post I focussed on trade with the EU. This time I shall look at another issue for voters, the issue of immigration. It wasn’t that long ago when Mr David Cameron promised that he would bring down net migration to ‘the tens of thousands’. According to the Office of National Statistics, net migration stood at 323,000 for the year between September 2014 and September 2015. This may be seen as a large number, and could justify why immigration remains one of the main concerns of British voters ahead of the referendum.
Courtesy of The Daily Telegraph

Immigration is the inward movement of labour which is one of the four main factors of production alongside land, enterprise and capital. Factors of production are inputs which can be used to make outputs of goods and services. These can be consumed to improve economic welfare.

The economic consequences of immigration can be both good and bad. On the one hand, an increased population in Britain places a burden on its public services, notably education and healthcare. Bigger class sizes could have an adverse effect on pupils’ education and reduce the quality of human capital coming from British schools. With respect to healthcare, we are already seeing long waiting times in A&E departments and difficulty in arranging appointments with GP’s. It could be more difficult for workers to get medical help. If labour are not healthy then they would not be optimally productive. 

That said, the NHS depends heavily on foreign-born workers, with 11% of all staff and 26% of doctors coming from abroad (2014 figures). Similarly, international students at university pay higher fees which contribute to institutions providing a better service for all students. Moreover, there are intangible social benefits to having international friends and exposure to different cultures.

Net migration contributes to the increased flexibility of the labour market. Labour market flexibility refers to the speed and willingness of labour to respond to changes in market conditions. It is also useful in helping a country achieve its macroeconomic objectives. EU migration is contributing to increased employment and economic growth in the UK. Since David Cameron was re-elected as Prime Minister there are 850,000 more Europeans and 1 million more Britons in work. Higher economic growth forecasts (0.6% Q2 2016) have taken net migration into account. Furthermore, although they may lead to greater usage of the UK's public services, EU migrants are net fiscal contributors. This means that they pay more in taxes than they receive in benefits / welfare payments. This contribution, valued at £2bn annually, will count as government revenue.

However, though real GDP may have increased it may not be the same for GDP per capita, meaning living standards may have fallen. As with all costs in economics, it is hard to account for absolutely everything. There are also intangible costs associated with immigration, such as loss of social cohesion and problems with cultural differences i.e. lack of integration.

Despite the cries of the 'Brexiteers', in my opinion leaving the EU isn't going to solve the problems we have with immigration. In the last post I discussed the extent to which Britain trades with the EU. If we left, forming trade deals with other countries would not be easy, especially if US President Obama's recent quote is anything to go by; "the UK is going to be in the back of the queue". Continuing free trade with the EU would likely be subject to a condition of free movement of labour, similar to that of Norway. Workers from EU nations currently living here are unlikely to be removed.

Moreover, leaving the EU might prompt France to get rid of the 'Treaty of le Touquet' which puts the border between England and France in Calais. The migrant crisis could potentially worsen if UK entry checks are done this side of the Channel possibly resulting in refugee camps in England. The government is currently running a budget deficit and Mr Osborne wants to achieve a balanced budget by 2020. Potential increased costs from border checks and running camps would go against this government objective and could lead to government failure. Besides, there is an opportunity cost with all government money as there are several areas where it could be better spent on for example defence. Increased spending by the Home Office would likely result in less money for the other departments.

To conclude, I believe immigration is definitely a very economic issue as well as a political one. For this reason it will be one of the most important topics that voters will think about before the referendum. One thing amongst the uncertainty is fairly sure; if there are problems that our country currently has with immigration, leaving the European Union would be unlikely to solve them.

My next endeavour would be to explore the influence of Britain in the world and how we decide on June 23rd would impact this.