THE BLOG

A Sensible Solution

27/08/2015 15:04 BST | Updated 27/08/2016 10:59 BST

Shortly after his re-election last May, Prime Minister David Cameron made a speech in which he laid out the new government's plans on immigration. The speech was the first in a series of pronouncements by the government on their target to cut immigration to the "tens of thousands."

While businesses recognise the public's concerns over immigration, announcing policies on the hoof every time new figures come out betrays the government's lack of a long term plan. Scrabbling around to find measures to hit a bizarre and unachievable migration target is no way to give British businesses the stable environment they need. That is why today the IoD and British Future called for a Comprehensive Immigration Review, based on evidence and expert advice. We want to help set out a sensible plan for managing inward migration in a way which supports Britain's economy, works for our businesses and addresses public concerns.

Despite popular misconceptions, concerns about the impact of immigration on jobs and wages are not borne out by the evidence. Since the Mariel boatlift in 1980 numerous academic studies have found essentially no association between immigration and employment rates or wage depreciation for native born workers.

Migrant workers are also proportionately more entrepreneurial than native born people. ONS figures show that 17.2% of non-UK nationals have started their own business, compared to just 10.4% of UK nationals. There are 456,073 migrant entrepreneurs in the UK today who, together, are founder directors of 464,527 businesses. Migrant founded companies account for one in seven of all companies in the UK and employ at least 1.16million people around the country. Despite this, 1,300 "high-skilled" visas for people with skills the UK economy vitally needs were rejected by the Home Office last June.

The chief logical mistake of anti-migration policy is what economists call the Lump of Labour Fallacy. That is, the erroneous belief that there are only so many jobs to go around and that no immigrant can get a job without taking that job from someone else. This appears an understandable assumption. After all, with other types of market transactions when the supply goes up, the price goes down. If there were suddenly a lot more widgets for sale, we would expect the price of widgets to fall. It might seem intuitive, therefore, that when there is an increase in the supply of workers, workers who were already in the UK will make less money or lose their jobs.

Yet that is not the case. For starters, newcomers are often not like-for-like substitutes - migrants have different skills and aptitudes. More to the point, migrant workers don't just increase the supply of labour, they simultaneously increase demand for it as well by using the wages they earn to, for example, rent apartments, eat food, go to the cinema, and buy cars. That creates more jobs building apartments, cooking food, selling cinema tickets, and making cars etc. Migrant workers increase the size of the overall population, which means they increase the size of the economy. Logically, if migrant workers were 'stealing' jobs, so too would every school leaver or graduate entering the job market. In reality, of course, the opposite is the case. As the Prime Minister has rightly said, "it's crude and wrong to say immigrants come to Britain to take all our jobs." The idea that migrant workers reduce opportunities or wages for native workers is wrong. Government policy should not be based on it.

The UK has a dynamic, globalised and world leading economy. One of the astounding features of the UK job market is the way in which immigrants have boosted productivity. The UK has been fortunate enough to receive large numbers of young, highly motivated and well qualified migrant workers who rather than being a drain on the UK's finances, have made substantial net contributions. As a recent study by the Department for Business, Innovation & Skills has shown, through their foreign learned skills and experience migrant workers enable the cross-fertilisation of ideas, bringing new approaches and innovative practices which improve the competitiveness of British businesses. They bring knowledge of, and connections with, the markets of their home countries, reducing communication and trade costs, and thus increasing export opportunities for British firms. Additionally, by filling gaps in the workforce that would otherwise remain empty foreign born workers help drive up labour productivity (and hence prosperity and GDP per capita), a point recently repeated by the Bank of England's Governor Mark Carney.

It should also be recognised that efforts to reduce migration in this manner will not only affect those businesses and organisations that rely on skilled migration, they will affect the general population who rely on the vital services those businesses and organisations provide. The government should instead focus its efforts on improving our education system. Penalising employers who, because skills shortages are rife, need to look to the global talent pool to find the employees they need, is not the answer to gaining more home-grown talent. Employers who seek to recruit non-EU skilled employees do so because the skills are not available locally.

Improving the skills of British workers is the right goal for business and the government but it won't happen overnight. It takes time to train school-leavers and graduates in the skills for which the UK economy is currently experiencing a shortage. In the meantime there is a sensible and mature debate to be had about the costs and benefits of immigration. At the moment, however, the whole issue is being poisoned by the government's adherence to their bizarre and unachievable net migration target.