ABSTRACT
Labour mobility in the European Union and the UK referendum
Jonathan Portes
How, from being a relatively peripheral issue both economically and politically, did free movement of workers within the EU become is a – perhaps the – central issue in the UK’s referendum on EU membership?
Mobility within the EU as a whole, and in particular to and from the UK, was relatively low before the enlargement of the EU in 2004 (and again in 2007); over the last decade the UK resident population originally from other EU member states has more than doubled, to more than 3 million, and continues to rise rapidly. Even this may understate the possible impacts on the UK labour market: over the last 4 years, well over 2 million EU nationals have registered for UK National Insurance numbers, required for (legal) access to employment, reflecting both a sharp increase in short-term and seasonal migration, and perhaps some under-recording.
There is now a large literature on the impact of EU migration to the UK on the economy, labour market, public finances and public services. Broadly, the conclusions are the following:
-EU migrants are relatively young and mostly medium to high skilled; however, migrants from the newer Member States are overwhelmingly employed in relatively low paid and low skilled occupations. They appear to have filled labour market gaps and alleviated worker and skill shortages in particular in industries that require relatively flexible labour, such as agriculture, construction and food processing
-There is quite strong evidence that there has been essentially no negative impact on the job prospects of native workers. Wage impacts appear to be small to zero on average, but there does appear to have been a noticeable, albeit still quite modest, negative impact on the wages of lower paid workers in the service sector;
-Claims of “benefit tourism” – that is, that EU citizens come to the UK primaril or mainly to claim benefits – appear almost entirely unfounded, and EU migrants are much less likely to claim out of work benefits, disability benefits and (for obvious reasons) pensions. However, they claim in-work tax credits and inhousing benefits – which are paid mostly to low income families with at least one worker – at relatively high rates
-The overall impact of EU migration on the public finances appears to be broadly positive in both the short and long term. While there clearly are localised pressures on public services, quantitative analysis have not found any significant adverse impacts resulting from concentrations of EU migrants on either education or health. It seems likely that EU migration, along with other factors, has contributed to the sharp increase in house prices over the last 15 years.
The Prime Minister's "renegotiation" of the UK's relationship with the European Union will allow the UK to phase in entitlements to in-work benefits for new arrivals from the EU over a period of four years. But it is generally accepted (even within the UK government) that the impact of these provisions on benefit payments will be small, and on migration flows negligible.
Perhaps the real significance of the renegotiation is that it has clarified thatfree movement remains a fundamental EU principle. The main measures the UK is entitled to impose are temporary and/or time-limited. That means the dividing lines for the referendum are more clearly drawn. If the UK votes to stay in, it will have accepted – however reluctantly – that staying entails a commitment to free movement of workers in the EU, both in principle and practice, and the resulting migration flows. Managing this, both economically and politically, will pose considerable challenges.
If, however, it votes to leave - and, as almost all campaigners on the Leave side now propose, also remains outside the European Economic Area - then the UK could potentially regain a considerable degree of flexibility. But this in itself does not say much about what a post-Brexit system would look like. While proponents frequently talk about an “Australian-style points system”, this begs more questions than it answers. If immigration and free movement are indeed the determining factor in the referendum result, there may be strong political pressure on a post-Brexit government to deliver very large reductions in immigration to the UK.By contrast, some proponents of Brexit have argued that it would allow a more liberal approach to non-EU migration.
A decade ago, few on either side would have predicted the centrality of free movement in the Brexit debate. . While the economic impacts of recent EU migration appear to have been relatively benign – even for the low paid and low skilled – it remains the most important issue for many, perhaps most, likely voters, and the “renegotiation”, which focused on the largely irrelevant issue of “benefit tourism”, has not changed that. This means that a vote to Remain will unequivocally be a vote for the status quo in this area. A vote to Leave, however, will take us into new territory for UK immigration policy, with potentially significant consequences.