The In and Out campaigns are both wrong about wages and immigration

Earlier on this week, Lord Rose, head of the campaign to keep Britain in the EU, made a somewhat large mistake in claiming that EU migrants are depressing wages in the UK. The Out campaign has jumped on his blunder, using it as ammunition to argue that leaving the EU will lead to wages rising for Brits.

However, this claim may not be as straightforward as it seems. The issue of immigration and wages has always been a contentious one, and there are a number of perspectives to consider.

Firstly, it is too much of a broad brush to simply say “wages will rise” if we leave the EU. When looking at this issue, we must assess exactly whose wages will be affected. The people whose wages will be most affected by immigration are those who are of a similar skill level to the arrivals. Seeing as the majority of EU immigrants are unskilled, it is therefore the lower-skilled workers whose wages are most affected, as they can be substituted for immigrant workers, who are often prepared to accept lower pay. In other words, in the UK it is only the bottom 20% of earners who are likely to be negatively affected by immigration.

While it may be fair to blame the EU for this increase in unskilled work supply (of the unskilled workers who arrived in the EU in 2013, 80% were from the EU), there is no evidence to show that these arrivals in fact contribute to a decrease in income levels across the population as a whole. 

A 2008 study shows that while 20% of the workforce may be negatively affected, the decrease in wage levels is unlikely to be more than -1.5%. Furthermore, a 2012 study showed no statistically significant impact on claimant count rates as a result of immigration, suggesting that unemployment of UK nationals was not affected either. The evidence actually shows that there is in fact a net positive impact on wages in the UK, as higher-skilled worker’s wages benefit from immigration. From a 2013 paper by Dustmann:

These estimates indicate that an increase in the foreign-born population of the size of 1% of the native population leads to an increase of between 0∙1% and 0∙3% in average wages. As the average yearly increase in the immigrant–native ratio over our sample period (1997–2005) was about 0∙35% and the average real wage growth just over 3%, immigration contributed about 1∙2–3∙5% to annual real wage growth

It’s therefore clear to see that the claims regarding wages from both campaigns can be debunked. Dustmann isn’t the only one to argue that immigration has a minimal effect on wages either, with other economists such David Blanchflower recently arguing the same thing.

Although it is true that wages on the bottom of the scale are negatively affected, restricting EU immigration does not seem like the best way to rectify this. The benefits of immigration and wealth created as a result would more than pay for the redistribution of wealth to those who lose out, for example through the system of tax credits. The EU may have many problems, but the case that immigration leads to decreased wages is not one.