Is free movement of labour within the EU a good thing?

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This is my third post in a series of pieces on Britain and the EU. In the last, I examined some economic consequences of Britain’s EU membership, and in this post, I want to look at another consequences – free movement of labour. Studies looking at the first wave of immigration from A8 countries after 2004 find a positive impact on the economy as a whole. These macroeconomic effects mask the ‘distributional’ impacts however.

There are winners and losers from free movement of labour. The thinktank Open Democracy published a report in 2012 which looked at this issue. Here are a few stats it draws out on immigration to the UK from A8 countries:

There are some aspects of this that could be seen as positives. We have an ageing population, so an influx of young, skilled migrants could help ease some of the issues and ageing population brings. Those skills could improve the productivity of the UK economy, supporting vital services.

In other regards though, the effects of these factors on the low-skilled end of the labour market are likely to be significant (even if the overall impact on the economy is positive). While A8 migrants are relatively higher skilled, they are often not doing work commensurate with their skills. People argue they are doing jobs Brits won’t do, but  we are supposed to believe in supply and demand. If Brits won’t do a particular job, the employer should either increase the wage offered or invest in capital equipment to reduce the requirement for labour. If it can’t or won’t do either of these things, the job probably shouldn’t exist.

An influx of young workers is also likely to place pressure on particular services in certain parts of the country. Schools, housing and health all face greater pressures due to immigration from the EU, although the magnitude of the impact is not equally spread throughout the country. This can be dealt with if the government has the ability and the will to increase provision of these things, but housing, schools,  medical facilities and the relative professionals to staff these things take a long time to build and to train, while planning is difficult when you don’t know how many people will come and where they will settle.

Migration to the UK from Eastern Europe is related to the unemployment rate in the home nation. When unemployment is high, people emigrate. While a period of high unemployment on the continent may coincide with a labour shortage in the UK, equally, it may not, so the numbers coming and their timing is largely based on the performance of economies elsewhere.

Other countries use a points-based system to determine who they want to allow into the country, and they can loosen or tighten the points criteria as needs change. In the UK, we have a visa system for those wishing to come to the UK from outside the EU, but cannot impose restrictions on those coming from the EU itself. Even if you believe immigration is a positive thing (and I broadly do), the idea you would not be able to impose any restrictions of those seeking to come from certain parts of the world – regardless of your national interest – just doesn’t sit right with me. This is one area that would need significant reform before I could be convinced the continued UK membership of the EU is desirable.

 

 

Links for the w/e 13.04.14

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Just a few links to share this week. First up, Brian Romanchuk gives us a primer on functional finance as proposed by the economist Abba Lerner, which is an alternative approach to government finances:

Primer: What Is Functional Finance?

Next, here’s Bill Black comparing and contrasting two Nobel economics prize winners:

Nobel Schizophrenia over the Georges: Stigler and Akerlof

And here’s a nice interview with economist Ha-Joon Chang:

Ha-Joon Chang: Economics Is A Political Argument

Over in Ireland, it seems some discussion of a full job guarantee may be starting to take place:

Joan Burton wants a job guarantee for everyone on the dole

And to end, because this is a short list this week, we finish with Chris Dillow writing:

In praise of brevity

 

If the private sector’s not doing it, doesn’t mean it’s not worth doing!

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Regular readers will know I favour a policy known as the job guarantee. This is where the government pays the wages of anyone willing and able to work, but unable to find it. This appeals to me because I believe the following things are true:

  • In our society, working (either for yourself or an employer) is seen as the norm; part of being a good member of society;
  • Doing a job of work that people think is worthwhile brings a lot of benefits in terms of mental and physical health;
  • People consciously or unconsciously understand this and most people want to work;
  • People shouldn’t have to work for wages below a level which allows them a reasonable standard of living;
  • Without active government involvement, there will never be enough jobs for all or enough jobs paying a socially acceptable wage.

So I am fully signed up to the idea that a job guarantee would be a very fine thing. Convincing others of the merits of this idea is much more difficult than I thought though! A lot of people accept there aren’t enough jobs, that wages are too low and that work is becoming more and more casualised. Despite this, they would rather leave people unemployed than have the government actually create jobs. I’m not quite sure why this is, but I it’s partly a lack of imagination (what would they do/non-jobs/digging holes and filling them in etc), and partly the usual “nice idea, but how will you pay for it” response.

It also seems to be received wisdom that the profit motive ensures that everything worth doing is already being done by the private sector, and if the private sector is not doing it, it must not be worth doing. It’s this argument I want to address now by suggesting a few areas either not being delivered or are under-delivered by the private sector, but are nevertheless quite worthwhile!

  1. Adult social care – We are often told there is a crisis in adult social care. At present, private sector companies are contracted to provide a lot of the home visits to the elderly an infirm. Contracts are often awarded to the lowest bidder, which means these services are delivered on the cheap. Staff are often on zero-hours contracts, poorly paid and only permitted to spend 15 minutes or at most half an hour on each visit. They are often not even paid for travelling between visits! So why not train up some of those willing and able to work, and pay them to provide a much more comprehensive service to people in need? This would help take the pressure off our hospitals if people are being well cared for in their homes, and allow resources in the NHS to be better targeted.
  2. Sports/Fitness coaches - As well as an adult social care crisis, there is also an obesity crisis. We could train people to deliver sports coaching to kids on a much wider scale. There are a lot of sports that require very little equipment, but with a coach who can inspire and importantly, a service that is free or heavily subsidised for the user, we could start to reverse the obesity trend. This again reduces expense in the long term on the NHS and kids who are fit and active do better in school.
  3. Childcare – Childcare is very expensive and means that a lot of people who want to work find most of their wages are going on childcare. Training people to provide childcare would lead to lower costs, meaning work becomes a more viable option for many. In addition to this, for those who prefer to look after their own kids, could also be paid to do so. A lot of people struggle to see looking after your own kids as being a job, but it could be argued that it’s a pretty important job. The production of the future generation will always pay for the future consumption of the current generation, so if kids are brought up happy and healthy by a parent in their early years, they will likely become more valuable members of society when they grow up. Is it really that different paying someone to look after someone else’s kids, to paying someone to look after their own?

Those are just three suggestions, but I know others will have much more imaginative ideas! There are so many socially beneficial jobs that would enhance our environment that just aren’t being delivered by the private sector (at least not at a price affordable to all). We could change this, but we need to lose the private sector good/public sector bad mentality. It’s holding us back!

The consequences of EU membership

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This is the second in a series of posts on Britain’s membership of the EU. The first is here. As a companion to these posts, I’ll be referencing the book “Moored to the Continent” (MTTC) by Baimbridge, Burkitt and Wyman. This post will draw on chapter 4 of that book entitled “Consequences of EU Membership”. The authors write that:

“Successive governments claimed that the benefits of EU membership are ‘self-evident’, so that the UK must remain at the heart of Europe; otherwise it would lose crucial political influence and millions of jobs… Furthermore, the claim is repeatedly made that even a slight weakening in the trend towards greater unification would cost the UK jobs and influence, never mind what would occur if the UK voted to withdraw from EU membership. Yet, governments of all colours have been remarkably reticent to undertake an independent cost-benefit analysis of EU membership.

The reason for this apparent conundrum is that at least in purely economic terms, it is doubtful that the UK has received a net benefit from EU membership.”

So what are the consequences of Britain’s EU membership? MTTC outlines a number of consequences including:

Trade with the EU - It’s often said that the UK benefits massively from free trade with the EU, which might be lost were we to leave, but it’s a two way relationship. The UK has rather a large trade deficit with the rest of the EU, so all those countries desiring to sell their wares to the UK would probably suffer a lot more should a British withdrawal result in new trade barriers being thrown up. So the consequence of EU membership that we all benefit massively from preferential trade is somewhat overblown.

The Common Agricultural Policy (CAP) – In protecting EU agriculture by imposing an external tariff on food imports from outside the EU, consumers within the EU pay higher prices for foodstuffs. This exacerbates the ‘cost of living crisis’, but also encourages an inefficient transfer of resources into agriculture and away from manufacturing and services.

Single Internal Market (SIM) - The single internal market within the EU removes all trade barriers and allow free movement of capital, people, goods and services between members. Before it’s introduction it was claimed it would allow consumers to buy cheaper goods due to increased competition and the existence of greater economies of scale, creating 5 million jobs across the EU. The authors of MTTC argue however that although the removal of trade barriers between member states would have been attractive in the more protectionist 60s and 70s, by today, successive rounds of global trade talks have already drastically cut tariffs, and so the benefits of the SIM are now less clear cut.

MTTC makes a number of other arguments on the consequences of EU membership regarding the common fisheries policy, the historical costs of our membership of the ERM, and the consequences of the EU budget. Some of their arguments I find less convincing, but overall, I think they make the case rather well that the economic case for staying in the EU is anything but ‘self-evident’. At best there may be a neutral economic impact from being in the EU. At worst, EU membership is probably weakly negative. In economic terms, we are alright in and we’d be alright out. In my next post on this subject, I’ll look at some microeconomic and non-economic consequences of EU membership.

How strong is the case for staying in the EU?

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As we approach the EU elections on 22nd May, I’m planning to do a couple of posts over the next few weeks on the topic of the EU. As a good leftie, I should be wholeheartedly in favour of Britain’s membership of the EU right? Well not really. Being anti-EU or eurosceptic is seen as very much the preserve of the right in Britain. We like to think of those holding anti-EU views as being either UKIP ‘little Englanders’ or ‘rabid right’ Tories, but I want to set out some good reasons why those of us on the left should also have some pretty significant issues with the EU, at least as it is currently operating.

To kick off then, I’m not going to lay out my argument straight away, but just simply make an observation about the style of argument those on the pro-EU side often make. It’s a style that I find somewhat irritating. I’m going to use Nick Clegg as an example because he’s been in the news recently making the case for the EU (and in a pretty annoying way too). Below are Clegg’s opening speeches from his recent TV debates with Nigel Farage of UKIP. I often feel as though Nick Clegg is insulting my intelligence and these clips are no exception. He basically has two arguments:

1. Trade with EU means jobs.

2. By being part of the EU, Britain has more ‘clout’ in the world.

That’s pretty much it. In the debates he didn’t really expand much beyond this. It seems to me Clegg thinks the case for staying in the EU is so self-evident, he can’t actually bring himself to rise above the level of mouthing simplistic platitudes. This style is typical among those who are pro-EU. They sort of think you are a bit strange if you express doubts, but often can’t raise their game above the level of “of course we’re better off in the EU”. In subsequent posts I will take a look at some of the pro-EU camp’s arguments and see if they actually stack up. First though, here’s the promised vids. Each speech lasts for about a minute. The first one starts around 2m13s, and the second around 2m51s.

Full employment, April fools and stupid Mr Gove

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Here’s my weekly roundup of the best links from the last 7 days. The week started with George Osborne declaring his commitment to full employment. This is what some people thought of Osborne’s pledge, but full employment can be defined in different ways. Neil Wilson provides his definition here:

Full employment is when everybody has a job

Tuesday was April Fool’s Day, and Paul Bernal put out this post. It’s actually a pretty good satire that explains the issues a lot of lefties (me included) have with the Labour Party:

Why I’m rejoining the Labour Party

This week also marked the first anniversary of the Bedroom Tax. Here is Jules Birch’s ‘uncelebration’ of the day:

Many unhappy returns

There have been a couple of articles this week by people with a different (and more accurate) view on how the economy works, that have appeared in more ‘mainstream’ sources. First up, Peter Martin blogged on Labourlist about Ed Balls’ desire to run a budget surplus:

The economics of a budget surplus: Something to think about before making rash promises

And here’s one from Philip Pilkington writing in The Guardian about what he sees as the problem the left faces in trying to increase living standards at the same time as shrinking the importance of the financial sector:

The left needs a deft touch in tackling the financial sector’s dominance

Some more non-conventional perspectives now with another blog by Neil Wilson, countering the oft-heard question “How are you going to pay for it?”:

‘Taxation = Government Investment’ : Each Time, Every Time

And here’s another from Peter Martin on what gives our currency its value:

Want to make your business card worth something? Easy. Start a protection racket!

In this article by former financial regulator Bill Black, he explains how the knowledge to prevent the crisis was already available to us but was ignored:

Three Passages From Akerlof & Romer’s 1993 Article That Should Have Prevented The Crisis

Two more bits to finish. First up, a letter to David Cameron on why privatising the NHS is such a horrendous idea:

The best precis of why NHS (and other) privatisation is a Bad Thing

And finally, here’s a video that seems to be going down well with teachers – “Dear Mr Gove”

 

Michael Meacher’s Speech on Benefit Sanctions

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There was a backbench debate in the House of Commons today on the DWP’s use of benefit sanctions. The official line is that claimants are only ever sanctioned if they are not doing what is required of them to either find work or prepare for work. The strong suspicion however is that sanctions are being used primarily to get people off benefits. Labour MP Michael Meacher opened the debate with a speech in which he gave numerous examples of where claimants have been sanctioned through no fault of their own, and highlighted the impact this can have on people’s lives. Here is the text of the first part of his speech (from Hansard):

“I beg to move,

That this House notes that there have been many cases of sanctions being wrongfully applied to benefit recipients; and call on the Government to review the targeting, severity and impact of such sanctions…

…From the evidence that I have collected from my constituency surgery, Citizens Advice, YMCA, the excellent Work and Pensions Committee report on this issue and the Library, it is abundantly clear that the standards that the DWP likes to claim always apply in sanctioning cases far too often certainly do not. I wish to cite a number of cases drawn directly from those sources.

A security guard at a jobcentre turned away a man with learning disabilities who had arrived 20 minutes early to sign on. The man then returned two minutes late to sign on and had his JSA sanctioned for 4 weeks.

A man was sanctioned for four weeks because he had not known about an appointment as the letter had been sent to an address that he had left a year ago, even though Jobcentre Plus was aware of his current address.

A woman claiming employment and support allowance had been diagnosed with cervical cancer and had given the back-to-work scheme provider a list of her hospital appointments. She was sanctioned for failing to attend an appointment on the middle day of her three-day hospital stay. The woman had two daughters but her ESA was reduced to £28 a week. She asked for reconsideration, but had heard nothing five weeks later.

A woman was sanctioned for failing to attend provider-led training when the receptionist had rung to tell her not to come in because the trainer was ill. She was subsequently told that she should have attended to sign the attendance register.

A woman whose ESA was sanctioned had her benefit reduced from £195 to less than £50 per fortnight because she missed a back-to-work scheme appointment owing to illness. Her sister had rung two days beforehand to say that she could not attend and arranged another date, when she did attend.

An epileptic man had his JSA sanctioned for four weeks because he did not attend a back-to-work scheme meeting as his two-year old daughter was taken ill and he was her sole carer that day. He rang the provider in advance, but was told this would still have to be noted as “did not attend”. During the four-week sanction he suffered hunger, hardship, stress and an increase in epileptic attacks, but he was not told about hardship payments or food banks or how to appeal the sanction decision.

Lastly, a man in Yorkshire and Humber was sanctioned for allegedly failing to attend back-to-work scheme events. He had in fact attended, and the provider had no record of any failures. His hardship request was not processed, his housing benefit was stopped, and he fell into rent arrears and had no money for food, gas or electricity.

These are not isolated or exceptional cases.”

There seems to be the beginnings of a bit of cross-party opposition to the DWP’s behavior with regards to sanctions, and I believe an independent review into their use is under way. While I don’t expect it to result in huge change, if it ultimately means fewer sanctions, then some good will have been done.