Migration, growth and jobs: a positive agenda

This article was originally written for the Recruitment and Employment Confederation’s e-book “Building the Best Jobs Market in the World: the Expert View“, and is reproduced with permission.  The full book contains essays from a wide range of authors, including David Smith, Vicky Pryce and David Blanchflower, and can be downloaded here. 

No serious analyst of the UK labour market thinks radical deregulation is required.  Labour market economists, and international organisations like the OECD, agree that three decades of successful reform have given the UK what is by international (and especially European) standards a flexible and generally well-functioning labour market.

But, paradoxically, there is one area where sensible deregulation is urgently needed, and could genuinely boost UK growth over the medium term; and yet, it is precisely here that politicians of all parties are talking about more, not less, regulation.

This is immigration. Now immigration rules are not generally what policymakers think of when they talk about labour market regulation or “red tape” more generally.  But of course restrictions on those who want to come here, or stay here, to take up employment or to look for a job are exactly that: they are government regulations that change the way the labour market functions.

This government has talked a lot about labour market deregulation, but, sensibly, has done rather little. However, as regards immigration, it has introduced a number of burdensome and bureaucratic rules and regulations, including a quota on skilled migrants from outside the EU, and restrictions on students, especially those who want to remain here after graduating to work or start a business.

Fortunately, the damage has been limited by a rearguard action by sensible voices within government (most obviously Vince Cable, but also some Conservatives), cognisant of the potential economic damage.  They succeeded in ensuring that the Conservatives’ net migration target was never translated into actual policy and managed to create a number of  backdoor mechanisms to ensure the headline restrictions have not been as harmful as feared.

But the next government – of whatever complexion – will face a serious dilemma.  The senior leadership of all three parties that are likely to form a government know perfectly well that further restrictions on skilled immigration or students from outside the EU will damage the economy; while limiting free movement of workers within the EU is neither practical nor desirable.

Yet they seem paralysed by what they perceive as public hostility towards immigration.  Their panicked response is therefore to come up with policy proposals which are likely to be neither sensible nor effective.  Labour’s proposal that companies hiring a skilled worker from outside the EU should have to hire an apprentice at the same time) would be bureaucratic at best; while Theresa May’s suggestion that students should be obliged to leave the country immediately after graduation – even if they have a job offer – is so obviously self-defeating that it is unlikely ever to become policy.

Is a more constructive agenda possible?  I believe there is potentially an opportunity, for three reasons:

• It was obvious from the start that Conservatives’ net migration target was economically illiterate.  But it has also, predictably, backfired politically.  This has brought home, even to those who are relatively sceptical about migration that it is not sensible to try to target something over which you have limited control; and, even more importantly, that not all migrants nor all types of migration are the same.

• Equally, the debate on free movement of workers within the EU has revealed that, as long as we remain within the EU, the UK has limited control of this aspect of policy: grudgingly, all three main parties have accepted that. That should mean that policy concentrates on abusive or exploitative behaviour by some employers and landlords, not on immigration policy;

• Moreover, the focus on EU migrants has meant that it is increasingly well understood among the public that non-EU migration – which we can control – is mostly skilled workers and students.

So what practical, politically feasible steps could the next government take? I see three potential opportunities:

First, the restoration, at least in part, of the Post-Study Work Route (PSWR), which allowed foreign students to stay on after graduation to look for a job. This initiative was introduced by the previous government, based on two observations.

•  the success of Silicon Valley, in particular, and high-tech US companies in general, relied heavily on individuals who came to the US to study but stayed on to work (and in some cases, set up their own businesses)
•  that, for the brightest and most motivated foreign students, the possibility of being able to remain in the country for a period after graduation to work was a significant draw.

The abolition of the PSWR was a major own goal; it means that foreign students who want to stay on here and try to build a career or a business find it much more difficult, if not impossible. Since such people are, almost by definition, likely to be relatively well educated and motivated, English speaking, at least partly integrated into UK society already, and so on, they are precisely the sort of people we want on both economic and social grounds.  Of course, some will fail; they will end up unemployed or doing low-skilled jobs. That is the nature of immigration in a market economy; not all immigrants succeed, just as not all native-born entrepreneurs do either.  Partial restoration of the PSWR would send a hugely important signal to potential students that the UK does want to attract them and, if they think they can make a success of it, keep them.

Second, the abolition of the cap on Tier 2 visas for skilled worker with a job offer. The cap is of limited political salience – even relatively well-informed analysts often confuse it with the overall net migration target.  And, thanks to economic weakness between 2010 and 2013, and bureaucratic hurdles that make it difficult for SMEs to navigate the process, it has never been reached. But at some point recovery will mean that it will become a real constraint, just at the time when enforcing it would do most damage to growth. Skill shortages are already emerging in some sectors. It should not be hard for government and business to explain that deliberately excluding skilled workers who meet the official criteria, simply because the economy and labour market are performing well again, is economically self-defeating.

Third, a regional approach.  The current system favours immigration to London: salaries are much higher, so thresholds are easier to meet, and many large companies, who find it easier to deal with the system, have headquarters there.  And London is hugely dependent on immigration for its success.  But other parts of the UK arguably need skilled migrants more.  In some areas, the main constraint on economic development is the ability to attract or keep skilled workers.  Partial devolution of immigration policy – with city-regions being able to lower salary thresholds or skill requirements for those willing to commit to a region for an extended period of time – could provide an immediate boost to growth and jobs in such areas.

Of course, even more important than specific policy changes is a change of attitude and mindset on the part of government and policymakers: and a willingness to communicate that to the public. It remains to be seen if any of our politicians is up to the challenge.