Thursday, November 15, 2007

The unemployed and migration

Chris Dillow posts at Liberal Conspiracy lamenting the Left's unwillingness to challenge the tendency of right-wingers like me to "blame the victim" of unemployment.

This was a response to the comments on an earlier post of his where I argued that the important skills shortages aren't in occupational skills, the need for which is hard to predict, but basic social and intellectual skills. Chris responds that most unemployed people don't fit into that category at all. That I'm blaming the "genuine losers from the creative destruction that is inevitable in a market economy" for their hard luck.

I think he's missed the point. He is right to note that most unemployed, or economically inactive, people do not have the social problems I'm discussing but they aren't are victims either. From the Liberal Conspiracy post:

"3. Unemployment is not a “pool” but rather the difference between two quite fast-flowing rivers. In any one month, almost a quarter of the claimant count measure of unemployed leave or join the count (table 10). If they’re so idle, how come so many of the unemployed leave the register so quickly?"

I had a period like this after I left university (I didn't claim unemployment benefit but that's not particularly crucial to this debate). My skills would have been more than sufficient to secure a quite respectable job immediately but instead I was not employed for a bit and found a job I really wanted. I'm quite pleased with the way things have turned out. This is quite normal and the source of most unemployment (most of the unemployed could find "a job").

I wasn't a victim. Neither are most of the short-term unemployed. Short-term unemployment only becomes a real problem when a mess of a benefits system undermines the incentives that encourage people to be a bit flexible about the kind of job they will accept. That turns short-term joblessness into long term unemployment.

I still think I was focussed on the right problem in my original comment. Shortages of basic skills (those you can easily predict an ongoing need for) don't just create unemployment, after all:

1) They are spread out across the unemployed, those on incapacity benefit, those economically inactive and - more than anything - those in low value and patchy employment.

2) They have particularly pernicious effects. Young people have the potential to stay in long-term unemployment for longer, are more likely to have dependent children and are more likely to spend their free time making other people's lives a misery. I'm not saying unemployment among the over fifties doesn't matter. It does and we clearly need to do some serious thinking about how we improve opportunities for older people. However, long-term youth unemployment creates more problems for more people.

3) Long-term youth unemployment is the most relevant to demand for migrants. A failure to consider which shortages migrants can effectively fill is, I think, the big flaw with Chris's original post.

Most vacancies are just as temporary as most unemployment. How many of the vacancies that Chris used to justify an economic need for immigration would be filled within days, weeks or months?

Imagine what would happen if migration were used to fill short-term vacancies in a dynamic labour market:

Day One: Large number of vacancies. Immigrants respond to the demand and enter the UK labour market.

Day Two: Whole new load of vacancies. New immigrants enter the labour market. Immigrants from Day One and earlier run a similar risk of becoming unemployed to the indigenous population.

This process continues ad infinitum. If the labour market needed immigrants to fill short-term vacancies it would need immigration on an unimaginable scale. I doubt you could even get the immigrants here in time to significantly shorten the length of the vacancy.

Migration only really makes sense if it is responding to a medium to long-term demand for labour. Young people are the ones who really compete with long-term immigrants. It is their lack of basic skills that makes them unable to fill junior positions and creates a demand for mass-immigration. As such, if British young people were more employable there would be less demand for migrant labour. Some of the demand that migrants fill could be filled with domestic workers if they could be provided with skills that we can predict a need for.

None of this is particularly important to my own thinking on immigration. I'll set that out another time. However, I do think it is important to understand the trends driving economic demand for migrants and I'm not sure Chris's focus on shortages of occupational skills can facilitate such an understanding.


James Higham said...

Well argued, particularly the last two paragraphs.

...basic social and intellectual skills...

for sure these are the key factors.

CFD Ed said...

Interesting post. Well thought.

Anonymous said...

Hi Matt, here's my take on the economic impact of immigration, focussing on an area which I know a lot about i.e. highly-skilled migration.

People often talk about the economic benefits of migration in terms of filling a skills shortage. E.g. there are not enough doctors, so hire doctors from overseas. I agree with you that this is short sighted, and that the UK should endeavour to train more local doctors.

However, sometimes it's not a matter of a lack of qualified people, but simply a desire to choose the best. Take applications for graduate jobs at investment banks as an example, something every LSE student knows about. If Goldmans and Merrill Lynch limited themselves to hiring only UK or EU applicants, would there be enough suitable candidates? Certainly. But that's not the point - these firms want to hire the best, and if there is an Indian citizen who is much better than the 100 or so qualified Brits, then of course the firm will want to take the Indian.

If you look at the matter from a broader perspective, the City benefits from being able to pluck the best and brightest from all round the world, and doesn't care about nationality. If it were to limit itself to locals, there would certainly be enough talented people, but it gets a better outcome if it broadens its horizons.

I'm not entirely sure where this long and rambling post is heading, but the point I'm trying to make is that when analysing the economic impact of migration, there is a subtlety that you're kinda missing. It's not just 'filling a skills shortage' that you should be commenting on.

CFD Ed said...

When it comes to skilled migrants there is also the matter of the potential damage being done to their originating economy/country.

Whilst they should be free to take their labour where they will, the loss of the skilled workers we are siphoning off may be keenly felt where they are leaving.