Free movement has ended, so what is our new labour strategy?

·4-min read
 (Natasha Pszenicki)
(Natasha Pszenicki)

For many decades, we’ve had freedom of movement. Now that’s it’s gone, the Government has yet to come up with a coherent labour market alternative. In his speech at last week’s Conservative Party Conference, Boris Johnson observed that: “We are not going back to the same old broken model with low wages, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration”. His vision for the future is based on the idea that immigration has been used “as an excuse for failure to invest in people, in skills, and in the equipment, the facilities, the machinery they need to do their jobs”.

As a Marxist text, this would be rather good: the downtrodden workers being abused by their bourgeois bosses, arch capitalists more interested in making a profit through hiring cheap labour than in delivering outcomes designed to make the world a better place. The solution, apparently, is simple. Stop the inflow of cheap immigrants, create labour shortages, force wages higher, and thus persuade bosses to invest more in machinery that will make the (now smaller) workforce more productive.

We’ve had 40 years of freedom of movement, yet the Government doesn’t have a coherent new labour market approach to take its place. According to a senior government source, “we definitely need a new labour market strategy. It’s not as developed as it could be”.

Yes, bits of it are falling into place. Vacancies and wages are rising rapidly. On their own, however, they’re not going to reinvent the labour market. If our failure to invest in people has been going on for years, a lasting fix can’t happen overnight. Take the hospitality industry, reeling thanks to a shortage of staff. What are restaurant owners’ options in current circumstances? They could renegotiate the rent, raise wages to attract the necessary staff, limit opening hours and raise prices. Or, in Boris’s fantasy world, they could invest in “skills, equipment, facilities and machinery” to enable staff to do their jobs more efficiently. Yes, on your next trip to your favourite restaurant you’d be ushered to your table by a robot, where you’d be get your meal from a conveyor belt. Your food would have been prepared in a giant factory. Your waiters, meanwhile, would have retrained as software engineers to programme the robots. Who needs immigrants? But more likely, faced with a high wage bill, the restaurant owners would give up. In many cases, a restaurant’s existence depends on its ability to hire workers from abroad.

Admittedly, not everyone works in a restaurant and we all know stories about people who have lost out because of competition from immigrants. If, however, you’re adopting a “levelling up” policy based on restricting immigration, you might want to base that policy on a bit more than anecdotal evidence.

London has the largest immigrant population in the country: 37 per cent of Londoners were born outside the UK. If immigrants were the chief cause of low wages, you might expect Londoners to be paid a lot less than workers elsewhere. In truth, they’re paid a lot more. Immigrants come to London because that’s where the opportunities are. Seen this way, restricting immigration will only level down London, not level up anywhere else.

Meanwhile, the idea that investment serves only to make workers more productive has unravelled in recent decades. In the US there has been a steady “hollowing out” of the labour market, largely because AI robotics and other forms of artificial intelligence have combined to replace workers with machines. Investment has often been labour “replacing” rather than labour “enhancing”. Those who have lost their jobs have found themselves forced to compete for work below their pay grade, which only serves to depress wages further.

Still, faced with a rising wage bill near-term, British-based companies might eventually engage in a wave of productivity-enhancing investment to allow them to go “up the value chain”. After all, businesses need to be competitive.

Yet many of those firms may now choose to invest somewhere else. Globalisation isn’t just about the free movement of labour. It is also about the free movement of capital. If the workers can no longer come here, the capital may instead go there. Levelling up would still occur, but only because British capital was being invested in, say, Polish factories, lifting incomes for the left behind of Łódź rather than the worried workers of Wigan or Wales — a very odd version of “build back better”.

Stephen King is HSBC’s Senior Economic Adviser and author of Grave New World

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