Immigration was perhaps the most important issue behind Leave’s success in the EU referendum. Some wanted to ‘take back control’. For others the primary motivation was to cut actual numbers to the tens of thousands, in line with the government’s pledge. So what can we learn from two places that have already tried to reduce the flow of low-cost labour?
The lesson from Arizona is that industry doesn’t recover overnight from a labour shock. Starting around 2004, Arizona started to get tough on illegal immigration. Tax payers gained by schooling 80,000 fewer children and treating fewer non-citizen patients. Wages rose by 15% for occupations such as farm workers.
However, sudden labour shortages meant that farm owners planted as little as a fifth of their available land and others ploughed crops back into the soil for want of farm hands. Construction firms found their growth was constrained by their ability to hire. It was not until six years had passed that the economy began to recover and Arizona became more productive as a result of its immigration policy.
Singapore found that, with a little nudge from government, it could raise productivity via a new immigration policy. In 2010, it sought to become less dependent on imported workers. The government increased taxes on low-skilled workers and lowered the taxes on high skilled workers. And it used tax policy to incentivise firms to invest in productivity and innovation. GDP per capita grew by 18% over the following three years. Where can businesses gain a competitive advantage by increasing automation, or changing business models?
So what might this look like in the UK? A major retailer said that although EU workers made up only 5% of their staff, in parts of their supply chain, that number was closer to 70%. It seems unlikely that any sector is unaffected.
The discussion post Brexit is moving fast: just last week, Theresa May ruled out a points-based system. So how do they get the numbers down? It’s not by forcibly expelling people. Last year 630,000 people entered the UK, while 297,000 left. Of those entering, 82,000 were Brits coming home, 154,000 were students and 170,000 had a job already lined up. Already it’s difficult to see how to get net migration down to the tens of thousands without hurting universities or limiting employers’ access to the staff they need. And that is before we address the 121,000 who entered seeking work or the 78,000 who came to join family. Clamping down on the 25,000 who gave no reason for entering will barely shift the dial.
Perhaps the government needs to start thinking about this in a whole new way. One idea from a recent t round table: restrict access to skilled workers. Rather than trying to find ways of persuading British workers to take jobs they don’t want, what if we applied the restrictions to higher-skilled roles instead? Under such a plan, we’d keep employing foreign labour for vacancies that are hard to fill and create space for UK graduates in fields such as technology, finance and engineering.
That might be good for young graduates struggling to find meaningful employment, but how would that affect firms who want the best global talent instantly? How quickly can we develop our home-grown workers? And will our universities have the funding to do that work if their access to lucrative foreign students is restricted? This is perhaps where the UK needs to look to Arizona or Singapore. Rather than lobbying government for a continuation of the status quo, perhaps employers can learn something from Singapore and identify ways the government can help them adapt to a post-Brexit future.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.