Mark Carney meets some journalists looking for a story

If you’ve read the papers today you might have seen the story about Bank of England Governor Mark Carney’s supposed intervention into the immigration debate. The Mail and the Times both covered Carney’s inflation report with this angle.

The Times’s coverage was boldest, claiming that Carney had ‘waded into the debate on immigration’ by describing ‘the present high level of net migration as “a key risk” to the economy’.

This is strong stuff, and it would indeed be big news if it were true. But I’m not sure it is.

Here’s what Carney actually said:

In recent years labour supply has expanded significantly owing to higher participation rates among older workers, a greater willingness to work longer hours and strong population growth, partly driven by higher net migration. These positive labour supply shocks have contained wage growth in the face of robust employment growth. Wages have grown by around 2% in the past year – less than half the average rate before the global financial crisis – and a key risk is that these subdued growth rates continue.

Such strong growth in labour supply is unlikely to be sustained. Going forward, growth in the UK economy’s potential will increasingly depend on productivity.

It’s hard to see Carney’s exact meaning from this, and he has already distanced himself from the Times’s and Mail’s interpretation. As BusinessInsider’s Mike Bird points out, he’s most likely talking about a compositional effect – the average changing because we’re adding more people on the lower end of the spectrum, not because any existing worker is being made worse off.

Bird quotes the Inflation Report itself:

Bank staff estimates suggest that the changing composition of employment growth — including the mix of occupations, industries, ages and job tenures — could explain around 1 percentage point of the recent weakness in average annual earnings growth. Compositional effects will only suppress wage growth for as long as such shifts continue.

Indeed. It would be a surprise if Carney had said what the Times and Mail suggest he said. The government’s Migration Advisory Committee found in 2012 that “Studies estimating the impact of migrants on UK wages have generally found little or no impact on average wages,” although, “in some studies migrants were found to increase wages at the top of the UK wage distribution and to lower wages at the bottom.”

That means that, if there is a negative impact from immigration, it reduces wages for the workers at the bottom, but not the overall wage or productivity level, as Carney is supposed to have claimed.

A 2014 Home Office report concluded that this effect on low-paid workers was found during recessions but not periods of economic growth, and was small and temporary in any case. The effect was not present in other government studies at all.

NIESR’s study into the impact of immigration on native British productivity found it to be small but positive. In general I suspect that there is a strong relationship between how good immigration is for natives and how flexible the receiving country’s labour market is.

The Mail is the Mail, but I can’t quite understand why the Times, in particular, decided to report Carney’s remarks in this way. To misinterpret him so badly seems to almost wilfully prefer a good story to an honest one.

Why we vote the way we vote

In my last post I tried to understand why people vote, suggesting that even if a sense of civic duty or a desire to express oneself can explain why we turn out to vote, these can’t really tell us much about why we vote the way we vote. In this post I’ll try to explain why I’m convinced that, for voters, ideas matter.

There are two basic views among political scientists about this: people vote to maximise their own wellbeing (“pocketbook” voters) or people vote to maximise the wellbeing of their society (“sociotropic” voters). The literature here is enormous so this post will try to sketch out the argument broadly – it is not intended to be anywhere near comprehensive.

There is a clear correlation between declines in GDP per capita and declines in support for the political party in power (‘economic voting’). But this could be because people who are worse off are changing their votes to improve their own welfare, or because people in general are trying to improve their society in general.

In ‘Sociotropic voting: The American case’, Donald Kinder and D. Roderick Kiewiet look at how voters behave when their personal circumstances differ from those of society in general – if you are unemployed, but total unemployment is low, are you more likely to want a change of government?

Looking at Congressional elections during the 1970s, they find strong evidence that people are more concerned with society and the economy as a whole than for their own circumstances.

‘A person’s private economic experience had very little impact on his choice of candidate in the congressional elections whereas his sociotropic judgements were of the utmost importance … American voters resemble the sociotropic ideal, responding to changes in general economic conditions.’

Kiewiet’s conclusion in a later book is that people blame factors other than the government for their own circumstances, but blame the government for the overall state of the economy. Is this a uniquely American phenomenon, though?

Leif Lewin’s review of the evidence in his excellent Self-interest and public interest in Western politics suggests that it is not – Western European voters, including British voters, also seem to be much more inclined to vote sociotropically than with regard to their own circumstances.

We know that voters are mostly very ignorant of the facts of politics, which may make it very hard for them to form accurate judgements about the best policies to achieve the end-goals they have in mind. But it also means that the media that they do pay attention to has an enormous influence over their perceptions, and that people’s political awareness may affect how ‘benevolent’ they really are.

In light of this, Gomez and Wilson (2001) adapt the pocketbook thesis to argue that more sophisticated, politically aware voters are more likely to be affected by pocketbook factors than others.

They are the ones who can think in terms of specific policies, make connections between particular policies and their own incomes, and do not blame incumbents for everything that goes wrong with the economy.

Other, less sophisticated voters simply assume that the President is responsible for what goes wrong with the economy. That might explain why electoral ‘giveaways’ (pensioner bonds, opposition to new home builds) seem to be concentrated on quite small groups of well-heeled voters – nobody else would notice.

The last word on voter behaviour must go to Philip Converse, whose 1956 survey data showed that most voters make their decisions based on extremely broad judgements of the ‘sign of the times’ (22%), or based on which group – posh people? workers? – a party or politician seems to speak for (45%), or even evaluations that had no shred of policy significance whatever, like which candidate was the funniest (17.5%).

Only around 15% of voters used ideology or ideology-like rules-of-thumb to decide who to vote for, and those were the most rigid in their decisions about how to vote.

To sum up, people seem to mostly vote for the candidates that they think will be best for society as a whole, though they may make very poorly considered judgements of that. If there is a ‘pocketbook’ effect, it is probably limited to the most well-informed voters.

All this suggests that the public choice view of democracy as just a way to divide the spoils of government between interest groups may well be wrong. Yes, voters are amazingly ignorant of basic facts, let alone economic theory, but we do have a chance of persuading them and changing the world for the better. To those of us who would like to believe in the power of ideas, that’s something to celebrate.

Why we vote

It’s difficult to understand why people vote, let alone why they vote the way they vote.

No individual can reasonably expect her vote to determine or even influence the outcome of an election. In America, the chance of a one-vote victory margin that would determine the 2008 presidential election was about 1 in 10 million in some swing states, and 1 in a billion in places like California or Texas.

As Sam Dumitriu notes, this might still make voting worthwhile if you’re an altruist and you expect one candidate to make the world better than the other by more than a few billion dollars. But most people don’t think like this, and that has led some people to assume that voting is “expressive” – people do it to signal their allegiance to a particular tribe or team, not because they think the party they are voting for is best for themselves or the country.

Truthfully telling people you have voted certainly does seem to be a reason for voting, although the study the Freakonomics guys cite is from Switzerland, where I’ve heard they’re much more concerned with neighbourliness and civic duty than, thankfully, we are in England.

But does expressive voting determine how we vote? If it tells us anything it must mean that people are supporting parties or policies that, on some level, they believe to be counterproductive. Certainly if many (or any) people who are planning to vote Labour secretly believe that the Tories are actually best for the country, this would be a mark in favour of the expressive view of things.

In The Myth of the Rational Voter, Bryan Caplan argues that this is unlikely – people rarely feel good about voting for policies or parties that they think are bad. Group loyalty may well be a factor in determining how people decide what’s good to vote for, but surely it rarely trumps what people think is good.

In fact, barely half of each party’s voters during the current UK election say they’re proud to vote for their party. That obviously includes ‘expressive’ voters and people who like their party because they think it’s the best one on its non-identidy merits.

Another problem with this view is that it also assumes that people realise that their votes don’t matter, but when polled people vastly overestimate the power of a single vote – the median American estimates that “there is a 1 in 1000 chance that their vote could change the outcome of a Presidential election” – the reality is between one in 10 million and one in a billion, remember. Yougov finds that “the less likely you are to think your vote will actually matter, the more likely you are to vote.” (I’m guessing this is because you’re more highly educated.)

That supports the idea that people vote for reasons of civic duty primarily, and for some people because they think their vote will affect the outcome of the election. For many people, no doubt, it’s both.

All of this may help us to understand why people vote the way they vote: is it mostly self-interestedly, as many public choice economist believe, or altruistically, as most political scientists believe? I will try to answer that in my next post.

The progressive’s immigration dilemma

The freedom and wellbeing of all human beings should be important to us, regardless of their race or nationality. Because migration allows very poor people to dramatically improve their lives, often increasing their income by an order of magnitude, we should have a strong preference for more liberal migration laws in the developed world, particularly laws that favour low-skilled workers from the poorest countries.

The progressive’s dilemma is usually seen as being the fact that higher levels of immigration seem to make voters support redistributive domestic policies less. People are less happy to share with people who aren’t much like them. David Goodhart discusses this here. But this is a two-way street: the more redistributive your state, the more sceptical voters are of (at least low-skilled) immigration – this polling seems to reinforce that.

This might be aggravated in cases where immigrants don’t do much or even have a negative effect on the wages of low-skilled native workers. Not only are these guys competing with you for welfare, they’re driving down your wages too – even if theirs are rising by five hundred percent, yours falling by five percent still hurts.

But that isn’t usually what actually happens: immigrants to the UK generally don’t drive down native wages, even for low-skilled workers in the medium-to-long-run, and in Denmark they actually seem to have had a significant positive effect on low-skilled workers’ long-term earnings. In the US, there is a big positive link between immigration and native productivity (which eventually translates into higher wages). In the UK that link is also positive but is very small, almost zero.

However, in France, immigrants do seem to hurt work outcomes for natives – both in terms of jobs and, for short-term contract workers, wages.

What explains the difference? The authors of the Danish study say Denmark’s flexible labour market is what allowed the market to absorb immigrants to make everyone better off, and the author of the French study says the rigidity of France’s wage structure is what makes immigration harm natives. Incidentally, the UK, where immigrants have a fairly neutral impact on natives, is roughly halfway between those two countries in terms of labour market flexibility (according to the Heritage Foundation’s Index of Economic Freedom).

This trend seems to hold across Europe: the more rigid a labour market, the worse immigration is for native workers. That must be a factor in considering the costs and benefits of any given labour market regulation.

Poor people’s lives are made enormously better off by moving from poor countries to rich countries. Thanks to remittances, migrants also may have a significant positive impact on their home countries. For any progressive who wants to improve human welfare, facilitating more immigration from poor to rich countries should be an overriding priority.

Not only does a big welfare state reduce the number of immigrants that are politically accepted, a heavily regulated labour market seems to be associated with immigrants having a worse impact on natives. Even policies that seem like they would be good for Britons might still do much more harm than good if they make Britons less willing to accept higher levels of immigration.

This is a serious dilemma for any progressive who wants all humans to live good lives, not just ones of the same race or nationality. It means that these political concerns alone may demand a low regulation, low redistribution state.

Let the Mediterranean refugees come to work in Britain

There probably is no solution to the current Mediterranean refugee crisis, but letting more refugees come to Europe as economic migrants may be a viable way of at least making some people better off.

Last week at the European Students for Liberty Conference in Berlin I listened to Martin Xuereb, Director of the Migrant Offshore Aid Station, describe the situation. He emphasised that ‘push’ factors beyond our control, like civil wars in Syria, Libya and Somalia, and poverty in general were far more important in driving people to come across the sea than ‘pull’ factors like rescue boats.

These people are desperate, he said, and the possibility that they might be found by a search-and-rescue team if their boat sinks isn’t likely the main thing on their minds. Though no doubt that is a factor.

Given that these push factors are so strong, I suspect there isn’t anything humane we could do to stop the boats. It’s unclear how strong a pull factor the search-and-rescue boats are, but I’d weigh the certainty of stopping at least some people from drowning very highly against the indeterminate number of people incentivised to come because of them.

As Left Outside says, many of these people partially economic migrants as well as being straightforward refugees. Most of the evidence says that economic migration is positive overall and does little or no harm to the wellbeing of even low-skilled native workers. But refugees may be different – since they are mostly being ‘pushed’, they may go to countries where there are no jobs. (Economists would call this an ‘exogenous’ shock, because it’s being driven by factors beyond labour market supply and demand.)

I’ve looked at two papers that study the impact of refugees, rather than normal economic migrants, on native wages and employment.

The first, by David Card, looks at the impact of a very large number of Cuban refugees to Miami after the Mariel Boatlift in 1980 – around 125,000, which led to a 20% increase in the number of Cuban workers in Miami and boosted the city’s workforce by 7%. Card notes that the data available here is extremely comprehensive and detailed, making this a very good case study to look at.

Most refugees stayed in Miami, and comparing Miami to other Floridian cities over the same period after the boatlift Card finds no effect on the wages or employment prospects of native low-skilled workers, including black or other Cuban workers.

To be fair, Miami may be an exceptional case, because it was used to a steady stream of Cuban immigration, though at a much smaller rate, and so had a significant amount of industry that could absorb new low-skilled labour, and language problems may have been less of an issue (though language difficulties might not be such a problem, at least for men).

The second study might get around some of those problems. Mette Foged and Giovanni Peri looked at refugee influxes from Yugoslavia, Somalia, Iraq and Afghanistan to Denmark between 1985 and 1998.

These refugees were distributed evenly across the country’s municipalities without any regard to labour market conditions. This counts as an ‘exogenous shock’, like the Miami case and like an new influx of refugees to the UK would.

Forty to fifty percent of these immigrants had only secondary school education or lower and “were in large part concentrated in manual-intensive occupations”. By allowing for a deeper division of labour, the “refugee-country immigrants spurred significant occupational mobility and increased specialisation into complex jobs, using more intensively analytical and communication skills and less intensively manual skills.” That meant that native workers who might otherwise have done low-skilled jobs were able to move into more specialised, productive, highly-paid work.

As with the Miami study, Denmark may have some factors that make it special. Its labour market is very flexible and competitive, so it is easier for workers to move between industries and easier in general for people to find jobs. But that’s generally true of the UK too.

In both of these studies, the result is clear that quite large influxes of refugees driven by ‘push’ factors still did not have negative effects on natives, and in Denmark’s case had significantly positive effects.

Clearly this is not comprehensive and clearly there are other factors to consider (such as crime and, at least in the Syrian case, terrorism). But it does suggest that allowing more refugees into Britain should not be harmful to native Britons’ job prospects or wages, and may be beneficial to them.

Creating something like a guest worker programme for Syrian or Somali refugees would not stop the boats, but letting more come legally and safely would free at least some people from the nightmarish civil wars that they are now risking their lives to escape.