Zero-sum thinking on immigration is hurting the economy

Just as we are about to see a large export of highly educated British citizens to the other side of the world, we are going to bring in fewer people to study here. Australia is currently enjoying a commodities boom. Mining is expanding as minerals are exported to China, and construction projects are benefitting from this as infrastructure projects grow. But there is a shortage of 20,000 engineers in Australia. These will come from South Africa, India, and Britain.

So as we export trained engineers to Australia, and they export commodities to China, you would expect us to see an opportunity: Britain could use its large education sector to train people from all over the world, bringing in large amounts of investment and skill. It would then be part of a new, growing market, attracting wealth to its major cities – and it could keep some of the best of the graduates to work here. Right?

Wrong. We are making it more difficult for people to get a student visa in a bid to keep total immigration low. And as of April 2012 we are going to abolish the Post Study Work Visa. This has already had an effect: MBA applications to the University of Manchester’s Business School are down 18% in anticipation of that.

France has taken a similar approach. And all those students will end up in places like Spain, whose immigration policy is still liberal. Or worse, they will go to Australia. After seeing a drop in applications of 25% Australia reinstated students’ right to work, and sped up the application process. And they’ve just made it easier to get a Post Study Work Visa, as well as allowing people to stay for longer after studying. We are making ourselves uncompetitive in an international market. We will be neither training the mobile workforce, nor attracting them to come and work here.

Immigration limits rely on the zero-sum fallacy that the amount of labour in a market is fixed. That is the reasoning behind the UK’s limits on the number of agricultural workers allowed in from Bulgaria and Romania – to protect British jobs. But it is not fixed, it is flexible: as the market grows so does the demand for labour. And the market grows through the expansion of the population which, in turn, is afforded greater flexibility to innovate, work hard, be more productive, and discover new opportunities.

As I wrote recently, the economics of immigration is based on the division of labour. It only benefits the economy in the long run and can be shown to boost real wages of residents and nationals. Short term negatives, whilst the market adjusts, are more than compensated for by the long term benefits. John Bercow got it right in the Independent in 2005:

Immigrants are incoming assets … in a global economy, their labour is vital both to tackle severe skills shortages and to fill long-term vacancies. Immigrants are not taking jobs that British workers could fill, but jobs which British workers are unable or unwilling to do … the idea that immigration is an intolerable burden on the taxpayer and the welfare state is baloney. Immigrants give far more than they take. It is estimated that they make a net contribution to the economy of £2.5bn …

And it is the same with students. As the economy becomes more global we trade more and more with other countries; as China imports minerals from Australia, generating a construction boom, demand for British engineers increases. And just as that point we decide to stop training engineers, and to stop letting them stay here post study, in order to “protect” British jobs. It’s as if London was buying lots of wheat from East Anglia, who then banned Yorkshire men from coming to help get the crop in. East Anglia would lose out, especially if London could just buy the wheat from Wiltshire, or on foreign markets. And the Yorkshire men would go and work in Wiltshire (or wherever) whose crop would be harvested quickly, increasing their productivity, making them more competitive when it came to selling the wheat.

Unless we attract the top international talent and allow it to study here and work we will not be a part of the global market. Global demand for high-level education is huge, and people working in a global economy will be willing to pay.
As it is we are going to lose our skilled graduates and potential students to countries like Australia, which is all too aware that the wealth it is earning from the commodities boom is only going to increase as the gap in its labour market is filled with our engineers. If we stop supplying engineers Australia will look elsewhere. Or train them themselves under their newly liberalised visa rules.

In 2009 the UN calculated that only 3% of people live outside their country of birth. There is huge potential waiting to be discovered. Michael Clemens explains, with the example of migration from poor countries, why we all benefit from migration:

emigration of less than 5 percent of the population of poor regions would bring global gains exceeding the gains from total elimination of all policy barriers to merchandise trade and all barriers to capital flows.

Clemens also points out that the American population has quadrupled since 1914, and much of that was due to immigration; but America has remained the leading economy in the world. Indeed, Reinhart and Rogoff tell us that America’s share of world real GDP increased in the same time period (1914 – 2008) from 18.93% to 21.41%. Immigration didn’t damage America; limiting it might be damaging Britain.