Ken Mulkearn | 05 May 2019

Pay Climate 20 Editor's Viewpoint

New migration rules: unforeseen consequences lie ahead

With the labour market in ostensibly a sweet spot, why would the Government want to mess with it by introducing new rules for immigration? The answer is of course politics, but the move has sparked a sharp debate among labour market commentators as to the likely impact on employment and pay.

The new rules – which could be implemented in January 2021 – will see a level playing field for applicants from the European Economic Area (EEA) on the one hand, and those from outside the EEA. However, this means tightening up the entry criteria for migrants from the former. For workers that would currently be regarded as ‘unskilled’, the only legal route to entry will be to gain skills.

As recommended by the Migration Advisory Committee (MAC), the salary threshold for skilled workers will be reduced from £30,000 to £25,600, mainly on the basis that it will also cover ‘medium-skilled’ workers. (To address the fact that this is above the current starting salary for a qualified nurse, for example, the MAC recommends that the relevant national pay scales be used as the salary threshold in such cases.) The threshold for shortage occupations will be lower at £20,480.

The optimistic prognosis, as promulgated by Government spokespeople and supporters of the move, is that employing organisations will adjust to the new rules, and productivity and wages will rise, as will GDP per head. Some or all of these could come to pass, but there are alternative outcomes.  

One of the supporting arguments is based on the premise that migration lowers wages, and that limiting it will therefore raise them. But the proposition is not necessarily or even actually true. In his book, ‘Not Working: Where Have All the Good Jobs Gone?’, economist and former member of the Bank of England’s Monetary Policy Committee David Blanchflower collates the evidence of migration’s impact on employment and pay. His conclusion is that the effects are negligible, and where they exist at all, are confined to the very bottom of the labour market.

If the Government simply wanted to raise wages, then it could for example increase the statutory National Living Wage (NLW), currently £8.21 an hour, to the same level as that estimated by the Living Wage Foundation to be necessary for a socially acceptable standard of living, which stands at £9.30. That it hasn’t and the Government continues to rely on evidence from the tripartite Low Pay Commission to update the official floor is probably sufficient proof that the changes in the migration rules are not centrally about levelling up pay.

A better clue might be provided by current Home Secretary Priti Patel’s assertion that any ‘unskilled’ jobs left unfilled as a result of the changes could be taken up by a portion of those currently defined as ‘economically inactive’ – carers, students, the long-term sick or retired. To be sure, the terms on which these people could enter the labour market might be favourable to them as individuals. But their circumstances and labour market position could also make them more susceptible than others to entering work under less favourable terms that have burgeoned recently – zero-hours or minimum hours contracts (see our article on the latest labour market data in this issue).

Many commentators have defined the UK’s labour market as severely stratified and riven by inequalities. If this outcome results from the changes to the rules on migration, they won’t do much to alter that prospectus. Indeed, a further possibility – one that the Government or its advisors don’t appear to have foreseen – is that the reforms could widen the scope for a two-tier labour market, with the bottom rung based on illegality and super-exploitation. If this route becomes available to unscrupulous employers, it limits the room for manoeuvre open to decent employers who want to elevate terms and conditions to better levels. Some of the certainty that this won’t happen is based on the UK’s ability to enforce strictly legal employment provisions, but the experience of the minimum wage has shown that that capacity is often sadly lacking.

Perhaps none of these pessimistic scenarios will come to pass, and the changes will not alter the labour landscape over much. (Indeed, one further possibility is that in due course migrants will learn to negotiate the new rules and the impact on levels of migration, as well as on employment more generally, will be minimal.) But for this to be a surety the Government also needs to provide the circumstances for investment in training and upskilling of lower-paid workers. A consideration of the unforeseen consequences involved in the bold new move on migration might help stimulate thinking about what’s needed in this area.