Mr Johnson, Tear Down Those Borders
Amidst 45 minutes of rhetoric, Boris Johnson’s conference speech did have a smidge of policy. The Prime Minister used this opportunity to briefly outline a key cause of Britain's stagnation: mass immigration. Boris’ view is that an excessive supply of labour has ruined the bargaining power of native workers resulting in lower wages and higher unemployment.
However, cutting immigration won’t reduce unemployment and it won’t increase wages.
A reality of immigration, widely ignored by politicians, is that the aggregate demand curve also shifts to the right when people enter a new country. In layman's terms it means as well as taking up existing jobs, the money the immigrants earn helps to create new jobs. And this isn’t just enough to replace the jobs that have been taken — it will actually create more jobs for native workers, expanding the economy’s ability to produce.
An excellent paper by Gihoon Hong and John McLaren looked at this precise question for Mexican immigrants into the United States. They find that for every immigrant arriving in the US, 1.2 jobs are created as a result of their spending, with the bulk of them going to domestic workers. This is supported by a BIS publication from 2014 which found little evidence in the literature of a statistically significant impact from EU migration on native employment outcome. Since then we have enjoyed increased levels of immigration all while unemployment has fallen and remained low. There are also other benefits of migrants, such as filling skills gaps and bringing in new knowledge and techniques, that can expand domestic productivity and boost wages.
If Boris wants to end our stagnation, then encouraging more immigration would actually be a great way to address it. Between 2010 and 2020 productivity growth was just 0.3%. Looking at patents granted in the United States, a 2017 paper in the American Economic Review found that immigrant inventors were more productive than native-born inventors. Given the key impact technological innovation has on growth, it’s clear if we want to create growth an easy way of doing that is encouraging migration.
It is admirable that Boris wants to create a high innovation high wage economy but cutting immigration is only going to push that ambition further away. Immigration is the way we attract the most productive workers to our shores, the exact people who would help encourage a transition to a better country.