From the TUC

Why Ed Balls is wrong to say ‘we were wrong to allow so many eastern Europeans into Britain’

06 Jun 2010, by in International, Working Life

Ed Balls is absolutely right when he lambasts Governments in other parts of Europe for cutting public spending, and it is a pity that that part of his article has been swept aside in the coverage by the other element of his argument, that too many workers from Eastern Europe were allowed to work in Britain, where he is wrong.

First, as the IPPR’s Tim Finch argues, the claim that “there has also been a direct impact on the wages, terms and conditions of too many people” is overdone. All the evidence makes clear that real wages continued to rise as Eastern European migration peaked in the years after free movement was introduced. There may well have been individual cases of undercutting, which should indeed have been addressed, but Government policies like the National Minimum Wage helped prevent such individual cases being generalised as they were for instance in Germany (where €1 an hour jobs were common). And it is conceivable that real wages would have risen faster without migration, but that isn’t what I suspect most people would understand as undercutting. The best way to prevent undercutting is not to pull up the drawbridge, but to promote collective bargaining, or implement the spirit of the EU posted workers directive, rather than implementing the least the Government could get away with (Labour essentially relied only on the National Minimum Wage, whereas the posted workers directive could have been implemented in such a way as to make collectively agreed wage rates the floor below which wages could not fall).

Second, the suggestion that “free movement of goods and services works to our mutual advantage. But the free movement of labour is another matter entirely” is unhelpful . Free movement of goods and services – which the TUC certainly supports – without free movement of labour is a recipe for jobs flooding to where the labour is cheapest, reproducing the Wal-Martisation of the US. Instead, Governments should ensure that workers who migrate are treated the same as the workers in the country they migrate to, which over time raises the wage levels of the poorest countries in Europe rather than reducing them in the richest. And, similarly, the taxes generated by the new migrants should have been used to expand social housing and public services so that an increasing population did not compete for a shrinking housing stock or crowded public transport.

Finally, there is a certain amount of chutzpah in the claim that “as the GMB’s Paul Kenny and others have pointed out, the failure of our government to get agreement to implement the agency workers directive made matters worse.” It took years of campaigning by people like the GMB’s Paul Kenny to get the Government to stop resisting  tooth and claw that agency workers directive. What Paul Kenny and the rest of the trade union movement argued all along – for over a decade – was that, with labour market regulation like the agency workers directive and the posted workers directive, migration would not set worker against worker, allow employers to undercut existing terms and conditions (regardless of the nationality of the victims), or lead to a downward spiral of wages.

And, as a postscript, the argument that “I am British before I am European” may sound rousingly patriotic, but wrongly implies that the two are opposites. I could as easily claim “I am Welsh before I am British”, but being both – given that the option is available – would be better all round!

10 Responses to Why Ed Balls is wrong to say ‘we were wrong to allow so many eastern Europeans into Britain’

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    Jun 6th 2010, 8:51 am

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  2. Why I’m defending Ed Balls over immigration | Liberal Conspiracy
    Jun 7th 2010, 8:03 am

    […] The principal criticism of Ed Balls’ piece, by Owen Tudor and by Lenin, is that Balls is simply wrong on whether all this immigration depressed […]

  3. Sandwichman
    Jun 7th 2010, 5:14 pm

    “This is what’s known as the ‘lump of labour fallacy’. Very sketchily, as the population rises, work expands, so the supply:demand equation doesn’t work. But that’s theory.”

    http://liberalconspiracy.org/2010/06/07/why-im-defending-ed-balls-over-immigration/#comment-139779

    It’s a stretch to call the fallacy taunt a “theory”, Owen. A better word would be platitude. Actual economic theory shows that the fallacy claim is itself a fallacy, based as it is on the unstated ceteris paribus assumption that everything else “remains the same” — including the ratio of labour to capital and land (natural resources). The latter assumption is every bit as crude and illogical as the alleged “belief in a fixed amount of work”.

    I’m an immigrant myself, so I am all too familiar with the unique challenges that “outsiders” face in finding a job that fully utilizes their qualifications. The labour market discounts the skills and experience of people who are less well connected socially. To argue that immigration has no effect on wages or unemployment is to claim that there is NO exploitation of immigrant workers by employers and the capital and land are created instantaneously as the labour force expands.

    It is fascinating to see that the hoary lump-of-labour fallacy orthodoxy has become commonplace in the TUC. Back in March, Nigel Stanley invoked it in rebuttal to the New Economic Foundation’s report on working hours. For over a century, the lump-of-labour claim has been a centrepiece of reactionary employers’ propaganda against unions. Perhaps the leadership of the TUC decided, “if you can’t fight ’em, join ’em”?

    Meanwhile, as the mainstream economists have been teaching their labour lieutenants to bleat the lump-of-labour refrain, scores of millions of jobs have been gratuitously aborted without a peep. I’m not talking about jobs taken by immigrants or sent overseas. These are jobs that could have been except for the economic fact that unemployment begets unemployment.

    Prolonging the hours of work beyond those that would be optimal for output also destroys jobs. Economists today simply assume that employers adopt the hours that would be optimal. But that assumption flies in the face of neoclassical theory (Sydney Chapman’s Hours of Labour) and ignores the effect on hours determination of “quasi-fixed costs” for employer-paid benefits.

    There is an uneven playing field for hours of work and traditionally one of the main objectives of the trade union movement was to counter that imbalance by fighting for shorter hours. In the U.S. that struggle was abandoned in favor of the illusion of higher wages from deficit-fueled economic growth. Things are not quite as bad in the U.K., perhaps because of your proximity to Europe. But without a strategy to oppose the conservative banner of austerity, you can say good-bye to your vacations — if you still have a job to take a vacation from.

  4. Owen Tudor

    Owen Tudor
    Jun 8th 2010, 1:45 pm

    Sandwichman – you make loads of points, too many to reply too like this, but ….

    I was being very brief on the lump of labour fallacy. Describing it as theory was only meant to get me to my maain point which was that, whatever you think is LIKELY to happen when the supply of labour increases, what had ACTUALLY happened was that wages had increased despite the supply of labour increasing. The lump of labour fallacy was expounded precisely to point out to people that ceteris paribus almost never happens, but the reason people propounded the ‘fallacy’ in the first place is that a lot of people actually DO think that other things remain equal when the labour supply increases. Clearly, increased population tends to increase demand and therefore wages don’t necessarily fall when labour supply increases. But my main point was simply that there are things you can do about immigration rather than simply oppose it, and that seems to be your basic point too.

  5. Sandwichman
    Jun 8th 2010, 2:38 pm

    I agree entirely with your main point, Owen. Immigration is not the problem and stopping it is not the solution. Full stop.

    What I’m saying is that is counterproductive to bring in the lump-of-labour fallacy claim on the immigration issue because the claim has been misused so often on the working time issue. When you do that, we move into the bizarro world where advocates of shorter working time are equated with opponents of immigration because they all — allegedly –“believe in a fixed amount of work”. In fact, neither believes in any such chimera and the fallacy claim is a red herring.

    There’s another dimension to this question that I think is important. Opposition to immigration arises from people lashing out at the symptoms rather than the sources of the problem. They do so, at least in part, because there is no leadership from the left that addresses those sources. I’ll again reference Nigel Stanley’s reaction to the nef’s 21 hours report. In the US, the AFL-CIO is heavily promoting this “America’s Future Now” conference. Dean Baker, who is one of the most respected U.S. economists on employment issues and John deGraaf, an award-winning film-maker submitted a workshop proposal that was rejected by the conference organizers. Why? Because the organizers are fanatically pro-growth and there is no room for any dissent from the “growth will float all boats” mantra. At the Left Forum in NYC in April, the question of work time reduction was raised from the floor (to audience enthusiasm) in a panel discussion on labour in the global economy but the panel participants (including the AFL-CIO’s chief economists) declined to address the matter.

    I would argue that there are structural explanations for the seeming indifference — even hostility — of organized labour to an issue that was historically one of its key organizing motives. But… explanations are no excuse.

  6. Owen Tudor

    Owen Tudor
    Jun 8th 2010, 2:49 pm

    Unions are generally pro-growth, and for various reasons – but that doesn’t mean we entirely dismiss the alternatives. Historically, our experience is that the poor benefit in periods of growth, and lose out in periods of contraction. But its clearly the case that equality is a better determinant, and it isn’t impossible for poor people to benefit in contractions (I think the aftermath of the Black Death was probably an example of the latter, although bad for other reasons!)

    On working time, we are sceptical (in the genuine sense of the word, ie unconvinced) that reducing working time automatically increases employment by the same amount (we generally suspect that reducing long hours would lead to increases in productivity which might indirectly create more employment, but would not have a direct impact).

    But no one could doubt the European trade union movement’s commitment – for all sorts of reasons – to shorter working hours: the Working Time Directive has probably been the most controversial area of European social policy for at least a couple of decades. I am often struck by the fact that, for the last century and a half, some of the trade union movement’s biggest victories have been over reducing the time people spend at work – which I think is kind of odd for a movement predicated on the workplace!

  7. Sandwichman
    Jun 8th 2010, 5:36 pm

    “some of the trade union movement’s biggest victories have been over reducing the time people spend at work”

    Indeed.

  8. sshaw
    Jun 17th 2010, 10:52 pm

    I don’t claim to be an expert but I don’t see how less free movement of labour can cause the work to move to cheap countries.
    With the minimum wage, any workers here are paid the same- so its not like having migrant workers are giving cheap labour .

  9. Owen Tudor

    Owen Tudor
    Jun 17th 2010, 11:04 pm

    SShaw, what I meant was that, with less free movement of workers, employers would be facing labour shortages. It is indeed possible that they would raise wages to overcome that shortage (although that would simply lead to labour shortages elsewhere in the economy). But since the EU involves free movement of goods, services, investment etc, it’s quite likely that the employers would move the jobs abroad.

  10. sshaw
    Jun 18th 2010, 8:12 am

    yes i suppose that might be true. thanks for the response