Giving Farage his dues

On Tuesday night's ITV debate on the UK's membership of the EU, Nigel Farage admitted that the Leave campaign's policy of reducing net immigration would lead to a lower UK GDP and a lower standard of living.  To his credit he has always been consistent on this - he has stuck to the line that "GDP isn't everything".

Farage's argument is that immigration increases competition for employment and therefore exerts a downward pressure on wages.  So, his theory goes, reducing immigration will allow wages to rise again.  This may well be true in the short term however the flip-side to this is that those short-term wage rises will cause output prices to rise and therefore sales to fall, and so will result in longer-term job losses and unemployment.  An increase in unemployment will in turn cause wages to fall back again, resulting in lower pay, lower GDP and permanently higher unemployment.

There are two ways to constrain output price rises - either by increasing productivity (output per capita) or else by restricting wage growth.  For Farage's wage increases to persist rather than resulting in unemployment would require permanent increases in productivity.  This would be reliant on investment in skills and in infrastructure, which would require money to be spent.  That extra spending would be at the cost of other spending priorities or else taxes would need to rise.  Unfortunately Farage didn't get around to explaining that part - "Vote Leave, pay higher taxes".

Without productivity improvements there will always need to be competition for employment  in order for the UK to remain competitive.  That competition is created either through immigration or through the laws of supply and demand via the mechanism of unemployment; it is unavoidable and slamming the doors shut won't prevent it.  I would prefer to see full employment with immigration than no immigration and permanently higher levels of unemployment.

Allowing free movement is the free-market solution - the laws of supply and demand will determine where people choose to migrate to.  To all intents and purposes there is currently zero unemployment in the UK which is why people come here; if unemployment were to increase in the UK (eg. if productivity increased more rapidly in other EU countries than it did here) people would naturally stop coming here to look for work.  The Eastern Bloc have far lower wages than the UK and as their infrastructure develops and more businesses choose to locate themselves there the flow of migrant labour will reduce and may even reverse - anyone remember 'Auf Wiedersehen Pet' and all the British brickies who moved to Germany looking for work in the 1980's ?  We seem to have developed short memories since then ...

So to give Farage his due he has been consistent in arguing for higher unemployment and a lower standard of living, it's just that he chose not to phrase it quite like that.