EUref: What are the facts?

Both official(ish) sides of the EU referendum campaign are under fire for supposedly misleading voters by presenting opinions as facts. Vote Leave produced an official-looking “facts” leaflet that hid their campaign name into small font on the back page, while the government has spent £9m producing a leaflet setting out its position.

The common thing whenever “facts” are referred to is that one side considers them facts, and the other propaganda. Propaganda is defined as “information, especially of a biased or misleading nature, used to promote a political cause or point of view” – it’s information used to influence others, and naturally both sides assert the other side is misleading people into voting against their cause.

Is there then any real hope for clarity in this debate? I think there is, if we try and boil down to particular dimensions of the question. We won’t necessarily get numbers, but we’ll get directions of effects, certainly if we’re thinking in the economic sphere.

For example (and in a private correspondence with Leave.EU they have conceded this point), at the moment firms can employ people (relatively) freely from all over the EU, rather than just from within the UK. Try to employ someone from outside the EU and that likely involves a costly interview process to determine suitability of match, and then another costly process of getting a visa, a process to be repeated every time the visa expires.

It stands to reason then that given firms can employ people from a much larger pool of potential workers, they will be able to find a better match as an employee than if restricted to just UK workers (and of course, if they could employ anyone from anywhere in the world, then they’d likely find a better match still, but that option isn’t on the cards at the moment, if ever). Hence British firms, and indeed firms elsewhere in the EU that have hired workers from another EU country, have done so on the basis that that non-native is the best possible person for the job – and equally, that person has figured that company is the best company for them to be working for.

If we then apply non-EU rules to EU workers, this has to have some impact. It means it becomes more costly to appoint the best person for the job if that person is from another EU country, reducing the likelihood that that person is appointed. That then reduces output from that firm as the firm must be less efficient as a result. Even if they still hire that EU worker, the HR costs of appointing that person, renewing their visa and associated bureaucratic costs and uncertainty, that is still time and effort that could have gone to productive purposes within the firm.

Since there are over 2m such EU workers in the UK, and a similar number of UK workers elsewhere in the EU, that is a lot of people immediately affected by such changes. That likely is a much greater number when families are taken into account. They may well stay, and indeed many of the EU workers here in the UK that I know well are taking steps to ensure they can stay (applying for British citizenship, at significant costs to themselves and indirectly to their workplaces). The point though is that these are actions that otherwise would not have been taken.

In addition, what is the effect on hiring decisions in the coming years, in the event of Brexit? Will EU workers better suited to UK jobs than any British worker be suitably discouraged from applying? Will EU workers in the UK be discouraged from changing jobs to a better suited role by the increased bureaucracy involved in any such step?

All in all, these are not numbers, which we commonly associate with “facts”, but they are directions. The impacts described here cannot be positive on productivity in the UK, nor on stress levels, nor on levels of red tape and bureaucracy. Hence the only real question is whether they are a price worth paying for some greater benefit from leaving?

The Bank and Brexit

On a regular basis representatives of the Bank of England meets with the Treasury Select Committee, a body of MPs that examines the expenditure, administration and policy of HM Treasury, HM Revenue & Customs, and associated public bodies, including the Bank of England and the Financial Conduct Authority”. Today there has been a hearing at the Treasury Committee on “The economic and financial costs and benefits of UK’s EU membership”, in which governor Mark Carney gave evidence.

At the meeting, Carney was accused of being “pro-EU”, apparently because he wrote in a pre-hearing letter to the committee: “EU membership reinforces the dynamism of the UK economy”. As definitions and details are all important, particularly in the Brexit debate, thankfully the report then states: “A more dynamic economy is more resilient to shocks, can grow more rapidly without generating inflationary pressure or creating risks to financial stability and can also be associated with more effective competition. ”

It’s hard to imagine how an evaluation of the costs and benefits of the UK’s EU membership could avoid being pro-EU whilst making statements about the benefits of EU membership, and highlights the difficulty of providing any kind of appraisal in these politically-charged days. Nonetheless, it is important to do so, and also important to go to the source and read/listen to what’s happened. The link above is to the pre-hearing report put together by the Bank, and is well worth reading on the costs and benefits of EU membership.

Brexit Referendum: So it all begins!

As was fully expected, the UK In/Out referendum will happen on June 23. Which way will you vote?

If the 48 hours or so since this was announced is anything to go by, it promises to absolutely dominate all news headlines between now and then. So expect to be thoroughly bored by it all by the time June comes around.

However, please as students of the economy, don’t get bored and switch off until you’ve worked out what the right decision is on June 23. This is a huge decision for the UK economy, as hopefully what we’ve learnt in Intro Macro has taught you already.

Everything we’ve learnt about has had implications and applications in the EU debate.

We started with economic growth, and the kinds of conditions that would foster higher trend economic growth, looking at the supply side of the economy, and Total Factor Productivity. This is the most fundamental question we have to ponder: what impact does EU membership have on our trend growth rate? At the moment, most commentators are focussed on relative positions in the business cycle (UK better, EU not so good). But (1) the work of Robert Lucas was cited in our lectures to point out that trend growth is hugely more important than business cycle fluctuations, and (b) it’s been far from always this way, and indeed for much of the post-war economic history, European growth has been stronger than UK growth. Is that a reason for thinking about staying then? I’d argue probably not, I’d suggest you should think about why it might be that trend growth might increase or decrease.

We covered unemployment after that. Isn’t unemployment higher because of free movement of labour, meaning that cheap labour from Eastern Europe can come over and take all “our jobs”? This argument covers over a lot of important detail. Firstly, there isn’t some fixed supply of jobs, which we alluded to by thinking about shifts in labour demand curves. Hence it may be that by having Eastern European migrants here, more is produced in the UK economy, and hence more jobs become available.

Which jobs are being taken? By and large, it’s lower skilled (or unskilled) jobs. And the problem with these kinds of jobs is that they are equally the first to go in economic downturns, and are the easier jobs to be replaced by computers and automation. Hence unskilled labour is under threat from immigration, but equally it’s under threat from the machines.

We can carry on going through the course so far, and I’ll be trying in lecture to relate things we cover to the EU Brexit debate, since it matters hugely. At the outset I’ll make it clear: I think, having thought a lot about the issues, and looked at the arguments in favour of leaving in particular, that the UK is much better off inside the EU. That doesn’t mean some killer argument for leaving isn’t lurking around the corner, and I’ll encourage you to find that killer argument – it’s very important you, and we as a class, have considered all possible arguments, and been rigorous about them, before deciding which way to vote.