The UK-EU Deal

Today we have found out what all the renegotiation was about: the possibility that the UK might be able to put a stop temporarily to in-work benefits being paid to EU nationals working in the UK (assuming other EU countries are happy with this happening in any particular situation).

If that sounds a little underwhelming, it is probably because it is, which must be both good and bad.

Good, since there is no dramatic altering of the right of free movement of labour within the EU, as was hoped by some in the Conservative Party. As we’ve just covered in unemployment in our lectures, labour mobility is a good thing. Yes, it does lead to more uncertainty for us since there’s a larger pool of labour potentially for any job we do, but equally it gives both us, and firms, great opportunities to move into new jobs that are better suited to us, and better suited to firms. Workers aren’t restricted simply on the basis of a passport within the EU from taking their ideal job, and equally, firms aren’t stopped from recruiting the ideal worker for the post they’ve advertised because the ideal worker doesn’t have the right (European) passport.

Bad, since those hoping for big reforms in order to vote to remain may well be unhappy with this rather weak deal. Those seeking the UK’s exit claim that the UK gets little back from the EU, and simply gets told what to do. Rules and regulations we just have to accept are made in Brussels, not Westminster. This outcome, which reflects on Cameron’s inability to get what members in his party would ideally have hoped for (ability to stop inward migration unilaterally, plus other grabs back of national sovereignty). As I’ve written before on this blog, and mentioned in lecture, such issues regarding sovereignty clash with the reality of a common market – we can’t be involved in a common market without a common regulatory structure determined by some central regulatory body.

On balance, will it leave the UK any closer to the exit door? This is obviously impossible to say; even opinion polls can only give so much insight.

Will it even matter? Clara Sanderlind makes the point here that since most EU migrants working in the UK don’t claim in-work (or out of work) benefits, the deal will make no difference whatsoever to actual flows of migrants.

This week in lectures we’re covering trade and globalisation, topics which have so many obvious applications into the current UK relationship with the EU. See you later in the week!

Migrants, refugees and macro

The huge flows of displaced people across Europe continues, and is likely to continue for many months, irrespective of the interest the news media outlets attach to it. This morning the headline is that the EU has secured a deal with Turkey on refugee flows through that country. It appears that the EU wishes to ensure refugees remain in Turkey rather than entering the EU.

It’s perhaps worth pointing out the numbers of refugees registered (likely a fraction of the numbers in countries), in the following info-graphic:

Turkey already has about 2m more refugees within its borders than even the EU’s most generous country, Germany, and probably has more than the entire EU put together. Turkey is also a much poorer country than most parts of the EU, Germany in particular, and hence it’s quite likely that the impact on that country is dramatically more than what any EU country can complain about.

Nonetheless, the essence of this deal appears to be the EU telling Turkey that they’ll give a load of concessions, even lots more money, if they can just keep all those millions of refugees within their borders. The Guardian talks of “repressive” border measures, while the BBC’s report makes no mention whatsoever of what Turkey might do to keep the refugees within their borders.

Why does this matter for macroeconomics? Very simply, it must affect the various macroeconomic numbers we are interested in. Here in the UK, GDP growth has been mainly driven by population growth due to migration for a number of years now – we can get this sense by looking at the difference between GDP growth, and GDP per head growth (0.7% and 0.2% respectively from here). Refugees will be added to the population, and also to the labour force in the countries they arrive in.

If the supply of labour is expanded, the instinctive reaction is to ask about the impact on the price of labour; many worry that wages will be forced down. Most studies that have looked at this (see these search results as a starting point) have found that the impact isn’t negative on native workers, apart from those at the lowest end of the market – unskilled labour. The reason the effect isn’t negative on wages is that the effect is not static – it’s not a one-off impact on the labour market. New entrants to the labour market ensure many vacancies are filled, leading to more being produced, more incomes being earned, and hence more demand for labour to produce more things that people want to buy with these higher incomes.

The impact on unskilled labour from immigration (or from refugees, and it’s hugely important to be clear about the difference – in fact from here, we should probably refer to most refugees in Europe as displaced people) is probably negative: migrants are often more willing to do those jobs, and at a lower rate of pay. However, migration is not the only source of pressure on unskilled labour; machines are probably a much more likely source of their problems, as many basic jobs are now being done by machines, or robots.

We’ll spend time next term looking at globalisation and its impact on the UK economy, in week 4 of term. In the meantime, you can look at Chapters 8 and 9 of our textbook to get a head start, if you want to…