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Warning: Immigration Can Seriously Damage Your Wealth

Page 2 of 10

The Author

Anthony Scholefield graduated from Christchurch, Oxford, in History. Later he took a degree in Economics and Statistics at London University and became a Chartered Accountant. After 25 years running a business in Central London, he became a founder of the UK Independence Party and its Secretary for three years. He has also written a study on demographic decline, The Death of Europe, and on the euro, Why Britain Will not Join the Single Currency.

Summary

British and American workers believe that immigration reduces their wages and their wealth. Conversely, the political elite of both countries, who benefit from cheaper labour, are in favour of having immigrant workers.

An analysis of the economic effects of immigration suggests that the impact on the wealth of natives is more important than the small effects of migration on the total GDP of natives, although there is a substantial impact on the distribution of income among natives.

Not for nothing did Adam Smith entitle his famous work, An Inquiry into the Nature and Causes of the Wealth of Nations and Karl Marx call his work, Capital. The effects of capital and wealth matter.

Indeed, the full economic impact of certain social and political factors that have come to the fore – such as longevity, fertility, migration, pensions and environmental issues – is to be grasped not merely through the short-term effect these factors have on GDP, but also through their effects on capital and wealth, which may be more marked and more important.

The fundamental economic benchmark relating to the economic effects of immigration is that put forward by the National Research Council of the USA, which states that ‘if immigrants have exactly the same skill distribution as domestic workers and if they have brought sufficient capital with them to maintain the US capital/labor ratio, then natives will neither benefit nor lose from immigration’.

From this, our further analysis (using 2004 figures) concludes that only immigrant workers who bring £141,000 of capital per head into the UK (i.e. the amount of total British wealth divided by the total number of British workers), or £282,000 for a family of four; who make no foreign remittances; and who have at least the mean average skills of natives can possibly be of economic benefit to native Britons (this study excludes fiscal and national identity costs).

The average migrant worker contributes only £2,235 to the annual increase in the wealth of the country (£988 after foreign remittances).

Immigrant workers without £141,000 of capital must have that amount of capital instantly provided for them, or else they crowd in and appropriate part of the wealth of natives.

The argument as to the effect of immigration on native wages is binary: either the wages of natives fall after the arrival of immigrant workers or they do not.

Free market economists, such as those at the National Research Council of the USA and Professor Borjas in the USA, believe that the wages of workers competing with immigrants do fall, and indeed this is the basic law of supply and demand; but they also appear to believe, without much analysis however, that the process of capital adjustment means that the capital–labour ratio is subsequently restored, and that wage rates return to pre-immigration levels. This study shows that these arguments are incomplete, and that the capital adjustment process will not provide more than a fraction of the £282,000 of wealth required by each immigrant family.

The process of capital adjustment is quite clearly spelt out by economists, if not by politicians – falls in the wages of native workers fund the capital requirements of immigrants.

The alternative argument – that wages do not fall, and that the effect of increased supply has no effect on price – is put by the British government. This runs counter to the analysis of the American experts. Should government ministers and other pro-immigration supporters be correct, and wages do not fall, then there can be no capital adjustment and, therefore, every immigrant family’s share of wealth of £282,000 must be appropriated from native workers.

Introduction

While many workers in rich countries such as the USA and Britain resent immigration, believing that it reduces their wages, worsens their conditions and makes inroads into their wealth, a large section of the elite and the political classes are in favour of it.

Both major political parties in Britain justify immigration and make enthusiastic remarks about it. For example, the Conservative manifesto of 2005 stated bluntly: ‘Britain has benefited from immigration. We all gain from the social diversity, economic vibrancy and cultural richness that immigration brings.’ Labour’s 2005 manifesto said: ‘Immigration has been good for Britain. Our philosophy is simple: if you are ready to work hard and there is work for you to do, you are welcome here.’ The two major parties are, therefore, agreed that immigration is beneficial to native Britons – although, as in other policy areas, no cost benefit analysis has been done, so no effective debate can take place, as there is nothing substantive to debate at Westminster.

There are those who say that immigration does not and must not depress British wages. These include government ministers, the bishops of the Catholic Church and the Church of England, and the trade unions. The extraordinary effects of such thinking are indicated at the end of this paper: if such a situation existed, the main effect would be that immigrants could not possibly provide their own share of wealth and capital, and it would have to be appropriated from British natives.

It should be noted that wages earned by the latest wave of immigrants to the UK are extraordinarily low. Migration Watch reported (Economic Briefing Paper 1.12) that the Home Office’s Accession Monitoring Report of August 2006 on the A8 EU Accession countries indicated 78 per cent of registered workers earned between £4.50 and £5.99 per hour. A further 15 per cent earned less than £8.00 per hour. As Migration Watch pointed out:

This gives average annual earnings of £11,800. By comparison the average earnings of the employed working population overall was £22,000 in 2005. Thus earnings of A8 migrant workers was just over half those of the UK employed population as a whole.[1]

These figures are confirmed in a draft report for the Catholic bishops that is sympathetic to immigration. The Ground of Justice, prepared by the Von Hügel Institute of Cambridge University in 2007, surveyed a broad sample of Catholic immigrants, about 50 per cent of whom were from Eastern Europe:

Overall, 50% of the surveyed immigrants earn £5.90 an hour or less. Only 25% earn more than £8 per hour and even the range above this is very limited in nature.[2]

Serious economic analysis, especially in the USA, assumes that any labour in competition with immigration will face depressed wages, but it argues that this will create higher profits for capital, which will lead to increased investment and restoration of the capital–labour ratio to pre-immigration levels. It should be noted that the main US studies, along with this study, agree that this process cannot improve the capital–labour ratio to above the pre-immigration level. While it seems to be a reasonable argument over the long term when considering output, a study of the statistics shows it to be unlikely when considering wealth.

In the USA, a survey conducted by the Chicago Council on Foreign Relations on differences of view between elites and voters showed (2002) that 60 per cent of the public viewed the present level of immigration as ‘a critical threat to the vital interests of the United States’, while only 14 per cent of the elite agreed with this – far and away the greatest divergence of view between elite and public opinion on any issue.[3] Then, in October 2006, a poll by the Polling Company revealed that only 3 per cent of the public supported increased levels of immigration, as contained in a proposal that was passed by a majority of the US Senate in 2006 and supported by President Bush.

As the American pollster, Scott Rasmussen, commented apropos the first of these polls: ‘My own personal bias is, whenever I see a gap between the elites and the public, I tend to think the elites have something to learn, that they’re missing some element of commonsense or not understanding the issue properly.’[4]

It is argued here that the public are indeed more attuned to the real economic costs of immigration, and that, on the part of the elites, there is a fundamental misunderstanding of the economic issues of migration.

There is also a raw divergence of interest here. As the owners of businesses, the business section of the elites gains from employing cheap labour, and all sections of the elite like cheap services in their private lives. At the same time, they are protected against competition from immigrants, because their own jobs place ‘the greatest premium on mastery of the English language and culture’. This latter quotation, by Roy Beck of Numbers USA, a non-profit organization specializing in the study of population growth and the environment, also perfectly describes the situation regarding academia, the media and the Westminster village.[5]

The USA and the UK differ in one important respect: the UK is a country of both immigration and emigration; emigration from the US is very low. For example, in 2000, a World Bank report by Frédéric Docquier of the University of Lille estimated that the number of British tertiary-educated citizens living outside their native country was 1,542,011, compared to 428,078 US tertiary-educated citizens. This is in spite of the fact that the USA has five times the population of the UK. The upshot is that the rate of demographic change, based on changes occurring within the previous year, and taking into account both the number of those natives leaving a country and the number of non-natives coming in, is now much greater in the UK (0.66 per cent of the population in 2005) than in the USA (0.39 per cent).[6]

The large rise in immigration since 1997 has, then, been supported by business leaders such as Sir Digby Jones, former Director General of the CBI, who opined that ‘an increase of one per cent in our population by immigration adds 1.5 per cent to our gross domestic product’,[7] a statement that is patently absurd, as well as irrelevant to the incomes and wealth of British natives. (Incidentally, it is a fact that many journalists on conservative newspapers combine enthusiasm for immigration with denigration of the abilities of some of their fellow citizens.)

There has also been enthusiasm for the benefits of immigration in the Labour Party, among the Liberal Democrats and in other left-wing parties and organizations (as well as the institutions of the EU), despite their current claims to be – and actual historical role as – defenders of working people. This recently reached new levels, when, on the subject of East European migrants, TUC General Secretary Brendan Barber stated in September 2006: ‘We favour the free movement of labour and intend to say so loud and clear.’[8]

So, we have big business and the multiculturalists in favour of immigration, and the elites benefiting from cheap labour in business and in their personal lives.

Needless to say, the political parties, running scared of the ‘racism’ charge and ‘celebrating’ diversity, seize on any favourable reference to immigration and amplify it.

As Professor Borjas, the famous US writer on immigration, concludes in his discussion of the US situation:

The dangers also arise because there are powerful interest groups that gain substantially from current immigration policy. And these groups seem unable – or are unwilling – to see the cost the immigration imposes on other segments of society, and have considerable financial incentives and resources to influence the course of debate and to ensure that the current policy remains in place.

The adverse effects of the second Great Migration will not go away simply because some people do not wish to see them. They will continue to accumulate. In the short run, these interest groups will likely succeed in delaying the day of reckoning. In the long run, their impact is much more perilous.[9]

The effects of immigration on wages are, therefore, not likely to trouble the elite and the political classes, because they are insulated from them.

No British analysis of the distribution of the depressing effects of immigration on different categories of income earners or wealth holders has been attempted. It is, however, harder for the elites to insulate themselves from the impact of immigration on wealth. One can, therefore, forecast that there will be a response from the elites to crowding-in – from which they cannot insulate themselves. Areas that could trigger a change in sentiment would include public transport crowding, road congestion, water shortages, overcrowding in housing, the impact of new housing on the environment, and the appropriation by the state of higher taxes to fund more schools, hospitals, etc.

Even if the elites are not personally too affected, the impact on wealth is spread much more widely among voters than is the effect of wage depression, so this is likely to produce more reaction from politicians. Indeed, on 18 April 2007, the Home Office Immigration Minister, Liam Byrne, was quoted in the Daily Mail as saying that mass immigration had left the country ‘deeply unsettled’. He called for ‘a more open debate about what immigration is good for Britain that takes into account its wider impact’.

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