Assuming that change has no impact?

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In launching its scheme for a points-based immigration system, the Government has stated that the UK economy needs to move away from a dependence on low wages.  It is true that migrants from the EU have provided a source of comparatively cheap labour, although the extent to which that has, in turn, deflated potential wages for UK citizens has been shown by a range of studies to be marginal at worst.  But does it follow, as the government seem to be arguing, that reducing the supply of such labour will increase its price?

Classical economics suggests that, all other things being equal, a shortage of a commodity or service compared to the demand will lead to an increase in price, but it also tells us that increasing the price will lead to a reduction in demand.  In the case, say, of care workers, the extent to which the price of labour can increase is determined by the extent to which the price of the care provided can itself be increased to account for the increased cost of providing it, so unless the customers (and the biggest customer for care services is actually the the public purse, at local government level) are prepared to pay more for care services, the supply of care services will fall accordingly as companies fail.  That would certainly meet one of the government’s objectives – reducing immigration – because there would be even fewer jobs for people to come and do, but I doubt it would be entirely popular amongst those families who depend on the provision of care for their relatives.  Even at the crude level of vote-winning, the government ends up winning some and losing others.

One of the government’s potential ‘solutions’ to the shortage of people to fill the vacancies is getting the ‘economically inactive’ (around 8.5 million under the age of 65 according to the Home Secretary) to perform the tasks concerned.  But as this analysis shows, that total includes students, people who are disabled, the chronically sick, unpaid carers and those who have taken early retirement.  The number theoretically available for work is a great deal lower, and without looking at individual circumstances, it’s hard to estimate exactly how many of them are able, willing, in the right geographical location, and in possession of the right skills to do the jobs concerned.  And the mechanism for matching people with the jobs is also unstated – unless the government is proposing some variation on forced labour for one or more of the categories identified, it’s hard to see how this proposal will solve anything.  I’m not sure that I’d put it past them to try it, though.

The simple truth is that the government’s proposed policy is a significant interference in the labour market, aimed primarily at winning the votes of those who care little about economics or the sectors such as care likely to be affected – they just want fewer foreigners in the UK.  In its rush to play to that gallery, the government is introducing a major change to the labour market with no apparent attempt to forecast its effects let alone plan for them.  Their underlying assumption seems to be that numbers of immigrants can be arbitrarily cut and that the types of permitted immigrant (in terms of skills, qualifications and experience) can be arbitrarily varied without having any impact on the day to day lives of people – there’s no plan for dealing with the impact because the scheme assumes there will be none.  Forecasting the impact of a significant change in the employment market (and that is what is being proposed) isn’t easy and assuming that such a major change has no impact is a simple solution to a forecasting problem.  It’s also incredibly stupid and short-sighted.