Vacant thoughts on immigration

John Wakeham, whose House of Lords committee has just produced a report on the economic effects of immigration, argues:

The government also claims lots of migrants are needed to fill vacancies created by Britain's booming economy over the past 15 years. This is beguilingly simple, but badly flawed. Once migrants fill some vacancies they spend some of their earnings. This increases demand for goods and services, which leads companies to produce more. But to increase production, companies need more staff, creating more vacancies and so defeating the objective of reducing vacancies. The total number of vacancies has remained at about 600,000 since 2001 despite high net immigration.

Does this seem wrong to you? It does to me. Let me explain.

You’re a car dealer. At present, you sell eight cars a week and have two cars in any given week that you fail to sell. You engage in some marketing to expand your customer base, and then find yourself selling ten cars a week. You use the increased takings to buy two more cars a week, and keep the marketing push up to expand sales further. Before too long, you’re selling 18 cars a week, with two on your book that you fail to sell in a given week.

You still have the same number of unsold cars, despite all your marketing. So are you better off or not? Wakeham and colleagues would have you believe that you aren’t, and that neither is the local car market.

Back to immigration: sure, the number of vacancies in the economy has been numerically steady. But the proportion of vacancies relative to the size of the workforce has fallen.

The report itself [PDF, paras 103-4] contains the same argument, concluding:

In other words, because immigration expands the overall economy, it cannot be expected to be an effective policy tool for significantly reducing vacancies. Vacancies are, to a certain extent, a sign of a healthy labour market and economy.

I agree that vacancies are good insofar as they constitute opportunities for people to get jobs; the flip side is that they’re bad insofar as they prevent (or at least delay) employers from getting the work they want done.

The effect of immigration on these two aspects is thus: first, if the absolute number of vacancies has stayed the same, and the number of native-born Brits looking for work has stayed the same, then these people’s opportunities are unchanged. Second, the employers can now get the extra work they wanted done, but find that the resultant economic growth means there’s even more they want done. As the vacancy level has stayed the same, they face an absolute labour shortfall that is no larger and a proportionate shortfall that has got smaller and smaller – as, all the time, their businesses have expanded.

Poor things.

(Philippe Legrain sums up the anti-Wakeham view.)