Policies to deal with the free movement of labour

In this recent post we saw some of the economic and political challenges of allowing free movement of labour within an economic block, such as the EU28.

To what extent can the government / EU mitigate these negative impacts, whilst retaining free movement of labour?

1. Funding related to number of people. One issue of free movement of labour is that certain areas can see a sudden influx of migrants, which places a stress on social services, housing and possibly wages. If government spending was more flexible, higher public funds should go to those areas with rising populations to mitigate issues of overcrowding and NHS waiting lists.

For example, the FT highlights Barnsley which in recent years has seen an influx of migrant workers from EU to low paid jobs, but, at the same time, Barnsley council was dealing with 40% spending cuts and firing half its staff.

Sir Stephen Houghton, the Labour council leader, said he had expected the Brexit result. “In the last four years we have had 5,000 migrants arrive, 4,000 from the EU. The proportion went from 0.5 per cent of the population to 4 or 5 per cent. FT

Migration is a net economic benefit and migrants are net contributors to treasury, but for those in certain areas it doesn’t feel like it, because austerity is the dominant force.

  • Evaluation. Government spending invariable has time delays. It takes time to recognise rising population, and then time to actually improve services and housing.
  • Also, it requires central government to be willing to increase public spending reserves, this may require higher taxes / and or less strict budget targets.
  • Also, higher spending is not a panacea. It doesn’t deal with the cultural issues of sudden influx of people, nor would might government spending be sufficient to create good full time, highly paid jobs.

2. Labour market regulations to discourage net migration.

This could involve:

  • Prevent UK firms advertising for jobs in Eastern Europe
  • Regulation to outlaw zero hour contracts and flexible contracts.
  • Limitations on out of work and in work-benefits for newly arrived migrants.

These may have a minor impact on reducing flow of workers, but they would only touch the surface of the issue. Migrants are more likely to work in flexible work, but that doesn’t mean you would want to necessarily ban zero hour contracts. Despite downsides they may help create jobs, which is better than unemployment.

More balanced information. Certainly one issue is that in many tabloid newspapers there is the perception created that migrants are universally bad – pushing down wages, taking housing, benefits and filling up the NHS e.t.c.. However, this is a misleading account. Migrants are net contributors to treasury. Also, as people come in, many UK pensions have gone abroad (reducing demand on UK NHSA). A more balanced understanding would help diffuse some tension, though it is much easier said than done.

800px-Estimated_hourly_labour_costs-YB16

EU Wide Regional minimum wage. During the EU referendum campaign Labour leader J.Corbyn raised this as a potential solution. Higher wages in Eastern Europe would discourage economic migration. But, an EU wide minimum wage is infeasible. UK levels are 3-4 times higher than eastern Europe. See: European wage differentials. A minimum wage of £8.00 an hour in Eastern Europe would cause unemployment and be unworkable.

EU Regional funds to Eastern Europe. Over time, EU regional funds to Eastern Europe may boost economic growth and economic development, and this will see a steady narrowing of wage differentials, Just like Ireland and Spain saw higher real wages after entering EU. But this would only be a solution only in the long term, and it requires wealthier EU countries to be net contributors to EU budget, which has been unpopular.

Selective free movement. Have a rule where if average wages are two or three times lower than the EU average, free movement should be suspended until wages are more equal.

This is against current EU principles, but it may be most effective way for EU to avoid being blamed for large flows of economic migration.

Conclusion

Can a government stop high net migration levels in an area of free movement of labour?

Not really. But, if a government sees the benefit of net migration, it could definitely make more effort to target public spending into those areas with largest inflows of people and help mitigate some of the issues from a rising population.

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