Free Movement of Labour

March 10th, 2009 | economics -

Readers Question: The Free trade of goods and services may benefit both countries. But does a free tade of labour inputs bring similar benefits?

An Interesting Question, especially given rise in protectionist sentiments in recent months – Typified by the ‘British jobs for British workers protest’. For benefits of free trade see here

Advantages of Free Movement of Labour

Can Deal With Labour Shortages. Countries may experience labour shortages, especially in certain skilled positions or undesirable jobs many domestic workers don’t want to do. Immigrants can fill these vacancies.

Can Prevent Wage Inflation. If an economy experiences labour shortages, it will put strong upward pressure on wages; higher wages can easily lead to inflationary pressures. Free movement of labour means rising wages will attract more labour into a country and this will prevent wage inflation.

Can Diminish the rise in unemployment. If there is free movement of labour, then workers from oversees can take temporary jobs when an economy is booming and then return home, when the boom is over. This is particularly beneficial for cycling job markets like construction. The recession is encouraging many immigrants from eastern Europe to return home from UK and Ireland. Without this free movement of labour, the rise in unemployment would be sharper.

More Flexible Labour Markets. In an economy there may appear shortages in certain professions such as teaching and nursing. These vacancies can take a long time to fill because of the time taken to undertake training. If there is free movement of labour, qualified workers will be attracted to fill these vacancies making the economy more flexible and overcome shortages quicker.

Fill Undesirable Jobs. In developed countries, there are often jobs which are difficult to fill because they are deemed unsavourary. This may involve cleaning, bar work or dangerous jobs. Immigrants may be willing to fill these jobs because of the wage premium from working in that country

Disadvantages of Free Movement of Labour.

Developing countries may lose best skilled labour. Workers may be attracted to developed countries with higher wages, making it difficult for developing countries to retain skilled staff. This could harm economic development in developing countries.

Labour cannot be Treated Like a Factor of Production. In a boom period, immigrants are often welcomed (or at least tolerated) but in a downturn protectionist sentiment often turns against foreign workers and foreign workers may be first to be discarded. But, in reality, it is not so easy to ‘return home’ There are many geographical immobilities. Also, Polish workers may be returning to Poland, but there is a similar economic problem in eastern europe.

Immigration may mask the shortage of skilled labour. Immigration may prevent wage inflation but, it could also make a boom more long lasting and help to hide the inflationary pressures in the economy. Therefore, it delays the boom and bust.

There are more points for both sides, but, this provides a starting point.