Blaming immigrants and a tolerant society

I recently watched a BBC documentary (No place to call home) about Britain’s housing crisis, focusing on a suburb of London (Dagenham). It was an insight into the desperate situation many find themselves in because of a shortage of housing, very high rents and a feeling the council / government is unable to help with …

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Policies to deal with the free movement of labour

net_immigration_benefits

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 …

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Fiscal impact of immigration 2014 report

If you are interested in fiscal impact of net migration, this study “Fiscal effects of immigration to the UK” is worth reading. The Economic Journal,Doi: 10.1111/ecoj.1218 Christian Dustmann and Tommaso Frattini Some highlights EU migrants cost the UK government £408.12 per second in public expenditures, and contribute £463.35 per second in revenue. Of all EU …

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Performance related pay

Performance related pay is a system where employers pay employees depending on the quality of their work. In it simplest form, performance related pay is payment by ‘piece meal’. For example, a worker gets paid £1.00 per Kg of potatoes that they pick. This piece meal payment is an effective way to give workers an …

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Growth in self-employed contractors

In recent years, the UK has seen a more flexible labour market. One phenomena is the growth in self-employed contractors. This category of workers have different rights to employees. Self-employment can be attractive to workers seeking greater flexibility. But, there is also concern firms are using the categorisation of  self-employment as a bogus method to …

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Zero hour contracts

Zero hour contracts means that workers are employed without any guarantee about the amount of work they will gain. In the past decade, the numbers working on zero hour contracts has significantly increased from 100,000 in 2000 to over 700,000 in 2015. This now accounts for approx. 2.4% of the workforce. 41% of people on …

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Reasons for net migration into the UK

The latest stats for UK net migration show an annual net migration of 260,000 (June 2014). This is roughly split between EU and non-EU migrants

  • 142,000 from EU
    • 44,000 of the EU are from the EU8 (most recent EU countries – Poland, Hungary, the Czech Republic, Slovenia, Slovakia, Estonia, Lithuania, and Latvia)
  • 168,000 from non-EU (of which Commonwealth countries account for 62,000)
reasons-formigration-uk
Reasons-for-migration-uk – ONS Migration study Nov. 2014
  • According to data by the ONS, the biggest reason for net migration into the UK is to pursue education studies. This accounts for 153,000 out of the net migration of 260,000 (Nov. 2014)
  • The second biggest reason is work related 61,000 – of which this is split into 41,000 definite job and 24,000 looking for work.
  • The third biggest reason is to join family already living in UK – 54,000
  • Other reasons 13,000 includes vague responses, such as ‘coming back to live’

Asylum seekers

  • Asylum applications (excluding dependants) rose from 4,256 in 1987 to a peak of 84,130 in 2002, and then declined to 23,507 in 2013. (Migration observatory)
  • In 2012, asylum seekers accounted for 10% of net migration
  • In 2013, the rate of asylum seekers in the UK as 0.47 asylum applicants per 1000 people The European level is 0.91 per 1000.

Reasons for migration depend on country of origin

migration-region-birth
Source: ONS migration

 

  • For recent arrivals (2007-11) study is one of main reasons for migration.
  • Employment and unemployment rates for UK citizens and EU migrants are very similar.

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Question: Why do the costs of living keep going up?

UK inflation-real-wages-2006-19

Readers Question: Why do the costs of living keep going up and our wages do not match it?

In recent years, many people have seen the cost of living rising faster than wages. This has led to a fall in real wages – wages increased less than inflation. This effectively means a fall in the number of money consumers have to spend on goods and services, leading to a decline in living standards.

  • The cost of living measures the price of goods and services that we typically buy. This rise in the cost of living is measured by the inflation rate.
  • If the inflation rate is higher than our nominal wage growth, then we see a decline in real wages. We are financially worse off.

This is not always the case. In the twentieth century, there was an unprecedented rise in living standards with the average wage of workers significantly increasing – enabling workers to be better off.

Ways to become worse off

  • Inflation higher than wage growth – falling real wages
  • Falling wages – and constant prices –  leading to falling real wages
  • Higher taxes, leading to less disposable income – disposable income measures after tax income. Your real wage may increase by 2%, but if income taxes rise 3%, your disposable income will be less.
  • Higher living costs leading to less discretionary income. If you have to spend more on essential items, such as heating, insurance and travel costs, debt repayments – then the amount of money left over after spending on essentials falls. We say this is a fall in discretionary income (though people may use term disposable income). Again, you will feel worse off because there is less money left over to spend.
  • Lower benefits. Many low-income people rely on government benefits, such as unemployment insurance, housing benefit or income support. If benefits fall behind inflation, this will create a fall in real income. This will be quite noticeable because people on low income are already stretched and have limited disposable income.

Falling real wages are quite rare in Western Europe since 1945. Typically we have seen positive economic growth and rising real incomes. People are definitely better off than 50 years ago. The graph below shows that since 2008, the rise in living standards has temporarily ended and become negative.

UK real wages

uk-wages-inflation-01-14

It is a similar situation in many other developed economies, such as US and Europe.

Reasons for falling real wages

Negative economic growth. If there is a recession – which means a fall in real GDP – then average incomes are likely to fall. Firms will be cutting wages and / or cutting jobs, therefore there will be a decline in living standards.

However, we can also see falling real wages during economic growth. An interesting feature of this recovery is that despite economic growth (rising real GDP), real incomes are still falling. How can real incomes fall, when there is positive economic growth?

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