The Deflationary Effect of Migrant Workers

By: Nadeem_Walayat

This week the UK government came clean and stated that it has got its facts wrong on both the number of migrant workers and the number of jobs created. More than half of the jobs created by New Labour have gone to migrant workers, with the number of migrant workers now estimated at 1.5 million. In my previous article, I highlighted the key negatives of migration into the UK, in that the public sector is inefficient to such an extent that it cancels out the estimated extra tax revenue of £6 billions.

However the other key benefit to the UK from migration is the fact that the influx of a highly motivated workforce exerts downward pressure on inflation and therefore results in lower interest rates which helps the wider economy to grow.

The reasons are primarily that migrant workers tend to work for less pay and have less impact on the supply side of the economy as consumption is much lower amongst migrant workers, who tend to have a greater propensity to save. The other key benefit to the UK economy of migrant workers is that the UK state has not had to pay for the costs associated with raising and educating the migrant worker from childhood, and therefore those costs have been borne by another country.

The UK also like much of Europe has an ageing population that requires more skilled workers than it is able to produce to continue to grow economically, and thus the UK has not been immune to skills shortages in key sectors that so far the government has failed to target.

The tendency has been for migrant workers over time to permanently settle and consume in line with the general workforce which diminishes some of the benefits. Therefore this suggests that if the UK government does go ahead with strongly curtailing migrant workers in the coming years, then this will eventually lead to higher inflation. However in the immediate future, the influx of eastern european workers will continue to exert downward pressure on inflation during 2008.

The only real solution is an efficient points based system for ALL migrant workers so as to ensure that the most competent and skilled are able to easily settle within the UK. One things for sure, both uncontrolled migration and highly restricted migration are damaging to the UK economy. The advantage is in an social structure and economy that is able to attract competent skilled migrant workers, which may not always be the case if the government does not fix the current situation with regards migrant workers.

By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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