High in the hills above Kandy, the tea planters of Sri Lanka have a problem. An ageing society, and a lack of willing younger workers, mean they haven’t got enough tea pluckers. Those who will work want to see a sharp rise from their current (very low) income levels and the managers are resigned to seeing their wage bills double. But they are also looking for ways to improve productivity – to pay for those wages. Everyone is looking at machinery that can double or triple the amount of tea each worker can pick in a day.
This all seems pretty obvious. If you haven’t enough workers, you need to find a way to do the same with fewer, and you need to pay the workers you do have more. There is nothing like a labour shortage to make the lives of those who do labour better.
This is not necessarily a thought that moves easily from the micro to the macro. Across most Western economies the more common idea is that a shortage of workers must be met with measures to find more workers. We need them to work in our care and hospitality sectors and to pay the taxes that will keep our fiscal show on the road as our population ages. On current trends, the percentage of the UK population that is over 65 will move from 19% to 29% by the mid-2070s. That’s why immigration is a good thing – and why the fact that it has been the main driver of UK population growth in recent years is also an obviously good thing.
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If our population is not growing organically, we have no choice but to ask people to move here from other countries, something we are really pretty good at. Net migration to the UK is at record highs – up from around 200,000 a year just after Brexit to 672,000 in the year to June 2023.
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There are all sorts of problems with this. Is it morally sound to import other country’s young people, and in particular their trained nurses and doctors? And where does it end? As each new generation ages, do we import more and more to plug that gap? And if so, might the place eventually, as the Institute of Economic Affairs has put it, “get a bit too crowded”? Is it a short-term solution to a long-term problem that will gradually (or, given the level of political irritation, maybe not that gradually) cause its own new problems? Given that it is the most contentious political issue of 2023, perhaps.
What has immigration ever done for us?
But the real question to ask is, does immigration improve the standard of living for the population that is already resident? Maybe not. GDP growth is nice, but the thing we should really care about is GDP per head. GDP growth since Brexit (when net migration really picked up) has been adequate. GDP per capita has been more or less flat – it has barely budged since 2016 (and is barely higher than in 2007). Rising net migration is not exactly the only thing that has happened to the UK economy over the last few decades, but the flatlining in GDP per head, even as GDP as a whole has risen, does chime with the results of various studies over the years. Most note positive effects on GDP as a whole, but small or negligible effects on GDP per head. Into this comes the discussion about productivity – which is particularly bad in the UK.
Might it be that expanding the labour supply is holding down wages at the bottom end of the income level (again, most studies show that what impact on wages there is from immigration is at the lower end)? Does that then put employers off investment in new systems that might increase productivity in the long term – and also push up GDP per head?
They don’t bring the new roads with them
There is still a lot of thinking to be done here, but a new entry to the (fraught) conversation came earlier this year from Professor David Miles, chief forecaster at the Office for Budget Responsibility (OBR). He suggests that, while we are mostly obsessed with rising populations, it may be that a falling population might be better for the UK. That’s because much of the conversation around population growth does not fully take infrastructure into account – the marginal additional cost of housing, hospitals, schools and roads for each new member of the population. Add that in and it might be that population growth improves the immediate fiscal position (which is good), but also cuts the quality of life for the existing population (not so good).
New arrivals, says Miles, bring often much-needed human capital with them, but they do not bring “schools, roads, hospitals and houses” (all things that are prohibitively expensive to build in the UK) with them. A mildly declining population – one that gets its economically inactive back into work and somehow gets productivity up too – might be better for the UK than one that sees constant growth. This is not an argument that is yet won – and it seems unlikely either way that, in today’s geopolitical world, the UK population will decline.
But if you need something to argue about with relatives (who doesn’t?) over lunch, the changing conversation around immigration, fertility and population will definitely do the trick.
