We were threatened with, or maybe promised, a flood of immigrants from Romania and Bulgaria from the start of the year, now that the transitional restrictions on the freedom of movement of these EU citizens have now come to an end. Britain’s media descended on Luton and Stansted airports to watch as hordes of people from south-east Europe came to Britain to steal jobs and claim benefits. Famously, there was just a single one, who was forced to drink coffee with Keith Vaz MP before being allowed to go on his way.
Economically, of course, it is a good thing for a country to receive immigrants: they pay more in taxes than they receive in benefits, and the idea that jobs can be stolen – that there is a fixed amount of work to be done – is a well-known economic fallacy.
However, this line of economic argument does assume that an economic benefit to society as a whole can be shared by society as a whole. If the main economic benefits of immigration are captured by a small group at the top of the economic pile and not redistributed amongst those who might be losing out – if increased competition for unskilled work drives down wages, for example – then it is not surprising that immigration might provoke resentment. Add to that cultural concerns – people can find it unsettling when they can no longer understand the language spoken in conversation on their streets, or when the shops start to fill up with unfamiliar foods – and you have a situation ripe for exploitation by an unscrupulous and populist political force.
This is not to blame the immigrants, not even the people who might resent the immigrants. Modern economics is all about systems and the correct design of incentives rather than focussing on the decisions and actions of individuals: the same should be true here, too.
And on the issue of immigrant wages versus benefits, the question of the design of incentives is crucial. The two sides in the debate are talking past each other.
The formal position in the EU is that free movement applies to workers, not citizens. People are entitled to move from one country to another to work, but not in order to claim unemployment benefits. People who can support themselves are welcome; those who cannot are not.
But what of those people in the intermediate position, people who are working and claiming benefit at the same time?
In the UK, benefits such as the working tax credit and the child tax credit are paid to more than 3 million people who have jobs. This can include people who have just arrived in the UK from Romania and Bulgaria. Anti-immigration people complain that people are coming here for the benefits; pro-immigration people claim that the very same people are coming here for work. Can these two statements really both be true? If so, what is going on?
What is going on is the relative decline in average earnings in this country. The median household income has grown more slowly than the mean household income, telling us that earnings have grown faster for the rich than for the poor. Inequality has grown, and wages at the bottom end of the income spectrum are falling further and further behind the rest.
The need for in-work benefits arises from the fact that someone in an ordinary job no longer earns enough to afford to live in an ordinary home. The welfare state steps in to make up the difference. This is what is going on.
When the free movement provisions of the Treaty of Rome were first created, no-one envisaged that social welfare would become such a pervasive part of many people’s daily lives. It was a safety net of last resort, not a trampoline that people would bounce on as a matter of course.
The concern about immigrants claiming benefits is thus not really about immigrants at all. It is about benefits. Free movement within the EU is not the problem, but has pointed out what the problem is. Blaming the messenger is a familiar feature of modern politics, and this is another example.