In the EU referendum campaign, we’ve had plenty of discussion about immigration in itself. We’ve also had some discussion about the impact of immigration on the economy and about how future economic changes might affect immigration. But here I want to think about a somewhat different question: what does immigration into the UK from the EU tell us about the economic arguments for or against Brexit?
Here we can see the ONS figures for net migration of EU citizens, non-EU citizens and Britons.
Figure: Net Long-Term International Migration by citizenship, UK, 1975 to 2015
Let’s focus on that blue line – the one for the EU citizens. There are three especially striking things about that graph. First, as everyone knows, it experiences a huge spike up after 2004, as Eastern European citizens become EU citizens and as such become entitled to come to live in the UK.
Second, we can see that at the far end of the chart, there is another very significant rise from 2010 onwards. Now why does 2010 seem like a familiar date in this context? Ah, yes – because that’s when the Eurozone crisis got going. EU citizens have come to the UK as unemployment in parts of the Eurozone reached 20% or even 30%, and opportunities in the UK were vastly better. High immigration into the UK from the EU is not some separate issue from the economics of Brexit. It is precisely because of EU economic failures of the past few years that there has been so much immigration to the UK. Indeed, without the opportunity for large numbers of EU citizens to come to the UK for jobs, unemployment elsewhere in Europe would have been higher – possibly more than a million higher (which, given that total Eurozone unemployment peaked at around 20 million, would have been a very significant add-on).
We see the deep economic connection with EU migration in the third key feature of that blue line: the way it fell in 2008/09. When the UK was in its worst recession since the 1920s, EU migration to the UK fell precipitately. People surged in when they could, more came at the peak of the boom, they stopped coming when the UK was in recession, and surged in again when the Eurozone crisis got going.
That large inflow of persons from the EU has almost certainly been the major GDP contribution of the EU to the UK over the past ten years. Over the past decade, overwhelmingly the main way the EU makes the UK economy bigger is by making our population bigger. When folk tell you stories of trade and FDI and productivity and so on, they are scratching at the small print. The economic story of the UK in the EU for the past decade has been a story about how immigration affects our economy. The rest is footnotes.
This labour mobility into the UK tells us something profound about the way the EU works, economically, and what its political destiny must be. To make a currency union, like the euro or the pound or the dollar, work the economy must have the right balance of symmetry in the shocks it experiences, fiscal transfers (benefits, regional grants, tax differences and so on) to allow any asymmetries in shocks to be countered, and labour mobility to allow populations to re-distribute to remove any remaining effects of asymmetric shocks after the fiscal transfers have done their work.
Right back to the beginnings of the euro, the main criticism made was that shocks would be asymmetric in effect (some regions would be harmed by shocks that would benefit other regions or at least leave them relatively unaffected), fiscal transfers were almost non-existent and labour mobility was far lower than in currency unions such as the US dollar (where of order six times as many people traditionally crossed a state boundary for work as occurs within the Eurozone).
What those analyses didn’t really anticipate was the effects of there being greater labour mobility between a currency union (the Eurozone) and an economically attached partner (the UK) that was not a member of the currency union. Instead of moving just between more and less prosperous areas of the Eurozone, EU citizens have the additional option of leaving the Eurozone altogether to come to the UK. In periods of economic disruption at home they have done precisely that.
These movements are thus a symptom of key tensions within the Eurozone. There are, have been and will in the future be more asymmetric shocks. Until the Eurozone has a proper system of fiscal transfers, its citizens will respond to economic downturns by moving to the UK. That won’t do at all for many Eurozone states which have significant structural public finance problems, particularly with respect to funding future pension claims. Eurozone states need to work out how to retain their citizens so they can pay tomorrow’s pensions.
It’s clear that to make that happen – to curtail emigration to the UK – Eurozone states will have to establish a proper system of fiscal transfers within the Eurozone. Such a system of fiscal transfers will require people to oversee and administer the system and procedures whereby taxpayers can vote to hold those overseers and administrators to account. That means a Eurozone Treasury, with a Eurozone President and Eurozone elections.
Thus, the immigration question is not only an intimate part of the Brexit economy debate. It is also an intimate part of the Brexit geopolitical debate. Immigration to the UK is a symptom of those same forces that will force the Eurozone into deeper political integration, in turn isolating the UK in EU policy-making.
It’s not only from the UK side that large EU migration to the UK cannot go on. The Eurozone cannot allow it either. The economic forces that create UK EU immigration drive a political imperative for deeper Eurozone political union, also. Immigration is thus not some separate side-issue on its own. It is not even merely the most visible sign of how the EU restricts sovereignty. It is also a symptom of the core of the economic and institutional debate.
