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Economic effects of immigration

Concern about immigration was one of the reasons why the Brexit camp won. In the post-referendum recriminations, it has led to the Brexiters being denounced as xenophobes. The Campaign as such does not have a view on anything other than LVT, and certainly not something as sensitive and controversial as immigration. However, migration certainly has economic consequences. These underpin the whole question of how rent arises in the first place

In Progress and Poverty, Henry George devotes an entire chapter to the subject, under the title “The Unbounded Savannah”. In George’s model, the first household to arrive settles on the best site. Subsequent arrivals are forced to occupy inferior sites. The better sites thereby gain a rental value which is the productive advantage of those sites over and above the least productive site in use, ie the marginal site. However, the increase in population leads to increased production as all sorts of efficiencies become possible due to division of labour and the presence of people with increasingly specialist skills. All of these lead to a progressive growth in rental value.

Note that the savannah in the story is unbounded. Land is always freely available at the margin. Nobody complains about the arrival of newcomers, any more than they did in California in the 1840s, when there was no limit to the opportunities. The minimum wage is determined by what can be earned at the margin.

What if land is not freely available at the margin? Those without land are forced to work for others or pay rent to another, and wages fall to a lower value, as labour is willing to work for the least it will accept.

What, then, happens if there is an influx of immigrants? There then appears to be a limit to the amount of work available. This is an illusion because there is, in reality, no such limit; there is always work that needs to be done.  But wage levels fall. People complain about the newcomers, who would in reality be an asset if the savannah was unbounded.

In a zone with free movement of labour such as the EU, people will move from the regions where they are lowest and will undercut the wages of existing workers in regions where pay is higher. Overall, wages will have a tendency to even out across the zone, which is what we are seeing. The lower wages will lead to higher profitability and this will tend to drive up rents. An influx of people will also drive up residential rents in response to increased demand.

This observation confirms the fears of the populist right though not for the reasons they give. The populist right, under slogans such as “British jobs for British workers”, is working from the “lump of labour” theory – that there is only a fixed amount of work to go round. The left also helps to feed that notion of there being a fixed amount of work whenever they use phrases like “job creation”.

The curious thing is that the self-styled liberal left, who claim to be acting in the interests of working people, are also the ones who favour free movement of people.

That is a worthy motive but it is not one that will appeal to the people who are suffering from the effects of the policy:  primarily their own supporters – or now, ex-supporters. Seeing themselves abandoned, it is not difficult to understand the appeal of the populist right – and the reason for the vote for Brexit amongst the left-behind English underclass.