Migrant workers do boost the economy

…that is according to PricewaterhouseCoopers.

Large numbers of migrant workers in the UK has boosted economic growth and helped keep a hold of inflation without undermining the jobs of British-born workers.

Britain was only one of three countries that allowed free movement of labour following the entry of eight countries into the EU in 2004 – including Poland, Hungary, Slovakia and Estonia.

The majority of the migrants from those new EU countries – estimated at half a million – have moved to the UK, although evidence suggests half of them have since returned home.

PwC’s research found that the new arrivals had pushed growth above its long-term trend and helped keep inflationary pressures and interest rates lower by increasing the supply of labour relative to demand.

Average earnings growth has been relatively subdued recently, at just under 4% excluding bonuses, and PwC said migrant workers had contributed to this.

This finding concurs with Professor David Blanchflower of the Bank of England’s monetary policy committee, who has voted to keep interest rates on hold on the basis of slack in the labour market.

The Treasury has also increasingly focused on the impact of migration, citing expected net migration as a key reason for raising its estimate of future economic growth to 2.75% from 2.5% in last December’s pre-budget report.

Meanwhile, the PwC report found that while migrant workers had increased the supply of labour in the UK, there had not been any adverse effects on the employment prospects of British-born workers.

“(Migrant) workers tend to be relatively productive and have filled important skills gaps in the UK labour market rather than just displacing UK-born workers,” said John Hawksworth, chief economist at PwC.

The public finances have not suffered either as a result of the influx of migrant workers, the study found. The majority of migrants are aged between 18-34 years, with high employment rates compared to their UK equivalents and therefore benefit payments are low.

They also receive comparatively low wages despite their good education and skills levels. Younger workers have fewer dependents and so are unlikely to be an additional burden on public services, the report said.

But Mr Hawksworth added that the extra pressures on transport and housing might offset this slightly and should be taken into account in the forthcoming government spending review.

“Public spending projections do not appear to have been revised up in the pre-budget report to reflect higher future assumed migration, which suggests that on a per capita basis the squeeze on public spending growth pencilled in for the next spending review period may be even tighter than earlier projected,” he said.

The benefits highlighted by Mr Hawksworth contrast with comments from Richard Lambert, director-general of the CBI.

The head of Britain’s leading employers’ organisation said last year that the government should be wary of its open door policy to new workers from Romania and Bulgaria, which joined the EU this year.