Foreign workers have allowed 3% growth without inflation

But what happens now? – Ernst & Young ITEM Club

London 18 December 2007: A special report by the Ernst & Young ITEM Club, “Migration and the UK economy”, released today assesses the impact of a decade of economic immigration on the UK economy and forecasts a decline in growth if that flow of foreign labour is switched off.

Peter Spencer, Chief Economic Advisor to the ITEM Club explains, “Without a million and a half foreign workers since 1997 the UK economy would have suffered slower GDP growth, higher inflation and interest rates.”

“Looking forward, if immigration were to continue to increase at the same rate as in the last two years, ITEM would expect GDP to grow by an impressive 3% a year over the next decade. If immigration were in line with the average of the last decade, long-term trend growth would be reduced to 2.4% a year. And if there were no immigration at all, it would drop to just 2.2% a year.”

A political not an economic issue

The economic benefits of this immigration are clear even if the political implications that this movement raises are not. What is apparent is that in the last five years whilst over a million new jobs have been created in the UK over 2/3rds of them have gone to foreign-born workers.

Typically the average economic migrant in the last decade was as skilled as his UK-born counterpart – if not more so – and earned a comparable wage. However it is possible that over the last couple of years the immigrants from the new EU accession states have been less skilled than those previously, earning only 60% of the average UK wage.

ITEM has commented before on the high proportion of the new jobs that have gone to UK-born workers above the age of 60. So, if any group has 'lost out' in employment terms in the last decade it would appear to be young British born workers who have no doubt felt the impact of the most recent wave of immigrants.

Spencer adds, “A third of the immigrants in the last three years have come from the recent Accession countries and a large number of these have been young workers. Although the numbers of immigrants from Eastern Europe are now slowing there are very few parts of the British Isles that have not felt the positive economic impact of their arrival.”

Britain still needs immigrants

ITEM believes it is important that current and future governments continue to keep an open mind and open doors to economic migrants. The UK economy needs the current rate of growth of immigration to be sustained particularly as our UK-born working pool is growing more slowly than the pensioner population.

The impact on business

As Mark Otty, Chairman of Ernst & Young, explains, not only does UK business benefit from stronger GDP growth that immigration has brought, companies will increasingly have to look further afield than a purely domestic labour supply.

“We need immigrants to balance the demographic books and to supply us with a range of qualified professionals such as scientists and engineers. Moreover given the likely competition there will be for the most highly skilled immigrant employees, the most progressive companies will have to have credible diversity and inclusiveness policies in place.”

“At the same time business has to do something to address the fact that the UK has one of the lowest levels of youth employment amongst all the major OECD countries and re-engage with a lost generation who have slipped through the net.”