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NIESR report doesn’t mean Brexit will help the low paid

by Sam Ashworth-Hayes | 07.12.2016

For workers at the bottom of the pile, the prospect of a hard Brexit may seem a relief. Both press and politicians have told them EU immigration undercuts their pay. The problem with this narrative is that the effects of immigration on wages are small – and even this effect is likely to be overwhelmed by other factors.

A new paper from the National Institute of Economic and Social Research (NIESR) drives home the first point. Its scenarios envisage a pay rise for low-medium skilled service workers of 0.5% or 0.8% by 2030, depending on how much net migration falls.

The Mail Online coverage of this report was typically upbeat. Its headline read: “Brexit could slash 150,000 EU citizens from annual net immigration to Britain and boost wage for poorer workers”. This is a bit like saying burning a house down will provide a source of warmth for its occupants.

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One reason is that the NIESR study also says that a drop in migration would hurt productivity and, as a result, hit national income per capita. In its two scenarios, this falls 0.9%-3.4% in the moderate scenario and 1.5%-5.4% in the extreme one.

Another reason is that NIESR looks solely at the impact of migration. It does not consider other Brexit effects – such as higher prices flowing from the fall in the pound and more straitened public finances. The harder the Brexit, the more negative these impacts are likely to be.

For example, the Resolution Foundation last month predicted that low and middle income families are set to be the hardest hit in this parliament by a combination of lower earnings growth, higher inflation and welfare cuts. Meanwhile, the Office for Budget Responsibility is clear that Brexit means a permanently smaller economy. That means government will have less capacity to spend on those that need help.

In other words, Brexit, rather than helping the lower paid, is likely to harm them.

Edited by Hugo Dixon