Government and Institutions

In praise of the EU migration and employment “customs union”


In many ways the EU acts like a customs union when it comes to migration that leads to employment. It is very easy to come to the UK from other EU countries to get a job. Indeed, there are no government-imposed barriers at all. However, if you wish to come from outside the EU to the UK (or to any other EU country) you have to jump an awful lot of hurdles in order to obtain employment. These are expensive for business and expensive for the individual. Their extent is the cause of a great deal of illegal migration and trafficking. Crucially, a job is required before people from outside the EU come and live in the UK.

This situation is rather like the situation that prevails when a customs union has tariff-free circulation of goods but requires tariffs to be paid upon entry to the customs union. It is more difficult to import goods from outside the customs union than from inside.

Like all customs unions, the migration customs union distorts economic decision making. When choosing between an Albanian and a Pole, even if the Albanian were more productive relative to the wage that was to be offered, the business might well take on the Pole.

It is no doubt with this problem in mind that the Migration Advisory Committee in their recent report suggested that the government should have a non-discriminatory immigration policy when it came to countries of origin of migrants. They did suggest, however, that the government might wish to negotiate a deal in which free (or more-free) migration between the EU and the UK was maintained after Brexit so that it would still be easier to enter the UK from the EU than from outside the EU.

There are good economic reasons to keep something like the status quo when it comes to migration for employment. Though it can be argued that a migration customs union, as I describe it, causes economic distortions, those distortions are smaller the larger the pool of potential migrants from within the customs union – and the EU provides a large and diverse pool of potential migrants. In addition, applying the current procedures for migration from outside the EU to all migrants will raise transactions costs and create uncertainty for employers – two problems that economists often ignore in neo-classical analysis.

For an employer to hire a migrant from outside the EU currently requires a complex process to obtain a visa and there is huge uncertainty as to whether the visa will be granted. In addition, there are significant fees that have to be paid for a work permit or visa. Of course, these costs are more easily borne by large employers for whom there are economies of scale.

Furthermore, the individual has to be matched to the job before migration. The search costs of job-hunting and employee-hunting from a distance are vastly greater than search costs when the individual is able to come to the country first. In addition to all this, decision-making for employers becomes very difficult when faced with the possibility of employing a non-EU migrant. Dilemmas employers face include questions such as “should we hire the person from abroad or a less suitable alternative?” If there is no domestic person who is regarded as suitable, will we be able to get a visa for the person from abroad or should we reshape the job?”.

These are not trivial issues. They create enormous uncertainty and can stall recruitment for months as well as imposing huge paperwork costs. And, ultimately, the decision on whether a migrant can be hired is taken by a government central planner.

There is one thing the government should do, both to assuage public fears about migration and also to produce better economic outcomes. The government could require a contribution record before migrants received (most) welfare benefits. Ideally this could apply to indigenous people too – as is the case in many EU countries. Migrants from the EU would still be able to come here, but they would have to be earning money from a job to be able to stay. Indeed, if there had been such a contributory principle within the benefits systems, perhaps the Brexit vote would have gone the other way.

However, beyond this, there are many benefits from the status quo.
The small loss in efficiency from the current migration policy that treats EU and non-EU people differently and which the Migration Advisory Committee would like to overturn is probably outweighed by the transactions costs, uncertainty and discretionary decision-making that will prevail when all migrants are treated the same way.

The UK should continue to welcome EU migrants on current terms. Indeed, it should seek to expand the range of countries from which migrants can come without requiring permission to work. This is possible because, although the EU is a little like a customs union when it comes to migration, the fact that we are outside the Schengen agreement allows us to have policies that are as liberal as we like.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.


2 thoughts on “In praise of the EU migration and employment “customs union””

  1. Posted 25/09/2018 at 08:55 | Permalink

    Philip,

    There are some aspects that you do not address. Firstly, permanent residency rights – would EU or other immigrants who come to the UK to work acquire these? It is all very well saying that EU migrants would have to be earning money to be able to stay but if they come here for (say) 10 years, have children in school, etc. and them lose their job, would they be deported?

    Secondly, although you talk about making most welfare benefits contribution-based (which would be sensible in many ways), this would be a restriction on domestic policy driven by immigration policy. It is also the case that many of the benefits of living in this country are, and will continue to be, freely available to everyone regardless of whether they have always lived here or are recent immigrants – school buildings/facilities, roads and the use of all sorts of other infrastructure. We have a tendency to look at the GDP/head contribution of immigrants (which some studies say is broadly neutral and others says is mildly positive and hence assumed to be economically beneficial) but we forget that our wealth is not just measured by GDP/head as this is simply our output in one year and ignores the fact that longstanding capital investments (especially public ones) built up over many years (often decades) are instantly shared between more people due to immigration, so our ‘standing wealth’ per person probably goes down.

    The point I am making is that, as you rightly observe, there may be increased costs once we are outside the EU’s “people customs union” but current free EU immigration also has costs, which perhaps hasn’t been taken into account in your argument.

  2. Posted 28/09/2018 at 15:34 | Permalink

    Debate on this always assumes those discussed are coming to fill roles where they have a highly paid skill-set and therefore are probably educated, rounded individuals who will reasonably integrate. It completely ignores the reality. The UK immigration problem was not having to take highly qualified French bankers when Aussies would have been easier to go drinking with. The problem was an army of Columbian cleaners who managed to get Spanish passports and headed for London to take unskilled jobs; Polish labourers who filled British building sites and who squeezed students out of private digs, etc.
    We also have no means of tracking, and thus removing individuals who should not be here. It is very easy to be an undocumented resident here because, technically, none of us have to have any documentation identifying us. This is the problem.
    If I want an American here to do something only he can do, I will get him whether it is a little difficult or very difficult. If it really is too difficult and I really do need him, I will get him to work for me out there, or somewhere else, off-shore, where regulations are friendlier.

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