To be less dependent on immigration, Britain must change its model of capitalism

The British economy is structurally dependent on migrant workers because it is lightly regulated and depends heavily on domestic demand, write Alexandre Afonso and Camilla Devitt. They explain why less immigration will require a greater role for the state.

The desire to lower immigration has been one of the main drivers behind the Brexit vote. Now, Theresa May’s cabinet has signaled its resolve to cut down numbers significantly, a longstanding pledge that the Conservatives had failed to make good on up to recently. With Brexit becoming a reality, however, the UK can expect lower inward migration, and numbers have been falling already.

Reduced immigration will be due to the restrictions on free movement the government will put in place and weaker economic growth (Britain has grown at a much slower rate than any other major economy in 2017). A number of EU citizens faced with uncertainties about their status will also probably leave. For the British economy, less immigration will be problematic because it has come to structurally depend on it at both ends of its labor market, mostly due to its liberal and demand-driven economic model.

In a recent article in the Socio-Economic Review, we argue that different varieties of capitalism – how the economy is organised across countries – generate different levels of demand for migrant workers. In this perspective, the UK displays features that make it especially dependent on migrant labour. The UK combines the features of a so-called Liberal Market Economy (with low employment protection, a lightly regulated labour market, and a large low-wage sector) and a consumption-led growth model (which depends heavily on domestic household consumption and population growth rather than exports). These institutional features have strengthened demand for migrant workers to compensate for mismatches and imbalances in the socio-economic regime.

First, the British economy is a demand-led economy which relies to a greater extent on domestic consumption than export-led economies such as Germany. The UK draws to a greater extent on population growth and increasing house prices. Unlike Germany, where exports of goods and services represented 46% of GDP in 2016, this share was only 28% in the UK. Another major difference is population growth: between 2006 and 2016, the British population has grown at a much higher rate than the EU average: 0.75% per year against 0.3% (0.3% for Germany). Immigration accounts for more than half of this growth, and reducing the number of people coming into the country (and consuming goods and services) will inevitably weaken what had become an important driver of growth.

This is important because apart from financial services, Britain’s export performance appears to be too weak to compensate for a smaller domestic demand. While Germany still has a strong export-oriented manufacturing base, the United Kingdom relies more heavily on services, not only high-skilled (e.g finance) but also low-skilled sectors (retail, cafés, restaurants, personal and social services) and the construction sector. These sectors depend to a larger extent on migrant workers, especially in low-paid employment. For instance, 41% of packers, bottlers, canners, and fillers in the UK are EU nationals, and so are 26% of cleaners and housekeepers.

Second, because of the liberal nature of the labour market, there is a comparatively high number of low-paying jobs that natives are reluctant to take up. About 20% of jobs in Britain are low-paid (that is, they are paid less than two-thirds of gross median earnings) while this percentage is only about 10% in France and 8% in Denmark. The turn to austerity pursued by the Conservative government may have paradoxically increased this demand for low-wage migrant workers. In social care, for example, pressure for cost containment due to austerity has led to a deterioration of working conditions, and migrant workers are often the only ones who accept the low wages and asocial working hours that these jobs entail.

In sum, the British economy offers many low-paying jobs that natives, due to higher expectations, are reluctant to accept. This mismatch is filled by migrant workers. Catering, construction and care – all domestic services sectors which had come to depend heavily on EU workers – have now all reported difficulties in finding labour in the aftermath of Brexit.

Third, the dependence on EU migration has also been accentuated by decades of deregulation which have lowered incentives for firms to produce skills domestically. This is a classic collective action problem: in order to have an adequate supply of skills, firms need to cooperate and pool resources to train new workers. However, it may be selfishly more expedient to let other firms train workers and then “poach” them without paying for training. If everybody is rational, no workers are trained.

A case in point is the construction sector, which has come to rely heavily on EU workers to compensate for the lack of domestic skills. Faced with fierce competition on costs, large-scale subcontracting and the widespread use of “bogus” self-employment, companies have been reluctant to invest in training workers, and the workforce is less skilled than its equivalents in other European countries. Naturally, it has been easier for firms to draw on the skills of workers trained abroad, especially from Poland or other Eastern European countries.

Once again, EU workers have been used to plug the mismatch between the demand and supply of skills in the British labour market, and many British firms have been free-riding on skills produced abroad. This situation is not new. The NHS is a case in point: in 1971 already, 31% of all doctors working in the NHS in England were born and qualified overseas.

There has been a fundamental contradiction in the combination of economic liberalism and hostility to immigration that has characterised Conservative policies in recent years, because austerity and free market economics tend to bolster demand for immigrants. In fact, countries which experience lower levels of immigration (e.g France) are also much more interventionist in economic policies, have larger public sectors, and higher taxes. Coping with lower immigration will most probably require a greater role for the state in training and regulation to solve the labour mismatches that immigration was solving up to now. The more interventionist tone of the last Tory manifesto may be a sign of this reorientation.

Originally posted on the LSE’s British Politics and Policy Blog.

The Power of Economists in Government

My excellent colleague Johan Christensen has a new book out with Stanford on the power of economists in government. I talk to him about it here for the podcast we made for my research methods class with Natascha van der Zwan. New episodes will be up soon.

The Trump Russian leak twitter battleground


Gephi has a tool to import tweets and map them as a network through hashtags. This is how it looks with the search key “Trump” just after the news came out in the Washington Post that Trump had allegedly leaked classified information to the Russian Ambassador and Foreign Minister. One can clearly see where the action is (in the orange area), but there seems to be a pro-Trump galaxy around the “MAGA” hashtag.

The Labour Party is Losing the Centre


The graph above shows the level of electoral support for British political parties by ideological self-positioning, based on wave 10 of the British Electoral Study (data collected in November and December 2016). I have left out people who refuse to place themselves. The curve obviously declines as you go right for Labour, and increases for the Conservatives (with a decline on the far right as UKIP goes up). What is the most interesting is the slope of the two main parties: electoral support for Labour declines faster as you go right, and the Conservatives rise earlier, meaning that the Conservative are stronger on the center ground. The Conservatives do much better than Labour among people who consider themselves in the very middle of the political spectrum (that is, choose a 5 out of 10). 27% of voters in this category intend to vote Conservative, against only 18% who plan to vote for Labour. As the histogram below shows, this is the largest category of voters in the electorate, among those who are willing to place themselves (23% don’t). The sample is 30’319.


A network of votes in the Eurovision song contest 2017

The network below shows the country participants in yesterday’s Eurovision song contest connected to their top 3 recipients of votes (both jury and call-in votes). The colour of the arrows corresponds to the recipient. We can see the two main contenders Portugal and Bulgaria clearly standing out.



The social base of Marine Le Pen and Emmanuel Macron

Emmanuel Macron and Marine Le Pen will be competing in the election run-off of the French presidential election on May 7th. It is fair to say that Macron and Le Pen propose completely opposed views of what France should be. Macron is a liberal cosmopolitan, is pro-EU and wants to relax employment protection, and Le Pen is a nationalist who champions a stronger role for the state. In recent work we have done with Line Rennwald, we found that the Front National had been the European Party that had moved the furthest to the left when it came to welfare state issues, at least when it came to its agenda (what they actually do is a different story).


In line with this, the social classes that they appeal to are also completely opposed: Le Pen does the best among blue collar workers, while Macron is the most popular among managers and what sociologist call “socio-cultural professionals”, people in the creative industries, doctors, lawyers, intellectuals, and upper social categories (definitions for French categories are here). In 2002, Jacques Chirac had claimed that he represented “La France d’en bas” (France from the bottom) and not “La France d’en haut” (France from above). If we look at socio-economic categories, Macron is the candidate of the “France d’en haut”, and Le Pen the candidate of the “France d’en bas”.

Plot 1015

Le Pen and Macron vote shares across socio-economic categories. Data: IPSOS

Using electoral results data from the 1st round combined with socio-economic data on electoral districts (n= 551)  gathered by the French National Statistics Office, we can get an idea of how the Le Pen and Macron votes related to the social composition of districts, and notably the share of manual workers and socio-cultural professionals. I have run a few simple regressions to look at this. An obvious problem in this kind of analysis is that one risks making ecological fallacies: with socio-economic data at the district level, we don’t actually know who votes for Le Pen or Macron. But it can still give some useful information.

We know from opinion polls (e.g data above) that Marine Le Pen scores highest among manual workers. This is in line with recent research in other European countries. Indeed, the share of manual workers in electoral districts is clearly positively correlated with the strength of the Le Pen vote. Not controlling for anything else, a 1 prcentage point increase in the share of manual workers in French constituencies is associated with a 1.45 percentage point increase in the Le Pen vote share. The share of manual workers explains 37% of the variation in the Le Pen vote share, and the relationship is statistically significant at the 99.9% level. This relationship is the opposite for the Macron vote. The greater the proportion of manual workers in a district, the lower the vote share of Emmanuel Macron. For a 1 percentage point increase in the share of manual workers, on average the Macron vote share decreases by 0.85 percentage points (R2=0.34). This relationship is not statistically significant for the Macron vote if we control for the share of managers and immigration, however (click graphs to enlarge).

If we look at the social category of managers and socio-cultural professionals (the core base of the Macron electorate), or what we call “les cadres” in French, this relationship is reversed. The greater the proportion of cadres in an electoral district, the greater the Macron vote share, and the lower the Le Pen vote share.

Another way to look at this not to look at vote shares, and look at how the social composition of districts affects the probability of one candidate winning over the other. For this, I have created a dummy variable that captures who between Le Pen and Macron wins in electoral districts. The graphs below show how this probability evolves at different shares of working class voters in an electoral district. Logically, the probability to win increases with the share of working class voters for Le Pen, and decreases for Macron.

Finally, we can also look at the relationship between economic indicators such as unemployment and the vote shares of the two candidates. I couldn’t find data at the district level, so we can use the level of the department (France’s main administrative division). There is a positive relationship between unemployment and the vote share of Marine Le Pen (R= 0.58), and a negative one for Macron (-0.59) (N=102).

In the table below, I have regressed Le Pen and Macron vote shares by the socio-economic variables mentioned above, controlling for the share of foreign citizens per district. Data from INSEE only include people who do not have French citizenship and not French citizens of foreign descent. Not controlling for anything else, the effect of the share of immigrants is pretty small, (r-square 0.05 for Macron and 0.17 for Le Pen; not shown), but its coefficients are negative for both in the overall model, meaning that greater shares of foreign citizens mean lower vote shares for both candidates.

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Ausländische Statt Weibliche Arbeitskräfte

In Panorama, April 2017.

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