The People Flow debate in openDemocracy underlines the fact that immigration is a peculiarly sensitive issue in European politics at the moment. Perhaps it is understandable why this should be so. After three centuries of European nationalism and inter-state warfare and rivalries, a popular reaction to foreigners in aggregate (rather than as individuals) is to see them as invading forces or enemy spies. Xenophobia, based on fear and insecurity, becomes a hook on which to hang a multitude of real discontents, even if the target is largely irrelevant as a source of those discontents.

Indeed, given these antecedents, perhaps we should wonder (without being complacent) at the long periods of lack of hostility – the lack of success of xenophobic political parties in the past fifty years – rather than the occasional conflicts.

However, the immediate context for present alarms is unique to the present period, and especially the erratic progress of globalisation: the opening of national economies to flows of trade, capital and people, and the impact of this on the restructuring of national economies to accord with new global patterns of economic specialisation.

Towards a world labour market

We are in the midst of a process of transition from closed or semi-closed labour markets to a world labour market, with continual contradictions between the changing nature of domestic labour demand (itself reshaped by new specialisations) and a world supply of workers. This supply is in turn facilitated by the growth of a literate labour force in developing countries; a radical decline in transport costs; and no less radical reforms in developing countries releasing large numbers of workers for domestic migration. (China offers a particularly vivid illustration of the latter).

In the old order of national economies, it was assumed that the political boundary coincided with the economic, and that the economy was relatively self-sufficient – imports, foreign capital and immigrants were insignificant. The theory was one thing, of course: in practice, there were many obvious qualifications – Europe in the 19th and part of the 20th centuries also possessed major empires in the rest of the world, and supported major emigrations (and major migrations within empires).

However, in the newly emerging order, national output is the product of world interactions and no government can aspire to self-sufficiency in either the production of goods and services or capital; rather, each government is concerned with managing flows that start and end beyond its authority and often its knowledge. Such a system requires growing mobility – of business people, students, tourists, consultants – within which it is almost impossible to identify those who wish to work without permission.

Capital, trade and labour are, in tradable sectors of the national economy, often substitutes: for example, imports can replace the tradable output produced by immigrants. On the other hand, the availability of workers of a given skill and cost in the present system influences the migration of capital or substitution of imports for local production, as well as the growth or contraction of the black economy, including the flows of irregular workers. However, in the final analysis, each economy retains a core of non-tradable services where substitution is, in the medium term, impossible.

(The issue could of course be solved by relocating consumers abroad, and to some extent this occurs – most strikingly in foreign tourism or retirement abroad by the native-born. But this is outside the terms of the present discussion.)

Historically, immigration policy has dealt with actual or potential settlers, rather than transient workers. In important ways, if they wished to protect their access to work, this forced transients into exile from their home country. Today, insofar as policy deals with migrant workers (and for many countries in Europe, although this is changing, family reunification still provides the bulk of immigration) it is a form of national manpower planning – estimating future demand by skill level and setting quotas with numbers of workers to be admitted in a given period for a set time.

Such a policy approach has all the negative aspects of central planning. As was so painfully indicated by the miscalculation of the required numbers of information technology specialists just before the collapse of the ‘dot.com’ boom, the unexpected fluctuations of a dynamic economy cannot be accommodated, and the delays and costs of bureaucratic processing are also notorious.

Manpower planning requires a closed or semi-closed economy. In an open economy, compensatory movements across borders are constantly nullifying domestic policy changes or leading to perverse outcomes. Meanwhile, the economic costs of migration control to the world as a whole are largely unseen.

Europe’s labour market: the supply of workers

The attempt to make such planning effective requires the control of irregular movement. On the one hand, this entails far greater internal police controls, to check those who work while on a visa that does not allow this, or one that has expired (in fact, it seems, governments are unwilling to risk popular hostility to enforce this). On the other, borders become militarised, brutalised and criminalised, and the asylum system is effectively wrecked in pursuit of ‘economic migrants’.

In Europe, we are within sight of restoring the border fortifications – backed by state terrorism – that divided East and West Germany in the cold war, now to the borders between Poland and the Ukraine, Hungary and the Ukraine, Spain and Morocco (and, on occasions, between France and Britain). What seems to be emerging is a permanent war against the compensatory imperatives of the labour market and its attempt to meet Europe’s demand for low-skilled workers, with the same discouraging results as the US war on the narcotics consumed by Americans.

Moreover, in the late 1990s, the Europeans entered the competition to attract highly skilled workers (particularly in information technology). Partial relaxation here only underscored the inequality of the migration regime. As in South Africa’s apartheid system, the skilled ‘whites’ have the right to migrate, while the low-skilled remain, supposedly, tied to the soil of their birth, denied the opportunity to escape poverty.

Nevertheless, it is likely that the right to migrate will be extended over the next half-century. But, without preparation for this extension, the present process will remain painful, arbitrary and brutal.

The impact of demography

There are a number of self-reinforcing factors of relevance here. The demographic decline in the size of the European labour force over the next half-century is by now well-known. By 2005, over a third of Europe’s regions will face a declining size of workforce. The process of contraction will be exaggerated as the generation of the post-war “baby boom” enters retirement.

However, within this projection there are other indications that show a more dramatic decline in the available working time on offer:

• An increasing proportion of working life (15-60/65) is becoming devoted to education and training. For example, in the UK, the present government has the objective of sending half the age group, 18-30, to university in the immediate future. This has the effect not only of reducing the available work time but also of radically cutting those available for jobs requiring less than university education. Other European powers (for example, Germany) have comparable aims.

• An important part of the existing labour force is not engaged in paid or recorded work, but retires early, lives on disability pensions, or in other ways has withdrawn from work. For example, the size of this under-utilised workforce ranges from between 18-22% of the labour force in Sweden to 40% in Italy. This is not necessarily unemployment. The mark of an increasingly wealthy society is that people can afford to work less. On the other hand, such workers may be working in the black economy or other statistically unrecorded sectors. They may work unpaid in caring for the elderly, for the young, for the disabled.

• With growing wealth, the working life, year, week or day are all tending to contract.

In some cases, trends coincide with high levels of unemployment (and especially of long-term unemployment), and all the signs of a mismatch between labour demand and supply (or also a lack of complementary low skilled workers). Within the European Union (EU), this allows areas of high labour scarcity to coexist with those of high unemployment (or non-employment). Nor does it appear that Europeans are willing in sufficient numbers to move from one to the other. The most recent figure for the proportion of internal migrants to the population as a whole was no higher than 0.2% (1999).

This combination is peculiarly damaging – leading to growing labour deficits with a significant under-utilisation of the existing workforce. Assessing labour shortages is difficult, but we have some estimates for 2000-2003 in the latest Sopemi report.

It is interesting to note there that, contrary to government assessments of what shortages they should respond to, it is the shortage of low-skilled workers which is most often mentioned.

The UK example suggests where some of these deficits are occurring. With the highest level of employment recorded and unemployment at its lowest rate for nearly a generation (April 2003), grave shortages are reported:

• in the public sector – in health services and schools (two of the key targets for major improvement for the present government) and in local government

• in the private sector – in construction (particularly plumbers, electricians, bricklayers, engineers), in seasonal agriculture, road haulage, retail trade, hotels and restaurants.

In some of these activities, the rising average age of the workforce, promising high rates of retirement in the short term, indicates the failure to recruit adequate numbers of new entrants despite rising relative wage levels. Similar shortages are reported in France, Germany and other EU members, albeit with higher levels of open unemployment.

In the short term, these deficits are already affecting the performance of the UK economy and the capacity of the government to meet its current objectives, thus affecting the electoral prospects of the government. In the medium term, the picture is very much worse. Ageing, apart from the other factors cited, will increase the reduction in the size of the working population, at the exact time as the demand for age-related labour-intensive services increases.

The economic benefits of migration

It is a persistent theme in much of the economic literature on migration that employers and the better-off (those who can afford maids) gain from the immigration of the lower-skilled, and “it is the lower paid who are disadvantaged”. However, on reflection, this cannot be so.

A large number of studies on American data have found either no, or an insignificant, impact of increased immigration on native wage and employment levels. Where there are small negative effects, they tend to affect earlier cohorts of immigrants rather than the historical poor of the US – blacks or Hispanics.

This could either mean that migrants move to labour scarce areas where wages are rising in any case, so that their effect is masked in the general movement. Or it could support evidence that unskilled immigrants do the jobs which the natives, even if unemployed, are unwilling to do. They are not competing: rather, low-skilled immigrants compete with earlier low-skilled immigrants. Immigrants then fill places not because they are cheaper – in general, they seem not to be – but because they are the only workers available (as happens with seasonal migrant workers in parts of European agriculture).

Few studies track how the availability of foreign-born unskilled production workers increases the demand for native-born foreman, supervisors and managers, skilled workers and technical staff, and truck drivers. Fewer still estimate the multiplier effects of immigrant expenditure – on demand for accommodation, furnishings, foodstuffs, and transport.

George Borjas, along with others, has changed the nature of this discussion by suggesting – following Adrian Wood’s work on trade – that the native unskilled take anticipatory action to avoid competition, so local studies much underestimate the impact of increased immigration. It is an ingenious argument and may have some validity, but it is far from the consensus among migration economists.

But if we broaden the focus from work to consumption and prices, for example immigrant workers in agriculture ensure fewer imports and the survival of small farmers and the rural economy, as well as lower food prices, the primary beneficiary of which is the poor (who spend a larger share of their income on foodstuffs). Immigrant workers in manufacturing, construction, and public transport have similar effects. Women are able to undertake paid work outside the home if child-care and cleaning services are available, and often these are only available at affordable prices through immigrant carers.

Immigrants have saved the small corner shop in the poorer areas of big cities and provincial towns in certain regions, and are now doing something similar in some rural areas. And in public health care services, the immigrant labour force is crucial – particularly in the poorer districts of our larger cities.

Indeed, “the disadvantaged” may be the primary beneficiaries of the immigration of un- and semi-skilled workers, and would suffer most if the supply were curtailed. The better off can afford to manage without the services provided by immigrant labour. Of course, it might be argued that wages should be paid which induce native-born workers to do these jobs, and that this can be done without a level of taxation which is electorally suicidal or of pricing which makes the services prohibitive for the poor. That case, however, has yet to be demonstrated.

Migration as a learning process

When highly-skilled workers leave developing countries permanently or for the bulk of their working lives, they deprive that country not only of skilled inputs, but also of complementary employment of lesser skill, tax payments that the emigrant would otherwise have made, and – if the emigrant’s skills were acquired with public subsidies – these also are lost.

Worker remittances returned to countries of origin are some compensation here. But a much greater benefit would accrue if migrant workers could return with enhanced skills. Low-skilled workers who travel without families have always tended to return; they work abroad primarily to strengthen their position at home. This tendency is much reduced with tighter controls on migration: the higher the costs of getting access to work, the greater the tendency to settle in order to secure continued access to work.

Numerous national and international schemes exist to support the process of return, but more can be done to remove existing anomalies which force migrants to settle as a condition of work, and which weaken the “social embeddedness” of migrants in their country of origin. Aid programmes can be of assistance here in financing migrants for training in preparation for their return, and in employing returning migrants as agents of development, using funds to strengthen the creation of new businesses. Migration might then come to be seen by most migrants as an important part of education, of enriching skills and work experience rather than simply as an opportunity to earn.

Indeed, the issue of migration to the developed countries may prove temporary. Since over the next half century, the bulk of the world’s labour force is going to be redistributed to developing countries, it may be expected that the bulk of the world’s tradable sectors will follow, led by those most sensitive to labour costs. It could be that over the next half-century, migration flows reverse direction.

Making migration work for all: a transitional programme

The most obvious remedy to the problems of the present system is to accept the inevitable integration of Europe in a world labour market and move towards free migration and open borders.

Employers would then recruit abroad as they do at home and bear the risks – the costs – of any errors made in assessing their future labour needs. The role of government would be restricted to extending its present responsibilities for the regulation of employment of native-born workers to the foreign-born.

At the moment, private brokers and agents organise the regular and irregular recruitment and movement of workers. This means that the basic social infrastructure exists for such a change. Such a system would eliminate irregular migration and the bulk of asylum-seekers who could take work immediately, without being obliged to call on public support (this would not be true of asylum seekers without the capacity to work, but that would be a much smaller problem than the current one).

However, the immediate needs of developing countries for the return of their migrant workers coincide with the fears of a significant sector of the European electorate about the possibility of being ‘swamped’ by foreigners. This suggests that, while the policy aim should remain intact, we need a second-best transitional arrangement that allows governments to retreat if and when required.

It is not my task here to design such transitional arrangements: there are increasing numbers of such schemes now on offer. However, it is worth making three points about how to set about revising the present system.

• In principle, all migration should be temporary even if some migrants apply to stay longer. This would be one element in restoring equality between skilled and low skilled workers. While it is assumed that most migrants will want to return home, provided there is a reasonable possibility of future opportunities to work in Europe, nothing should be done to weaken their commitment to return and to do so willingly.

  In some present schemes there are additional incentives – paying part of the wage in a cumulative sum in the home currency on their return (or possibly adding a bonus and/or refunded social security funds). We have mentioned the possibility of aid programmes financing training and offering business start-up funds on return. Given a well-managed pattern of circulatory migration, applications to stay longer for whatever reasons can be treated with generosity.

• ‘Irregular migration’ is first and foremost a response to labour deficits (even if it may be precipitated by push factors) so that generally, migrants move to previously identified jobs (or to agents controlling such work), and have very high rates of participation and low rates of unemployment. Accordingly, the expansion of the work permit system should be designed to eliminate irregular migration.

  However, this cannot be done through government controls on recruitment on the basis of estimates of future labour demand. Not only must such estimates be erroneous in a dynamic economy, they cannot easily accommodate predictions for the type of demand which irregular migrants meet.

  Any system which is going to meet the economic requirements has to abandon the idea of set annual quotas of workers and vest the initiative in employers to recruit at their own expense in such numbers as they require, albeit within a framework of government supervision to ensure two essential outcomes: first, that that the basic conditions of work and pay do not undercut alternative local supplies of workers and are clear to migrant workers before they leave home; second, that robust provisions are made for the proper return of workers and for social security during the period of work.

• The ban on asylum-seekers working – whether for six months or, as in some countries, until their claims are sanctioned or rejected – is one of the more obvious sources of social tension. The combined accusation of entering the country illegally (since there is, in many cases, no other way of obtaining entry) and then “living off social security” (since work is forbidden) seems almost deliberately designed to provoke the greatest xenophobia.

  With an expanded work permit system to eliminate irregular migration, able-bodied asylum-seekers can, if circumstances permit, apply for work before they arrive; if this cannot be done, then they can be granted temporary leave to remain while they seek work. Part of the funds at present devoted to supporting asylum-seekers can then be directed to short-term support for those who cannot work.

The present system for all except the skilled is opaque and costly. A world labour market is in operation but without any of the transparency required to put the right worker in the right job. Governments operate as large monopsonist buyers, while private agencies recruit and distribute irregular migrants without being subject to the open competition which reveals the marginal cost/value of the work proposed.

Criminalisation is inevitable in such circumstances. A global labour market requires a global exchange in which real scarcities in many different localities can be matched against the immense diversity of those offering work, and wage levels reflect those scarcities.

If Europe is unable to establish an acceptable order in the field of migration, the danger is that political leaders will continue to seek to lock out the poor, at whatever cost to the civil rights of the citizens, the welfare of the poorest Europeans, and the growing numbers of irregular migrants (growing because the labour shortages for low-skilled workers will get worse). Protectionism here is, as elsewhere, directed to fruitless attempts to capture benefits for a minority at the cost of the world at large.