David Willetts is President of the Resolution Foundation and a member of the House of Lords.
There is a crucial difference between GDP and GDP per capita (that is, per person). In his Budget speech, Jeremy Hunt went out of his way to say he wanted to boost the latter. It is what matters for individual living standards. And it is above all achieved by raising our poor performance on productivity.
At the moment, however, we are doing better on GDP than on GDP per per capita. That is because of our rapidly growing population. The Office of National Statistics recently announced that the British population is larger than they had previously thought. They revised up their population estimates – but not their figures for total economic growth. This means that our estimated GDP per capita fell.
Total net migration is up. Brexit saw a major tightening of migration rules vis à vis the EU but a very significant loosening of rules for the rest of the world. The Australia points-based system means that being a neighbour no longer matters.
Immigration does offer some boost to GDP. But does it do anything for GDP per capita? That might be achieved if we only recruited highly skilled migrants – the brightest and the best.
But despite all the rhetoric of, the OBR seems to have recently concluded that migrants are very like the rest of us. They add to GDP but do not add to GDP per person. Moreover, highly-skilled workers travelling to work here from further away appear to be more likely to bring partners and children with them, also changing the mix of migration.
The problem is that if you want a labour market where round pegs fit into round holes, the bigger the better. A closed system, an autarky, can be very inefficient. Gains from trade also apply to the labour market.
Small economies can do very well: they are indeed examples of small total GDP but high GDP per capita. However, they only achieve this by also being very open to trade in services and people. Then they can specialise in what they are good at.
We have just withdrawn from a very large European labour market for a much smaller national one, and that means that we have to do more of the jobs ourselves. If we are to go for lower migration and try to restrict it to the highly skilled it means Brits are going to have to do all the low skilled jobs. So far, it has proved hard to get us to do seasonal fruit picking or work in care homes.
There are ways out of this. It is another reason for adopting new technologies, to which the Chancellor rightly attaches such importance. One reason why Japan is so strong on robotics is that it has an ageing population but is unwilling to offset its ageing population and low birth rate with high immigration. Instead, it develops robots to plug the gaps in its labour market – including to deliver some of the care which in Britain we associate with real humans. More training and investment to boost productivity is also key.
There is one other thing we can do – unglamorous, but important. We can improve how real labour markets actually function in Britain now.
For most people, most of the time, they are looking for a job they can do whilst continuing to live where they are. They don’t want to have to move and put their kids into a different school. Many employers face an effective labour market which is their local travel-to-work area.
Thus, an efficient labour market is one in which there is the widest possible selection of people living in that area. The more jobs in this area the better for employers and employees. It increases job opportunities, often leads to concentrations of expertise and intense competition, and enjoys what economists call agglomeration effect, which are good for productivity.
London and the South East clearly enjoys these gains. They enjoy the benefits of forming a cluster, neatly defined as low risk environments for high risk activities. It moeans you can move jobs and if you lose one find another one without having to uproot yourself.
But we have done less well at promoting these large deep labour markets across the rest of the country. Andy Haldane, now advising Michael Gove, is keen on a study comparing the effective travel to work areas of Lyons and Birmingham. They are second cities with comparable populations, but the number of people who can get to the centre of Lyons in half an hour is far greater than for Birmingham.
On average 67 per cent of the citizens of Europe’s cities can get to their city centre in half an hour: in the UK it is only 40 per cent.
Our Resolution Foundation Economy 2030 enquiry found that one of the best ways to boost the performance of the British economy was to boost the performance of Manchester and Birmingham our twin second cities. More investment in local transport links are key to ensuring there is a bigger deeper labour market. Then employers would be able to recruit locally without having to look abroad because “local” would be much bigger than it is today.
Skills shortages are directly linked to transport shortages. It is possible that better transport connections linking our small towns to our major cities could do more for productivity and employment than almost any other initiative. Hunt and Rishi Sunak get this: they are investing in local transport links. The battles to wean us off dependence on migration are fought over urban train lines just as much as over flimsy boats in the Channel.
The post David Willetts: Why regional transport is essential to reducing Britain’s dependence on immigration appeared first on Conservative Home.
Click this link for the original source of this article.
Author: David Willetts
This content is courtesy of, and owned and copyrighted by, http://www.conservativehome.com and its author. This content is made available by use of the public RSS feed offered by the host site and is used for educational purposes only. If you are the author or represent the host site and would like this content removed now and in the future, please contact USSANews.com using the email address in the Contact page found in the website menu.