Brexit, immigration and exploitation

A key debate during the referendum campaign was on whether immigration exercised a downward pressure on wages or not. This was prominently argued over during the TV debates and if the Ashcroft polls are to be believed, the second most important reason given by Leave voters for their choice of vote was hat leaving “offered the best chance for the UK to regain control over immigration and its own borders.”

Among both Labour and Tory supporters who voted Leave, the most important consideration was : “the principle that decisions about the UK should be taken in the UK”.

Since the Leave result on Friday morning social media has been full of Remain voters complaining about the ignorance and xenophobia of working class voters in the North who gave border controls as a motive for voting against the EU. But were the fears expressed about the effects of immigration from within the EU just ignorant prejudice, or did they reflect something real?

The Remain campaign, during the TV debates, emphasised the contribution that immigrant workers made to the economy and particularly to the NHS, pointing out that they were hard workers who paid taxes and contributed to the national exchequer. But that was to spectacularly miss the point. You do not reduce people’s worries by saying the EU immigrants work hard. Hard workers who will accept low wages, are likely to seem more of a threat than people who take it easy.

Does competition with immigrant labour tend to reduce real wages?

To test this I have regressed the rate of exploitation in the UK against the number of people comming into the country each year. The rate of exploitation measures how many pence of profit and interest each worker generates for their employer. For example the rate of exploitation is 70% it means that for each £1 workers get paid, they generate 70p profit for their employer.

Here is a scatter plot showing the relationship between immigration and exploitation in the UK since 1970.

svagainstimmigration

Each year is shown as a dot with the X position being the number of immigrants that year, and the Y position being the number of £ profit produced for each £ paid in wages. It is quite clear that in years when immigration is high, exploitation is high. The year with the lowest exploitation rate of 53p in the £ had 200,000 immigrants, the year with the highest exploitation, 89p in the £, had 589,000 immigrants. Overall the correlation between immigration and exploitation was 75%.

Correlation measures what percentage of the variation in one thing is explained by another. This shows that 75% of the variation in exploitation year to year, is explained by the variation in immigration year to year.

Now statistical explanation does not necessarily imply causation. If we have a causal theory linking to phenomena, then correlation provides confirmatory evidence for the theory, but you need a causal model first.

Well there is a theory explaining why we should expect this. It was set out in the chapter of Marx’s capital dealing with the law of capital accumulation. He described a process whereby periods of rapid capital accumulation would drive down unemployment, raise wages and reduces exploitation. This, he said, would then provoke a reaction. Slower accumulation would then increase unemployment and allow exploitation to rise. Basically the more competition workers faced from what Marx called the Reserve Army of Labour, the higher would be the rate of exploitation and vice versa.

What Tony Blair’s decision to allow free movement of workers from the EU accession countries did was to dramatically increase the size of the effective reserve army of labour competing with workers here. That necessarily increased profits at the expense of wages. When both Labour and Tory remain campaigners pretended that this was not happening, they were simply not believed, which is a key reason that the Remain campaign failed.
Countries that allow easy immigration can offset the tendency of the rate of profit to fall.
Immigration boosts the working population in three ways:

  1. It directly and immediately compensates for a low birth rate. This is not a problem in the UK but is for Germany.
  2. The activity rate of the immigrants is high because they are disproportionately of working age.
  3. Immigrants families tend to have higher birth rates than the settled population of developed capitalist countries, so that they indirectly compensate for the low birthrate of the former.

More rapid population growth boosts the rate of profit by two distinct mechanisms. One the one hand a more rapid expansion of the labour force increases competition for jobs and allows the rate of exploitation to be increased. Secondly a growing population absorbs accumulated capital preventing, or at least slowing down, a rise in the capital to labour ratio.

What we see in the UK is not some idiosyncrasy, but a general tendency of capitalism. Profitability and exploitation are helped by rapidly growing workforces.

The effect of a rapidly growing population is most strikingly seen if we contrast an emerging capitalist economy like South Africa with a mature one like Japan.

On the left you see the trend of the profit rate in South Africa, on the right the population. The solid line on the left is the predicted rate of profit obtained by comparing the accumulation of capital to the growth of the workforce. The actual profit rate is the dotted line. See how the high population growth gives a high predicted rate of profit, which is achieved some years later. In such nations the capital accumulated each year is insufficient to keep up with the rising population, so the capital to labour ratio falls. A lower capital to labour ratio then gives rise to a higher rate of profit.
Ultimately it is sex that drives capitalism. The soaring profit rate in South African capitalism is driven by the much greater sexual productivity of South African women. South African fertility was still 2.5 in 2008 against only 1.3 in Japan. But South Africa is already on the path towards capitalist maturity. Its 2008 fertility rate was only half what it
was forty years earlier. In other African countries the demographic transition is barely starting. In Nigeria, fertility in 2008 was a huge 5.7 children per woman, in Zambia 5.8, in Tanzania 5.6. Equatorial Africa is, in the early 21st century, capitalism’s last best hope of profitability.

Now compare that with Japan where fertility is so low that the population is shrinking and you see what that does to the profit rate on the left.

Exploitation and profitability depend on rapidly expanding workforces. For the left to adopt the Blairite cant that immigration does not degrade the social position of working class voters would be to cede realistic political economy to UKIP.

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22 Comments

  1. I would like to see your results for immigration and exploitation with the removal of the common time trend. I suspect the relationship will weaken very much.

    Reply

  2. It is a pairwise correlation between the exploitation rate in a year and the immigration in that year.What do you mean by remove the time trend, it would make no sense to correlate exploitation in 1992 with the immigration in 1972, you need to take contemporary data. Note that neither of the axes of the diagram are time.

    Reply

  3. Yes – I understand what you have done. What I am suggesting is you estimate

    E= b1*I + b2*t + e or

    dE=b1*dI + e

    The latter you can do directly as a scatter.

    Reply

    1. I get your point now. I dont expect a very high correlation between the delta terms since there are going to be lags. One could do a series of bandpass filters to see at what time scale the correlation operates.

      Reply

  4. This is very interesting, and as always very clearly written. Thank you.

    3 questions:

    1. The rate of profit is larger, but a portion of those profits will be paid in taxes which will then be turned into government services from which workers (who have received, on hypothesis, a lower wage) benefit. What, then, is the net effect? The answer from Corbyn was surely that it could be net positive, at least if properly distributed.
    Somewhat similarly, what has been the effect upon the REAL consumption of the working population. A higher rate of exploitation and of profitability is consistent with increased real levels of consumption (i.e through lower prices).
    Are these not relevant points?

    2. One must consider the counterfactual. A portion of the companies operating in Britain with cheaper migrant labour will be competing against foreign companies with their own access to cheap pools of workers. Denied access to this cheap labour they would presumably either close, or move. More generally, if Britain restricted inflows of cheaper migrant labour it would become commensurately less competitive. Is not the only answer, ultimately, global floors of wage levels (something which is obviously decades away)? Is not free movement within the larger territorial entity of the EU at least a step in that direction, as levels of economic development, and hence the ‘moral-historical’ component of the wage, gradually equalise?

    3. Whilst you make an excellent case for the economic rationality of the position of poorer Leave voters, they would obviously be still more rational by identifying the deeper structural causes of their position (i.e predominating private ownership of capital over which they have no control, etc etc). Immigration is only one component process in this larger structure. The reason it is latched onto, surely, is simply because, for evolutionary-psychological reasons, Homo sapiens developed extremely strong detectors for in-group/out-group distinctions. And it is surely unwise to encourage this training upon race, ethnicity or nationality, for all the reasons history testifies to. What do you say on this slightly larger point?

    Reply

    1. On (1) that assumes that employers pay taxes on profit. In the modern world this seems to be true to an ever-diminishing extent. Rather, given the same pool of money, the more of it goes to profits the less will be paid in taxes; thus, the greater the exploitation, the less tax will be taken by government and the lower the government services. This hypothesis seems consistent with how things have been playing out in fact.

      On (2), this is true assuming free trade. That’s why, frankly, protectionism is often a good idea. Free trade effectively makes it impossible to set local policies to raise local wages.

      Reply

  5. This is very interesting, and as always very clearly written. Thank you.

    3 questions:

    1. The rate of profit is larger, but a portion of those profits will be paid in taxes which will then be turned into government services from which workers (who have received, on hypothesis, a lower wage) benefit. What, then, is the net effect? The answer from Corbyn was surely that it could be net positive, at least if properly distributed.
    Somewhat similarly, what has been the effect upon the REAL consumption of the working population. A higher rate of exploitation and of profitability is consistent with increased real levels of consumption (i.e through lower prices).
    Are these not relevant points?

    2. One must consider the counterfactual. A portion of the companies operating in Britain with cheaper migrant labour will be competing against foreign companies with their own access to cheap pools of workers. Denied access to this cheap labour they would presumably either close, or move. More generally, if Britain restricted inflows of cheaper migrant labour it would become commensurately less competitive. Is not the only answer, ultimately, global floors of wage levels (something which is obviously decades away)? Is not free movement within the larger territorial entity of the EU at least a step in that direction, as levels of economic development, and hence the ‘moral-historical’ component of the wage, gradually equalise?

    3. Whilst you make an excellent case for the economic rationality of the position of poorer Leave voters, they would obviously be still more rational by identifying the deeper structural causes of their position (i.e predominating private ownership of capital over which they have no control, etc etc). Immigration is only one component process in this larger structure. The reason it is latched onto, surely, is simply because, for evolutionary-psychological reasons, Homo sapiens developed extremely strong detectors for in-group/out-group distinctions. And it is surely unwise to encourage this training upon race, ethnicity or nationality, for all the reasons history testifies to. What do you say on this slightly larger point?

    Reply

  6. Would it be possible for you to cite the sources you use for these calculations. Where does the data you’re using for surplus value come from?

    Thanks.

    Reply

  7. The Migratory Observatory at Oxford presents some findings on their site. For example:

    “UK studies find that immigration has small impact on average wages but more significant impacts along the wage distribution: low-waged workers lose while medium and high-paid workers gain”

    “Research does not find a significant impact of overall immigration on unemployment in the UK, but the evidence suggests that immigration from outside the EU could have a negative impact on the employment of UK-born workers, especially during an economic downturn”

    http://www.migrationobservatory.ox.ac.uk/briefings/labour-market-effects-immigration

    Reply

    1. Also:

      ” The greatest wage effects are found for low-waged workers. Dustmann et al (2013) find that each 1% increase in the share of migrants in the UK-born working age population leads to a 0.6% decline in the wages of the 5% lowest paid workers and to an increase in the wages of higher paid workers. Similarly, another study focusing on wage effects at the occupational level during 1992 and 2006, found that, in the unskilled and semi-skilled service sector, a 1% rise in the share of migrants reduced average wages in that occupation by 0.5% (Nickell and Salaheen 2008).”

      Reply

  8. Paul, you may be right about this — there’s certainly a general theoretical case that allowing free migration from low-wage countries to high-wage ones will level down wages in the latter — but I think your scatter-plot is suggestive at best, and the intra-UK geography seems wrong. Post-Brexit surveys show that the regions of the UK with the greatest working-class Leave vote were those with the smallest proportion of immigrants, and conversely regions with relatively large immigrant populations tended to be pro-Remain. I’m not sure exactly what that means, but it suggests that the working-class Leave vote was not reflective of actual experience of bad effects of immigration in the regional labour market.

    Reply

    1. I am not claiming that the scatter plot is proof, it is at best consistent with what the theory of a reserve army of labour would predict.
      I do not think that you are necessarily right about there being a disconnect between votes for brexit and immigration levels. It is complicated by a couple of factors, immigrants who have been here long enough to vote, Commonwealth and Irish immigrants, or children of immigrants seem to have been a lot more likely to vote remain, so that in areas with very high percentage of these groups that would tend to boost the remain vote.

      The other factor to take into account is that the main area in England that voted remain was London, which has a significantly higher level of per capita income than the rest of the country due to the effect primarily of the financial sector. This is likely to have meant that discontent was less. The financial sector was strongly against leaving the EU and it is possible that the voice of the financial sector will have had more effect there. On the other hand the two most euroskeptic counting areas, Boston and South Holland both have high proportions of recent EU migrant labour. Unlike commonwealth immigrants who can vote, EU migrants can not so in these areas pro remain sentiments among the migrants would not be reflected in the votes.

      Reply

  9. I completely agree and completely disagree. I agree that the increase on variable capital – or immigration – is one of the most important counteracting reasons to the tendency of the profit rate to decrease. (By the way, you have presented your point very convincingly already in your 2013 paper arXiv:1301.5974.)
    However, I completely disagree with immigration having a negative effect on the working class, since the rate of exploitation can stay the same. Whereas capital grows from the capitalists’ perspective, this growth is due to the increase of labour force, not to increased exploitation. And the exploitation rate is what matters for the workers.

    PS: Just simply using Marx’ terms (might use differential notation later on)
    M: Exploitation rate
    m: Surplus
    v: Labour force (variable capital)
    c: constant capital
    C: reinvested capital
    P: Profit rate

    Thesis: Having profit rate P=m/C=m/(v+c), profit rate increases (dP/dt>0) if exploitation rate stays the same just if the relative increase of labour (variable capital) is higher than the relative increase of constant capital (v’/v>c’/c).
    Proof: P=m/C=m/(v+c)=(m/v)/(1+c/v)=M/(1+c/v) –> dP/dt=d(M/(1+c/v))/dt=(with constraint dM/dt=0)= d(1/(1+c/v))/dt=c*v’-v*c’/(c+v)^2 –>
    dP/dt > 0 if c*v’>v*c’ = v’/v>c’/c
    (we do not care if capitalists make more profit, what we care about is workers not being more exploited)

    Reply

    1. I completely agree with your argument about the rate of profit. That is essentially the point behind the model which is used in the profit rate calculator here.
      However this does not answer the question about how the rate of growth of the workforce affects the rate of surplus value. I have not yet seen a proper attempt to model the dynamical constraints on the rate of surplus value formed by the accumulation of variable capital versus the growth of the workforce. Clearly if the rate of growth of the stock of variable capital ( say wages per week * turnover in weeks ) is slower than the rate of growth of the workforce then the rate of exploitation must rise. We have first the rule that if the rate of growth of (c+v) as stocks is > G the rate of growth of the proletariat, then profit rate must fall and vice versa, if the rate of growth of capital stock is lower than the rate of growth of the working class then profit rates will rise.
      It is also clear that if the incremental composition of capital is the same as the mean composition of capital, then if the growth of the working class is faster than the rate of growth of the capital stock, then both the rate of profit and the rate of surplus value will rise.

      Those who say that increased migration will not increase exploitation have to argue that either:

      a) The rate of accumulation will automatically rise to offset the increased number of workers or

      b) The organic composition falls at a rate sufficient to offset the increased number of workers.

      Obviously you could argue that some combination of these will occur to ensure that the rate of exploitation remains the same, but why should either of these mechanisms occur.

      I can see that once immigration has increased the rate of exploitation, then, by the mechanisms that Marx discusses about the comparative costs of labour and machinery, there will be a consequent reduction in the organic composition of capital, but to bring this about immigration must first drive down the wage share.

      Reply

      1. Thank you for the response.
        Indeed, I would argue that case (b) is what happens, i.e. the organic composition c/v stays ideally the same or decreases, by v increasing by the same or higher rate as c.
        The limit on available labour being in my opinion the actual reason for the increase of c/v and therefore for the tendency of the rate of profit to fall (acknowledging that other reasons, such as limited market or resource capacity have been suggested by you and Zachariah), having adequate income of labour forces to keep the organic composition of invested capital constant will actually lead to a non-falling profit rate.
        However, I do not have any data analysis to support this thesis at the moment. But looking at the immigration and the unemployment rate throughout the recent years, they do not seem correlated, suggesting that there is no surplus on labour force which could be made responsible for lowering wages, but rather that immigration fulfils the exact market demand on labour forces, placed by the need of the capitalist to keep (at least) the organic composition constant in order to get the same (or higher) profit rate.

        PS: Correction of a little mistake on line 2 of the proof, without effect however on the result:
        (with constraint dM/dt=0)= d(1/(1+c/v))/dt=M*(c*v’-v*c’)/(c+v)^2 –>

  10. It is possible under certain hypothetical circumstance for option b to occur, it depends on how big the increase in population growth is, how large the original accumulation rate was and how what the initial organic composition was. Leaving aside the possibility, there is the issue of its likelyhood. If the economy is currently over-accumulating ie, accumulating faster than the natural growth of the workforce, then it is plausible that the result of additional labour would be to slightly shift the organic composition of the marginal capital so that value wages did not fall. If the rate of accumulation is lower and the profit rate is at or below dynamic equilibrium then it seems less feasible. i will try to work out some examples.

    Reply

    1. On the issues of likelihood, a political point: It seems that in recent years, neoliberal legislators and the elite groups influencing have been in general working to push wages down in various ways, from de-unionization to high unemployment. In some cases they have even been very explicit about admitting it, such as the case of Greece (“internal devaluation” = “lower wages”).
      These same elites seem to have been generally encouraging high levels of immigration (even as they have often demonized the immigrants themselves). Now this could be an example of these elites’ kind hearts, but my bet would be that the point, as with so many other measures they favour, is to reduce wages. And indeed, the apparent contradiction in policy (de facto encouraging high levels of immigration while at the same time treating the immigrants poorly, denying them services, encouraging racism and generally making it difficult for them to integrate into the broader citizenry/workforce) is explained precisely because the point of the immigrants is to reduce wages and divide the working class, and they do that better if they are isolated, vilified and precarious.

      There could be other explanations for this right wing policy approach to immigration, but I have yet to see one seriously put forward. They could of course also simply be wrong in their estimation of what the impact of immigration will be. Still, I think it’s a significant data point, if not an economic one as such.

      Reply

  11. Most of Labour’s immigration was from outside the EU i.e. Africa and South Asia. They genuinely believe that the demographic changes set in train will guarantee them permanent majorities in the future: http://quarterly.demos.co.uk/article/issue-3/537/

    A more perverse, dangerous anti-democratic plan I have yet to see anywhere.

    Those with an eye on things other than the economic, are rather concerned about the social consequences of such a societal shift:

    http://www.telegraph.co.uk/news/2016/06/06/falling-birth-rates-could-spell-end-of-the-west—lord-sacks/

    Reply

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