Immigrants and old folk working longer create jobs for others
It’s not true, although widely thought to be obvious, that when older people work longer before retirement they are adding to youth unemployment, or that immigrants take away jobs from native Brits. The first of these myths was efficiently exploded in last weekend’s Financial Times by two government ministers who pointed out that getting a job is not a zero sum game in which every time five people — all over the age of 65, for example — stays on in a job beyond normal retirement age, there are five fewer jobs available for young people coming into the labour market. That misconception wrongly assumes a fixed number of jobs in the economy, whereas that number is almost infinitely variable. The two ministers correctly explained that anyone continuing to contribute to the economy beyond the age at which he or she would otherwise have retired is adding to the total sum of economic activity and thus to GDP, and that additional economic activity leads to the creation of more jobs, not fewer.
Today (8.8.2015) the Financial Times publishes a letter from me pointing out that the two ministers’ letter about job creation through delayed retirement inadvertently also makes the economic case for the creation of more jobs through the addition of more immigrants to the workforce, and thus for more immigration, not less — the opposite of Messrs Cameron’s and Osborne’s populist immigration policies, dictated by the Daily Mail and not by the economic and social reality. The unnecessary human tragedy being enacted at Calais is only one of the malign results.
Here’s my letter in today’s FT:
Ms Priti Patel, the Minister of State for employment, and her colleague Baroness Altmann, pensions minister, were distinctly brave (in the Yes Minister sense) to make the cogent economic case in your columns for more older people staying in work longer (letters, 1-2 August). All their impeccable arguments – the fallacy of a fixed number of jobs in the economy; more people working longer, earning and spending more; increased economic activity creating more jobs, not fewer – also support the case for more net immigration to the UK, not less. They could have added that by paying more tax for longer, older people working longer (and immigrants) help to reduce the budget deficit – without the need to reduce ever more harshly the living standards of the already poor. (I write as a former diplomat, compulsorily and gratefully retired at 60.)
Brian Barder
London SW18, UK
2 August 2015
If such a letter were (improbably) to appear in the Daily Mail or the Sun, it would no doubt be assailed as further evidence of a retired diplomat being out of touch with the lives of ordinary people.
Brian
This is only partially correct.
Any economy consists of a number of resources and a number of uses or needs for those resources and the products and services created by those resources. The workforce in a country like the UK which has limited natural resources is THE key resource. There are only so many people available to work in the schools, the hospitals, the factories etc. If there are more people available, we have more resources and so we can create more things. ie the GDP will be higher. But, we have greater need for those things so the total production per person may not be higher as a result.
Countries with a higher population density may or may not have a higher GDP per person as a result. Australia, which is sparsely populated by European standards, could increase its population by immigration. However, its GDP per person is already higher than most European countries. Would increased migration make it even higher? It’s possible – but only if it chose the right people.
We can expect migrants to have a lower mean age than the population as a whole. Therefore it could be expected there could be net benefits in the short term from increased migration . Less so in the longer term. Migrants will age like everyone else. In all our working lives we have two periods when we are economically inactive and when we have to be supported by the rest of society. When we are too young to work and when we are too old to work. Migrants arriving at the start of their working career, especially if they are well educated and have desired skills can be considered a net gain to their new country and a net loss to their former country. Their former country has supported, educated and trained them but gets no economic benefit after their leaving.
The question of when we are too old to work is quite arbitrary. It makes no sense to force all workers into total retirement at some particular age. Looking at it in just economic terms, we are losing valuable resources by denying skilled workers the opportunity to work. In human terms, they may not wish to work full time, so a more sensible approach, in both economic and human terms, to retirement could be to have a more a more tapered and variable retirement work pattern.
Is the budget deficit going to be affected by encouraging more elderly workers? More elderly workers would be capable of producing more things and so the economy would expand. An expanding economy would need more money. Ultimately money is an IOU of government, so if the economy needs more money then Govt has to either spend more or tax less to accommodate that need. More IOUs mean more deficits and more debt.
However, we have to ask why is the deficit a problem? The Government isn’t like us. It can create more money or less as it wishes. If it creates more then there are possible inflationary problems as that money chases too few resources. But, if there are are more workers making more things that need not be a problem at all. IF governments understand what they are doing and don’t worry about the wrong things (like running out of there own IOUs!) then having more elderly workers is a real benefit to the economy.
But, that’s a very big IF with this government! Not that a Labour government would be much better. Gone are the days when Labour politicians understood that Government is not like a household.