Australia, Canada and New Zealand. Apart from all speaking English and having the Queen as their head of state, what do all those countries have in common? A points-based immigration system. And very soon, it looks as if Britain might well join them. It remains to be seen how the election plays out over the three weeks that remain until polling day. A lot could still change before anyone votes. But right now it looks as if Boris Johnson’s Conservatives are heading for a comfortable victory. If that happens and we finally get around to leaving the EU early in the new year, then the biggest economic impact is likely to be moving from unrestricted freedom of movement for EU workers to a points-based system.
How it works
In Australia, Canada and New Zealand, potential immigrants are assessed based on how many points they have accumulated, with the tally depending on factors such as skills, education and age. The idea is to allow entry on the basis of whether the applicant matches the requirements of the host country, rather than on whether they happen to have been born in another EU country, as in the present system.
This is not the same as restricting immigration. In fact, it often means a lot of people coming into the county. Australia, for example has net migration of 8.6 people per 1,000 inhabitants, one of the highest in the developed world and almost double the British net rate of four migrants per 1,000 people. Canada’s rate is 7.1 per 1,000; New Zealand’s is roughly the same as the UK’s.
The interesting point is what effect that has on productivity. According to data from the OECD think tank, those three countries have done significantly better than the UK at increasing output per worker. Taking 2010 as 100, GDP per worker has risen to 110 in Australia, 107 in Canada and 103 in New Zealand, but only to 102 in Britain (the OECD average is 106). Dismally, our output per person has hardly grown over ten years. The growth figures – and in the end growth is all about productivity – are not bad either. Those three countries have grown faster than the UK in every year of the last decade: in 2018, for example, Australia expanded by 2.2%, New Zealand by 2.5%, Canada by 1.8%, but the UK only managed 1.2%.
A boost for the economy
It is not hard to figure out why. Freedom of movement encourages lots of unskilled workers to move to the UK because that is where wage differentials are most extreme. You may not earn a lot as a waitress or by washing cars in Britain, but you earn a lot more than you do in, say, Bulgaria: our national living wage is £8.21 per hour compared with Bulgaria’s £1.47. In more skilled professions, wages tend toward a global average, but the differences in unskilled wages can be vast, giving a huge incentive for the unskilled to move here.
Not surprisingly, with an unlimited supply of cheap labour, lots of businesses are created to employ those people. One of the reasons we have seen so many more coffee shops and car washes open up over the last decade, along with dozens of other labour-intensive industries, is because the cheap labour is available to keep them all running. The problem is that the productivity of those workers is very low.
A points-based system boosts productivity. In Australia, for example, unless you are already working there, it is usually necessary to have a degree and one that is the recognised equivalent of a domestic one, speak fluent English and have experience in one of the professions that the country requires more people to pursue. There is a big difference between the output of the person who ticks all those boxes and someone serving coffees.
Lots of very low productivity, mainly service-sector companies, won’t be able to keep going if they don’t have access to lots of cheap, unskilled workers any more. There will be some pain along the way as some businesses go bust. But they were not doing very much for the economy and were often a drag on overall output. The countries that operate a points-based system all have higher productivity growth than we do and, not surprisingly, their economies have expanded more rapidly too. Once the adjustment is made, UK productivity will improve and we’ll be richer – just like the three countries that already use that system.