Confirmed: Immigration is good and necessary

The Bank of England has published the Bulletin Q4 2006, and it contains a very interesting article that we should rejoice, and not complain, that immigrants are coming over.

The whole article is really enjoyable, written with caution to avoid misleading readers in the wrong direction. And the conclusion leaves many things open to interpretation.

I already wrote about Immigration justifying it from the point of view of pure economics. But I was ending with some questions. One of them was that there is not enough work for immigrants. The Bank of England states clearly:

“Immigrants are employed”

Another of the findings is that there are more immigrants than average both in high qualified jobs and low qualified. An explanation of this might be that the City is atracting brilliant minds, and the economic buzz is also attracting people who is poor at home and go to Britain to find a better life.

“Immigrants also tend to be younger, better educated, and work longer hours than those born in the United Kingdom”

Economically, this is perfect: young people that have not been educated at the expenses of the British public school. It is like suddenly, we have an army of people in the best age to be productive coming from nowhere. And they are willing to work as many hours as necessary to prove that they are good. Wouldn’t you be delighted if you were their bosses? This has a repercussion in the Economy of the country as it has more quality production at the same price. Well, not at the same price.

“The increasing share of “new” immigrants in low paid jobs appears to have led the emergence of a striking wage gap between “new” immigrants and UK-born workers”

Immigrants who come from poor countries tend to be willing to work at any price. And employers take good note of it. Hence, British workers ask for more money to do the same low skilled job. Is this good or bad for the Economy?

The article gives two explanations. Suppose that they are paid less because they work worse. In Leyman’s terms, they are not worth as much as the British. Then we will have worse productivity, as to create the same amount of product, we will need more people doing it, although the cost will be the same because they earn less.

The second view says that they “may have displaced similar or less productive workers”. In this case, they work as well as the British, or even better, but they earn less. Excellent for the economy as more product will be done with less cost.

The article does not indicate whether one view is more real than the other. But it keeps on saying that since immigrants work for less and in any job, unemployment has fallen and more importantly, wages are kept stable. This fact incredibly agrees with theory.

Let’s go back to pure Supply and Demand. If supply is greater than demand, prices will fall, won’t them? If there is more supply of work than workers seeking for a job, potential workers will ask for more salary. But if the gap between Supply of jobs and Demand narrows, the position of job seekers is weaker. Also workers trying to discuss a wage increase will have less power because others will be willing to do their jobs for less money, so insiders will have to accept lower wages.

“Immigration may also have increased the supply potential of the economy by lowering the natural rate of unemployment, either by reducing skills gaps in a tight labour market or by tempering the wage demands of domestic workers, or both.”

The Bank of England suggests that the last wave of immigrants is young, well educated, willing to do the same job as a British do, but for a lower pay, willing to work more hours, and on the top of it, they might even do the job better, displacing nationals that do their job worse, or who are not willing to work for that money, which is not a problem for them because they can live thanks to the subsidies of the Government.

The article hints that immigrants are good for productivity, and are definitely good to keep Inflation down, which at the same time will keep interest rates untouched and ease the fears of a national bankruptcy if the level of credit keeps on hiking and the interest rates increase suddenly.

So what about my questions about immigration. Will they make salaries drop? No, just keep them at the same level. Will they take British jobs? Only those that nobody wants, and those where the British worker is not willing to make an effort to stay. Will they enjoy the services we pay with our taxes? They also pay taxes (unless the employer breaches the law), and they are young and willing to work. They are not a burden to the NHS.

And for the Economy? They are a fabulous present.

Immigration

Romania and Bulgaria are just about to become members of the European Union, which has triggered again the arguments about immigration. In fact, there is no such argument. When analysed from the economics point of view, everything is very clear, even how surprising politicians are.

Let’s supose I have a company in London. I make nice fashionable clothes. The first thing I need is machinery, which I buy in England. Then I need cotton. There are no crops in London. Nor in England. But that is not going to stop me. I will bring cotton from India.

Now I have english machinery and indian cotton. I need people to work and turn the cotton into clothes I will sell in High Street shops. Suppose nobody wants to work for me because everyone is happy with their present situation. I know there are people out there willing to buy clothes. There is therefore demand. I am certain I would make money if I could produce clothes. I will import my workers. The same way I import cotton, I will import the worker.

Let’s now move a bit forward. My workers are already at work and the first supply of clothes is selling very well in the shops. The shops are now selling my products instead of importing stuff from overseas, which means that I am increasing the production of the country and hence, it’s wealth.

So as you see, we need to import people in order to increase the wealth of a country when there are places that are not covered.

Hey, hold on! People are not cotton! And we are not asking them to come, they are coming “en masse” without any request. And they are using the services that we are paying with our taxes.

True that they are not cotton, but it is not that true that we have not asked them to come. They have heard that there is a lot of work here. Check it  youself in any restaurant. And in the fields. There is a demand of people, but we can not expect that companies just ask for 37 workers to be sent over. That’s why they have to come and find the vacancies themselves. After all, they are not cotton.

So immigrants are good for the economy. But, as many will say, they make our salaries drop, they take our jobs, they enjoy services that we pay with our taxes.

Hmmmm… I think this should be treated in another post.

Richard Branson, Rupert Murdoch and the logics of strategy

I have said before that business strategy is like a war, and it is even fir to get hostages. Richard Branson, owner of Virgin, wanted to include ITV, the British Independent TV in his portfolio of Media, recently increased by the cable operator NTL. And then, out of the blue, monopoly concerns appear because the deal is not done. Who does understands this?

Not long ago NTL, soon to be renamed “Virgin Media” was bidding for ITV. And it seemed that everything was done. But then, all of a sudden, ITV rejects the bid saying that from ITV’s perspective there is little, if any, strategic logic for ITV to combine with NTL”.

The deal would be excellent for NTL, because it would include the capacity of producing contents of ITV, apart from the rights in UK for the Champions League. This detail might not look very important, but around the world, football is a major incentive for customers to subscribe to payment TV.

And for ITV? Well, given their recent problems of revenues, being part of NTL would ease this concern. It would give them new platforms to broadcast their content, and also the power of the broadband, which seems to be the future of TV.

So if they were happy with the idea some time ago, and it seems that the merger makes sense, why such harsh statement?

While the decision was taken, Rupert Murdoch increased his ownership of ITV to 18%. Murdoch is the owner of BsSkyB, the satellite broadcaster, owner of the majority of rights to the English football league, and who has recently moved into broadband.

Take this with a grain of salt, because it is just speculation but, what if Murdoch is using the old business strategy of weakening the enemy? Branson and Murdoch are fighting for the hill. Although Murdoch seemed to have it very well controlled, Branson has lately started a battle with new strength. Branson is dealing with a neighbouring tribe that was being neutral until the moment. He want them to join forces. But then, Murdoch manages to have a decisive authority in that tribe and make sure that they remain neutral.

Why is Murdoch not buying ITV himself? That would spread serious concerns of monopoly. But because the deal NTL-ITV makes a lot of strategic sense, Murdoch is making sure that it will not happen. This reassures him that NTL will not grow while he makes further deals to lock his position at the top of the hill.