A lump of labour

By Dan McCurry

A “Lump of Labour” exists when there is an over-supply of the low skilled. The Economist magazine is wrong to dismiss the argument of young British people who beleive that the Eastern Europeans are taking their jobs.

In his study of shanty towns, Michael P. Todaro considered the irrational manner in which people in the developing world leave the safety of subsistence farming to go to the big city to look for work, then find themselves in shanty towns where only one in three inhabitants find employment. On examination he discovered that the would-be workers knew full well that there would only be a one third chance of finding employment in the city but went anyway. Todaro went back to his Labour/Wages graph and switched the word Labour for Aspiration and the model made sense. Therefore, people in shanty towns are rational.

If we apply this model to employment in the UK, we see an over-supply of the low skilled due to eastern European immigration and this effects youth employment for the British. Not all eastern workers “make it” in British cities. Unlike in the developing world, those that fail go home and so seem invisible in their number, while their British counterparts remain visible, as the NEET.

If those leaving subsistence for shanty towns had the cross-section of skills that an economy needs to exist as a whole – i.e. if some were carpenters, some doctors, some bankers – then developing world economies would thrive since the influx of workers would be pyramid shaped allowing those at the top to drip wealth down to those below. However, the actual shape is the bottom of the pyramid only and there isn’t a sufficient existing pyramid to drip-down opportunity for all.

I’m not disputing the Economist’s argument that the youth minimum wage has contributed to the problem, but I am saying that prime solution to the influx of low productivity workers is to encourage our EU partners to see the benefits of the eastern workers and, by opening their borders, relieve from us the burden of over-supply.

In order for us to achieve this, we need to take a central role in the business of the EU, and not marginalise ourselves as the Tories seem so determined to do. One more reason to be pessimistic about the likely future British government.