Immigration: Do Immigrants Lower Wages?

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Increasingly both politicians and the media argue that immigrant workers lower wages. Dave Crouch explains how Marx's writing can help to see through these claims.

There is a common sense we all grow up with about how the economy is supposed to work. In theory, the deal between capital and labour is simple. Capitalists say to the workers, "You help us increase profits and we will reward you with higher wages. That way everyone wins."

The reality, however, is almost exactly the opposite. Across the industrialised world companies are enjoying an era of extraordinarily high profit growth. But, except for those at the very top of the income scale, pay rises are barely keeping up with inflation.

In Britain company profits were the highest last year since records began over 40 years ago. Yet median weekly earnings, adjusted for inflation, fell by 0.4 percent. At the same time, directors' pay at Britain's biggest companies shot up by 28 percent.

It is the same story in all the rich countries of the West - profits are at an all time high while workers' share of national income continues to fall. So what is it that's holding wages down?

With all the media hype about migrant workers from eastern Europe, a new common sense is taking hold: if only we had stopped those Poles from coming to Britain, our wages would be so much higher. That's why the Bulgarians and Romanians should be turned away, the argument goes.

John Denham, New Labour MP for Southampton, claims wages for construction workers in his constituency have fallen "quite dramatically" because of immigrant workers. As the liberal columnist Polly Toynbee put it in the Guardian, "Near-full employment should mean pay rises - but cheap imported labour keeps it low."

There's something about this way of thinking that makes people take it more seriously than other arguments about immigration. People are inclined to listen when you explain that housing shortages are a result of failure to invest in public housing, not immigration.

But somehow the economy is different. It seems to have a life of its own, beyond the control of human beings. This makes it harder to tackle the idea that immigrants hold down wages.

In fact it's all too easy to slip into a left wing version of opposing immigration, which goes something like this: socialists defend workers' wages and conditions, which are under attack because there are too many workers competing for too few jobs. So we should support restrictions on immigrant labour.

A letter in Socialist Worker recently put this point of view very sharply: "Surely the arrival of large numbers of foreign workers into the labour market must drive down the wages of those already here," it said.

"Karl Marx wrote about the 'reserve army of labour' - the pool of unemployed and underemployed workers whose existence poses a threat to employed workers and helps the bosses impose wage discipline. It seems that, today, immigration provides global capitalism with its reserve army."

Workers as cannon fodder

So did Marx really argue for controls on immigration as a means of defending wages? Are immigrants really preventing British workers from getting more pay? And what action can we take to raise pay for all workers, both natives and immigrants?

The notion of a "reserve army of labour" is a powerful one, conjuring up an image of workers as cannon fodder, ordered into battle by the capitalist machine. Perhaps for this very reason, mainstream economists sometimes fall back on Marx's terminology when they glimpse just how bad things are for workers.

For example, the bosses' paper the Financial Times (FT) wrote recently that globalisation means Western capital now has access to low cost labour in countries that were previously closed off to it: "That vast reserve army of low wage labour is always there in the background, the curse of over supply condemning employees to accept what they are offered."

AA top economist at the Asian Development Bank also talks about "the pressures of a huge 'reserve army' of unemployed and underemployed workers who are constantly driven to seek out employment at substandard wages in order to survive".

More often than not, however, economists who defend the capitalist system acknowledge the existence of a "reserve army of labour", but find that Marx's wonderful phrase sticks in their throat.

So Milton Friedman, the Nobel prize-winning economist who died last month, was famous for insisting that economies have a "natural" rate of unemployment. Any attempt to create full employment, he argued, was doomed to cause inflation and instability.

But this was nothing if not a bare-faced admission that capitalism cannot exist without a pool of unemployed, whose function is to discourage wage rises among those in work. And if that wasn't bad enough, the "natural" rate can be uncomfortably large. Recent research has calculated that the unemployment rate needed for a stable economy in Europe is 8 percent - "surprisingly and disappointingly high", laments the European Central Bank.

That's why Friedman's theory was swiftly toned down by its apologists. "The name was unfortunate and was soon replaced by the more anodyne 'non-accelerating inflation rate of unemployment', or Nairu," says the FT. "This in turn was replaced by the closely related but still more anodyne concept of the 'output gap'."

Don't like how capitalism works? Then change the name of your theory. You could scarcely have a more direct testimony that bourgeois economics covers up reality, rather than exposing it.

For Marx, the concept of the reserve army of labour is central to what he has to say about capitalism and workers' wages.

He starts out by making a simple but important observation. Look at any capitalist industry and you see it consists of two parts - the machinery and the workers. He draws our attention to the relative size of each, calling the ratio of one to the other the "organic composition of capital".

The point Marx wants to make is that the number of workers - the "variable" capital - that capitalism requires is totally dependent on the quantity of "constant" capital, the machinery. As capitalist industry expands it sucks in workers to operate the machinery, upping their wages to attract more of them.

But the worker is necessary to satisfy the needs of the machinery, rather than industry existing to satisfy the worker's needs. So whether or not pay goes up depends on whether or not it's profitable for the capitalist who owns the machinery to employ workers to operate it.

What is more, two things interfere with this process.

First, the organic composition of capital tends to grow. As technology develops, larger amounts of machinery can be operated by a relatively smaller number of workers - productivity rises. Machinery itself is a product of labour, so it follows that workers' effort and energy lead to the need for less workers' effort and energy. It's called "jobless growth" - capitalism can be doing fine but with very little impact on reducing unemployment.

And second, whether the capitalist expands their industry depends on what other capitalists are doing to compete with them. If they can't make a profit from workers operating their machinery, then they will sack the workers, cut their wages or make them work harder in order to conquer the other capitalists.

Marx draws the conclusion that capitalism is the first economic system in history in which there can be too many workers.

He writes, "The labouring population therefore produces, along with the accumulation of capital produced by it, the means by which it itself is made relatively superfluous, is turned into a relative surplus population; and it does this to an always increasing extent. This is a law of population peculiar to the capitalist mode of production."

This "surplus" working population is nothing more to the capitalists than "disposable human material", an "industrial reserve army" which is both an inevitable product of capitalism and a crucial lubricant for the system.

Marx writes, "The mass of social wealth, overflowing with the advance of accumulation, and transformable into additional capital, thrusts itself frantically into old branches of production, whose market suddenly expands, or into newly formed branches... In all such cases, there must be the possibility of throwing great masses of men suddenly on the decisive points without injury to the scale of production in other spheres. Overpopulation supplies these masses."

In any sane system of running the economy, industry would exist to satisfy human need. But under capitalism humans exist to satisfy the needs of industry. If anything positive comes about as a result - such as the production of useful things and the payment of wages with which to buy them - this is a by-product of the process, rather than its main aim.

The reserve army of labour helps capitalists hold down wages because it increases competition for jobs, forcing workers to sell themselves for less and to work harder for fear of being replaced. And so you have the contradiction we are all so familiar with today - the unemployed are desperate for jobs, while those in work are desperate to escape the relentless pressures of the working week.

In Marx's words, "The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active labour army... Relative surplus population is therefore the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital."

Reserve army

What all this means for our discussion of immigration is clear. The reserve army of labour is intrinsic to capitalism. It is part and parcel of the system, wired into it from its very birth - and not something created by immigration. By its very nature capitalism pits workers against each other, forcing them to compete for jobs and money, rather than cooperating for the common good.

If we make the mistake of blaming the reserve army on immigrants, we might as well say that all unemployed people should be made to leave the country - and there are 1.7 million of them, by the way, overwhelmingly British - because they all put pressure on wages, regardless of their nationality.

If we make the mistake of blaming the reserve army on immigrants, we might as well agree with the right wing Daily Mail. It wrote in one of its recent anti-immigrant rants, "Wage growth is being held down because more people are looking for jobs, meaning employers do not have to be so generous to their recruits." On the contrary, Marx shows that it's absurd to talk about employers being "generous" - they are always looking to hold down wages, and only raise them when they are forced to.

The bosses benefit when workers accuse each other of causing low wages. Pinning this on foreigners is simply another way in which the capitalists, helped by their obedient media and a nasty dose of racism, encourage workers to turn against each other rather than against the system that breeds poverty and joblessness.

Of course immigration swells the labour force and therefore has an impact on the market for jobs and wages. But when you look at the figures you find that this is far from being a straightforward negative effect.

A major piece of research into immigration in the US from 1990 to 2004, for example, found that immigrants don't generally compete for the same jobs as US workers. They are concentrated at the lower and higher ends of the labour market and are hardly represented among the bulk of the workforce.

A recent review of 18 studies of immigration found that estimates of the impact on wages vary, but they all cluster around zero - on average there is no effect on wages. Moreover, rather than there being a fixed quantity of jobs for which workers must compete, immigration can help create new jobs and therefore expand the economy.

So an extensive review of Europe's migration experience since the Second World War, published last year, found that most immigration was caused by labour shortages. The study found that immigration could lead to lower wages for unskilled workers. However, it said the effect was usually temporary and that economies reacted by expanding production in sectors that use unskilled labour, eventually pushing wages up once more.

With immigration, more goods and services that rely on unskilled labour are produced. In other words, the market in goods or services adjusts to immigration, rather than the labour market. This means that people who otherwise would not have done so have had their bathrooms re-furbished by Polish plumbers, for example. The market for plumbing services expands, rather than there simply being more competition to refurbish a fixed number of bathrooms.

Nor do bosses look on immigrant labour as simply a means of cutting wages. At the end of last year the Bank of England surveyed 200 companies employing 275,000 workers about their use of migrant labour. Less than 2 percent of them said they employed immigrants because they were cheaper, while a whopping 60 percent said they did so because there was a scarcity of local workers. Here we see how immigrant workers help the economy grow, which has the knock-on effect of creating more jobs.

This last fact chimes in with the general picture of the British economy at present, where the labour market is "tight" - there is demand for workers - and pressure to raise wages is relatively strong. So October's Recruitment and Employment Confederation survey showed wage inflation at its highest for over five years. With large projects such as the Olympics and Heathrow airport's new terminal approaching, the confederation says employers will "continue to face serious skills shortages in areas such as construction".

The survey showed that there are relatively fewer jobs in low-skilled sectors, which is where competition between workers is likely to be strongest. In some sectors in some parts of the country, labour market competition is going to be more intense than in others. But the facts show that simply saying "immigration pushes down wages" is wrong.

Marx concluded his discussion of the reserve army of labour by arguing that trade unions - not immigration controls - are the means by which workers can fight the adverse consequences of labour market competition. Workers, he said, should "organise a regular co-operation between employed and unemployed in order to destroy or weaken the ruinous effects of this natural law of capitalistic production on their class".

That's why it is so good to see British trade unions travelling to Poland to recruit jobseekers even before they leave for this country, producing union literature in Polish and appointing Polish workers to full time organiser positions. Unity between British and immigrant workers is the only guarantee that employers can be forced to maintain decent wages for all.

Marx's theory also helps us to grasp that under capitalism there will never be a happy time when workers can start to work less, relax and enjoy the fruits of the extraordinary technological progress that capitalism has produced. We will always face pressures to tighten our belts, raise productivity and look over our shoulders at the other workers with whom we are competing - whether it's here in Britain or anywhere else in the world where production can be carried out more cheaply.

Only under capitalism can the arrival on these shores of young people eager to work, able to produce goods or services far in excess of what they as individuals could consume themselves, and so make a real contribution to raising overall living standards, be seen as a problem. What utter madness!

Thanks to modern industry, each human being has extraordinary potential to increase sustainable economic growth and prosperity. This opens up the prospect of a life in which machines work for people, not the other way round, and where work is shared so everyone can enjoy fruitful, satisfying labour and ample, stimulating leisure. Give us your tired, your poor, your huddled masses - immigrants will help us build that new society, a socialist society.