By Jonathan Portes
What impact does the UK’s Summer Budget have on the relative attractiveness of the UK labour market to EU migrants, and to UK workers, particularly those with children?
Most EU migrants coming here to do relatively low-skilled/low–paid jobs (usually from the newer member states of Central and Eastern Europe and the Baltic states) do not have significant eligibility for tax credits upon arrival, since they are generally single and childless.
Later on, they go on to partner, have children, and claim tax credits in at least as high a proportion as the native-born; but initially, they are quite unlikely to be eligible and to claim.
Although data is sketchy fewer than 10% of EU migrants claim in-work benefits within the first two years (as this chart shows).
So, while wage rates – in particular the level of the minimum wage – almost certainly do impact migration decisions, there is little or no evidence to suggest that the availability of in-work benefits does so.
It follows, therefore, that the impact of the changes described is likely to be to increase labour supply from EU migrants; and to reduce labour supply from low income natives with children.
As I understand it, the higher level of the National Minimum Wage won’t apply to the under-25s – and of course quite a significant proportion of new EU migrants, especially the ones we are discussing here, are under 25.
How does that affect the above analysis?
Well, from the perspective of someone under 25 either here or abroad, the changes will have little direct impact. However, there is also a relative price effect. Employers will have a significant incentive to employ the under-25s, who will be considerably cheaper. So some employers may choose to hire relatively more under-25s. Again, this may provide a boost to the relative employment prospects of EU migrants.
Some of this is speculative. But it is difficult to avoid the conclusion that the net impact of these changes will be to make the UK labour market more attractive to low-paid EU migrants and, possibly, such migrants more attractive to UK employers.
This is an edited version of Jonathan’s post, which originally appeared on the National Institute of Economic and Social Research.