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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 281xiv House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE WELSH AFFAIRS COMMITTEE
GLOBALISATION AND ITS IMPACT ON WALES
Tuesday 26 June 2007 PROFESSOR ROBERT ROWTHORN Evidence heard in Public Questions 1006 - 1079
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Welsh Affairs Committee on Tuesday 26 June 2007 Members present Dr Hywel Francis, in the Chair David T C Davies Nia Griffith Mrs Siān C James Mr David Jones Mr Martyn Jones Mark Williams ________________ Memorandum submitted by Professor Robert Rowthorn
Examination of Witness Witness: Professor Robert Rowthorn, University of Cambridge, gave evidence. Q1006 Chairman: Good morning and welcome to the Welsh Affairs Committee. Could I ask you to introduce yourself for the record, please? Professor Rowthorn: I am Robert Rowthorn, Emeritus Professor, that is former Professor at the University of Cambridge in Economics and Fellow of King's College, Cambridge, and former Welshman being born and bred in Newport and what was then Monmouthshire (and still is!) Q1007 Chairman: That is an interesting way to introduce yourself, a "former" Welshman and that has a bearing on population movement, I guess. Professor Rowthorn, thank you very much for your very helpful memorandum in which you discuss relationships between population and age structure. Could you give us a brief outline of the current situation with regard to Wales's demographic makeup, please? Professor Rowthorn: Demographic makeup in terms of age structure is not a particularly old population by UK standards. It will age pretty fast over the next 50 or 60 years but no more so than the United Kingdom as a whole, or not significantly so. It depends what you want to know about the demographic structure. In terms of the growth rates of the population there are two factors which influence it, one of which is migration and the other is birth and death rates. If there were no migration at all the population over the next 60 to 70 years is predicted to decline, I suppose, by about half a million, which will take the population back to what it was in 1951. It is not a catastrophic fall but it is a significant fall. This will be accompanied by a considerable ageing of the population but this is a universal feature of Western societies. To some degree it could be offset by immigration but not to the degree that people think. Immigration has a modest effect on age structure and, in fact, in the case of Wales predicted immigration will have very little effect on the age structure for a very clear reason that in many countries in Western Europe immigrants tend to be relatively young, they are either of child-bearing age or somewhat below it, so that itself makes the population younger, but also the fact they have children helps to make it younger, although not by an enormous amount. In the case of Wales, and I think it must be because of retirement, the net migration as far as Wales is concerned is inward but it is relatively old, so Wales is getting a fair number of relatively old people - I might move back myself one day! Q1008 Chairman: You make some suggestions or projections in terms of age structure. What do you think are the likely implications of your projections in terms of the people and the economy of Wales? Professor Rowthorn: It must be said that these projections are really from the Government Actuary's Department. All I have done is graph three of them and explore their implications, and I have constructed another scenario which is based upon fairly high-level immigration and a high fertility rate, but that is itself based upon the Government Actuary's Department figures. Q1009 Mr David Jones: Just as a matter of clarification Professor Rowthorn, when you talk in your paper about inward migration, are you including inward migration from other parts of the country as well as from overseas? Professor Rowthorn: Yes, it is net migration. I hesitate to say it is net international migration being aware of the sensitivities here, but it is certainly net migration from outside of Wales, some from the rest of the UK and some from abroad. Q1010 Mr David Jones: In my constituency, for example, it could include the large number of people from Lancashire coming to retire there? Professor Rowthorn: Yes, and it is quite a complex figure because it takes into account people leaving as well as coming and it also takes into account students, for example, so people might go abroad for study and come back (that is abroad to England if you like) or conversely people might come to study in Cardiff or Aberystwyth and then leave again, so it is quite a complex figure. Q1011 Mark Williams: In terms of the patterns of demographic change you have identified, what differences have you detected between rural areas and urban areas within Wales? Professor Rowthorn: None at all. I did not study this. I am not a Welsh specialist and I have to say I came here partly because as in some respects still a Welshman I thought it was my duty, but I am not a specialist on the Welsh economy. These are aggregate figures. Q1012 Mark Williams: Perhaps I can help you, certainly the perception is that on the west Wales coast - Aberystwyth, Ceredigion, Pembrokeshire - the inward migration is an older migration/retirement migration and obviously we have heard about the big urban areas Llanelli and Wrexham where it is suspected that it has a younger dimension. Does that fit into a wider picture of the urban/rural divide? Professor Rowthorn: That would be the pattern even in East Anglia as well as Wales. Of course it is not so true where you have a dynamic area with a lot of commuters, so you can have a rural hinterland from which people commute, but that is not true of all of Wales; quite a lot of Wales is not very close to dynamic areas with large-scale commuting. Q1013 Mark Williams: Perhaps that is the English experience as well. Why do you think migrants to Wales are comparatively older and what is the broader impact on the Welsh economy of that trend? Professor Rowthorn: Well, I think it must be because Wales is a relatively rural area (South Wales is not but most of Wales is rural) and a lot of people go there for peace and quiet. Q1014 Mark Williams: Has your experience elsewhere in the country shown the pressures that that migration has put on the Carers' Agenda and social services provision more generally? Professor Rowthorn: I think it has a complex impact. One thing of course is that it increases the price of housing which is an important element but that is partly to do with planning of course; if more houses were built it would mean there would be more houses for everybody. Also it does generate some employment because people have to be looked after, their buildings have to be maintained, so it is equivalent to tourism in some ways in its economic impact. Q1015 Mr Martyn Jones: Professor, how old is your data for your conclusions in this report? Professor Rowthorn: It is the latest data from the Government Actuary's Department which means that it was published a few months ago. Q1016 Mr Martyn Jones: Published a few months ago from when? Professor Rowthorn: 2004 is the latest. Q1017 Mr Martyn Jones: I thought so because we have had quite a lot of younger immigrants particularly in north east Wales. Have you taken that into account? Obviously you cannot take it into account from the figures because the figures are old. Professor Rowthorn: I have not. The point is that there are a number of issues about younger migrants. If they stay they get older and if they leave you lose the rejuvenating effect, as it were, but they may be replaced by others. That is one of the reasons why it is difficult over the long term to have a big impact on the age structure because migrants, if they stay, get older. Q1018 Mr Martyn Jones: But they often have children? Professor Rowthorn: Yes, that is right, but they may in the long term add more to the population but not have much effect on the age structure. It is not true to say they have no effect, as you can see, but the so-called high migration scenario here in this one is probably quite a good indication as to what may be happening now with immigrations from Eastern Europe and that does have a rejuvenating effect. My view is that the issue of migration focusing upon the age structure is not really the central issue. I think the question to ask with migration --- obviously if people come from abroad or from England looking for work, they want to improve themselves, but as far as the present Welsh population is concerned, if they want immigration to benefit them they have to ask how it is really going to improve the economy and make it more competitive, and so that raises the question partly of skills but also of what you might call energy and talent because people do not have to be educated to make a contribution. After all, some of our great entrepreneurs had very little education and they would have been classified as not very useful under the standard classification. Q1019 David Davies: As an ex Bassaleg boy myself --- you know Bassaleg? Professor Rowthorn: Of course I know Bassaleg, although that is not a pronunciation recognised by everybody here. Q1020 David Davies: Before I ask you a question I wonder if I could go back a minute to something you said earlier on - and I think this is quite important - has anyone done any research on the level at which people who have migrated into a country start to make a contribution? If you come in for example with, let us say, three children, those three children have to go to school, the cost of educating somebody in a school, as we know, is about £6,000 a year; there is a cost to the Health Service, and there is going to be a cost if you are entitled to child tax credits and so on and so forth. At what point does a salary of a migrant mean that the total amount of tax that they are contributing more than covers the costs that we all make on an economy? Professor Rowthorn: I am honestly not sure because one of the problems is not whether people have good or bad jobs; it tends to be whether they have jobs at all. One of the biggest drains on the budget is people who do not have jobs. That is more important than whether they are skilled or unskilled. Even unskilled immigrants for example who have children almost certainly pay more tax than they receive in the form of benefits. Q1021 David Davies: Forgive me, unskilled workers with children? Professor Rowthorn: Unskilled, probably not, they would probably be about balanced I should think. Q1022 David Davies: Healthy unskilled workers without children, I agree, would almost certainly be paying more in tax than they would be taking back, but I think we have got to think about the whole. Every one of us is costing society something for the roads that we use, for every time we turn up to see a GP. I wonder whether anyone - and I do not think they have - has done any research on the level at which you become a net contributor to the taxation system rather than a taker from it. It is perhaps a tricky politically incorrect thing to do because obviously we all want to encourage people to work at whatever level. Professor Rowthorn: The Home Office study on the net impact of migrants in general added the published figures for all migrants added up together and implicit in that is an assumption as to what that group pays but they did not publish the separate figures. Q1023 David Davies: Without wishing to deviate too much - and this is something I was going to take up with you and the other speaker - there are different kinds of migrants and at the moment we include in our statistics, let me stereotype a little bit, millionaire or billionaire American bankers who come over to London for a few years and obviously contribute vast amounts of tax, but perhaps not as much as we would like them to but that is another issue, nevertheless pumping millions of pounds in, and somebody who might come over, let us stereotype again, with four children and with some health problems unable to work and therefore, bluntly, costing the state quite a lot money. Because we include everyone we end up perhaps with a slightly misleading set of statistics and I think there may need to be some more research done on that. Professor Rowthorn: I agree. What I have written on this I would argue that the aggregates of figures do not tell us anything much. I would make a couple of points here. It depends on whether you look at an all-UK perspective or a Welsh perspective. Wales at the moment is not an independent country and is in a fiscal union with the United Kingdom, so actually it makes very little difference to the Welsh population whether a particular group of people pay a lot of tax or a little because the overwhelming proportion of taxes is put into a central Westminster pool and then doled out on separate principles. That would not be the case if Wales was an independent country. That is the main point I make about that really. The second point is that some of these discussions are a bit unreal because within the European Union we cannot actually control immigration and people looking for work, so there is nothing much we can do about it and it is just a fact of life, so the question is really when you talk in these terms is what the policy should be towards people from outside the European Union. At the present time the big surge of immigration has come from within the European Union and if it is extended again, to the Ukraine for example and possibly Turkey one day, more will come like that and it will be largely uncontrollable. David Davies: Chairman, we are getting through these questions and I wonder if I could deviate one more time and ask a question that does not appear on the list? Chairman: Just once. Q1024 David Davies: Let me ask you something else: within parts of rural Wales, we have seen tensions where you have had large numbers of people coming in from outside and generally speaking it has been large numbers of non-Welsh-speaking people moving into small communities where Welsh has been the dominant language, and that has caused tensions - which are understandable, I think, whatever our views are on the matter. Do you think there is an argument at all for saying that within Wales generally it is understandable why you might get further tensions if you get large numbers of people coming in who do not really make any effort to assimilate with the general population there and do you think as a nation or as a country we have a right to say that, yes, we welcome people into our nation or country but we do think that there is a responsibility on those who come here to assimilate with the host community and not for the host community to bend over backwards and do everything possible for those who have made a conscious decision to come here? Professor Rowthorn: This is a general problem being faced all over Europe at the moment. I think even for permanent residence in the Netherlands you have to learn Dutch, let alone getting citizenship. The problems are particularly acute in the case of Wales because the scale of migration is very large. The net flows are not tremendously big but the gross flows are, with large numbers of people leaving and large numbers of people coming in, so a quite small net migration flow covers very big inward movements and big outward movements and the bulk of inward movements are either English speakers or if they are not native English speakers their basic foreign language is English, and of course if it is large enough it is bound to lead to the gradual disappearance of the Welsh language, just the same as if enough people speaking English went to the Netherlands and did not learn Dutch eventually it would become an English-speaking country. I just think that is a matter of arithmetic ultimately and I hesitate to say any more than that. Q1025 David Davies: Is inward migration a short or a long-term phenomenon? Are people moving staying for the rest of their lives or are they coming and going, as you implied earlier on? Professor Rowthorn: I have a paper here by somebody else called Drinkwater which has an answer to that . Quite a lot of it in Wales is long-term migration because people come to Wales to retire but there is short-term migration with a lot of students and a lot of people come for a few years to work and then go away again. David Davies: I think that covers it, thank you, Chairman. Q1026 Mrs James: You acknowledge in your paper that Welsh migration flows both inwards and outwards. How can Wales ensure in this era of globalisation that it retains its most skilled and talented people? Professor Rowthorn: That is the number one question. The first thing is that the same policy that retains people may also attract them, but I think you have to face a problem in a small country that a lot of talented people will want to see the world so they go somewhere else, and whether you call London the world or not it is not quite clear but they certainly want to go somewhere else, and I think it is a difficult thing to encourage people to stay. Good universities are obviously very attractive. I think Wales has relatively few instruments at its disposal of this kind because it cannot control taxation very much. An independent country has more instruments at its disposal because it can offer special deals to skilled people and you could explore that for example and you could explore to what extent certain key people not just in universities but other places could be given financial inducements to come to Wales or for people to stay there, but that requires money and it requires giving it priority over what people may regard as more pressing needs. Q1027 Mrs James: You talk about that retention of skilled people but you also talk about bringing skilled people back to Wales and bringing back those skilled and talented people who have left. How do we encourage them to come back? Professor Rowthorn: I think it probably would be the same thing because if you think of Welsh universities, for example, Welsh universities would be facing the same financial problems as most British universities, and that is it is not that they will be losing people to England, they will lose people who are good to the rest of the world, and that is the problem that many European countries are facing. When I say "the rest of world", in this context the United States, for example, and I think that this raises a question of how you induce very talented people to stay either in the United Kingdom or in Wales and I think that finance and facilities as far as universities are concerned are very important for this. Mrs James: Thank you. Q1028 Chairman: What would it have taken for you to have gone back to Wales then? Professor Rowthorn: What would it have taken in pounds, shillings and pence or should I say pounds and pence these days? I think probably I just would not have gone back. I left at the age of 17 to go to Oxford University, I got a scholarship and, to be honest, I never thought of going back. It is just that Oxford and Cambridge are very good work environments to be in so it would be very hard to find any university outside them which would induce me to go there because they are just very nice environments to be in. There is also a problem with people going back which is that they put down roots in the places they go to. The biggest thing is not that I like Oxford or I like Cambridge, where I am now, it is just it is where all my friends are, and I think that is why return migration is not as big as people think it will be. I saw a study of Polish migrants to the United Kingdom, maybe they were East Europeans, and when they came only about 10% said they were going to stay. Well, two years later it was 25% and it goes up and up and up. The answer is that surprisingly few people go back even if they want to, but it may not be the case that particular people cannot be attracted back. Q1029 Mr David Jones: If I could deal with the section of your paper that deals with the real support ratio, which I found quite interesting, because in Wales the real support ratio is very low indeed according to your paper. One of the points you mentioned is the low employment rate of the existing working age population, rather less than one in two of the population is working; to what do you attribute that? Professor Rowthorn: The first thing to be said about it is that it is a universal feature of older industrial areas. You hear all the time the north of England or wherever the speaker is talking about how it has now overcome its great crisis of manufacturing or mining or whatever it was and it is now prospering. Actually that is not true. Most of the old industrial areas still have a substantial employment deficit and to the extent they do not a lot of it is because of government-created employment, and the fact is that quite a lot of the old industrial areas (the Welsh Valleys are a clear example but there are many others in the United Kingdom) have never recovered from the collapse of mining and manufacturing industry in the 1970s and 1980s, and I think that it is a scar. The problem is of course how do you reverse it because the employment rate for men because that is probably the best indicator (it is not that jobs for women do not matter but it is the best indicator of a depressed economy) is very low in the Welsh Valleys but it is very low in a fair number of other parts of the UK that have suffered very severe employment problems. The reason why the modern period is different from the 1930s is that in the 1930s there was a tremendous demand in the south east of Britain for manufacturing workers and there was a very big movement from the old depressed areas of the country of manual workers to work in places like factories in Oxford. The North Circular Road in London - they have pulled them all down now - was full of factories in the 1930s and there was a very big movement people. The problem is that for the category of people that make up the very high unemployment rates, they are either people who suffer from some form of disability or sickness (often work-related), or they are people who are in this category but who probably would get a job if there was a good demand, or they are people just outside the labour force. The fact is that there are a lot of people like this all over the country and they face three problems: the demand for this kind of labour is not very high; secondly, a lot of them are not that highly motivated because it has set in a form of demoralisation; and the third thing about it is they have to compete with people who are better workers from Eastern Europe. If you look at the migrants coming into Wales or London or somewhere like that they are often skilled, educated workers who are willing to do for not very much money unskilled jobs, and they are a superior form of worker from an employer's point of view, so I think it is a very difficult issue to deal with. Personally I think in the medium term the motivational issue is probably the most important. Q1030 Mr David Jones: Yes, I was going to ask you about the motivation point and the demoralisation that you mentioned; to what do you attribute that? Professor Rowthorn: I am not quite sure, to be honest. It is very widespread so it is systematic. In a sense, it is a phenomenon which is commented upon in most of the old industrial areas because there are not very good prospects and, if you like, a chain where generation after generation of people worked has been broken. Q1031 Mr David Jones: So a mind-set develops? Professor Rowthorn: Yes, I think that is an important issue. If we had a war now and there was a massive demand for labour in the Welsh Valleys most of these people would get work despite any other problems and then they would overcome it. That is what happened in Cambridge for example and we have never really had this problem. We do have a category of people like this but it is never very big and there has always been a demand for labour so it has never really set in as a way of life. Q1032 Mr David Jones: Of course the point you make relates specifically to the old industrialised areas of Wales. What about the other parts of Wales? As you rightly said, most of Wales is rural. Professor Rowthorn: Agricultural employment is just suffering a long, gradual death really. It is just a long decline whereas the industrial employment was very, very sharp and very quick and took everyone by surprise, it occurred really within ten or 15 years. Rural problems are a bigger proportion in Wales because it is relatively rural, but I think in quantitative terms nationally the old industrial areas are the major ones and they include parts of London. Q1033 Mr David Jones: On a more positive note, is it fair to say that part of the reason for the low real support ratio is inward migration of wealthier retired people to many of the coastal areas in Wales? Professor Rowthorn: Yes, I think that is true. I think inward migration of retired people is a complex issue. As I said, the first sign is they are taking more houses and this, that and the other but they may be providing indirectly in some parts of Wales the only jobs there are. Q1034 Mr David Jones: So to that extent a low real support ratio is not wholly the result of detrimental influences, it can to a certain extent be the result of positive influences in that you may well have retirees who can be quite wealthy and self-sufficient and employing people who are providing services to them? Professor Rowthorn: I do not think there is a problem at all about there not being enough people to look after the elderly. I think that is just rubbish. I think a lot of people could do it who are not gainfully employed at the moment. Q1035 Mr David Jones: You make that point in your paper; put the unemployed to work as carers? Professor Rowthorn: What we do not need is persons or bodies; what we need is people who can do the work and will. Q1036 Mr David Jones: You have also mentioned that if you could increase the current employment rate in Wales to the level that prevails in the south east of England this would give an injection of 120,000 workers, which would offset the effects of the ageing population. Have you any suggestions as to how that could be achieved or is that entirely a political problem? Professor Rowthorn: I am not sure that it is entirely a political problem. I think it is too big an issue for me to deal with now and, to be honest, I do not have any very clear answers. If I had clear answers they would have been acted upon straight away. This is not a particular problem in Wales, it is the same problem over much of southern Europe. People talk in southern Europe for example about the demographic collapse, which is much worse than in Wales or in the United Kingdom. If there were no immigration at all to Italy for example or Spain and the present birth rate continues, these countries would disappear at an amazing speed because they have very few children, and yet the interesting thing about it is that in terms of supporting the elderly in those societies, the fact is they have very few people working, it is a society with very few people with jobs, and they often retire very early. If they had the same retirement age we do in the south east of England or even as Wales and as many people working, a lot of the problems of ageing would be overcome because they would have more people mobilised. That is not widely realised. It is not widely realised that the United Kingdom as a whole has quite a good situation with regard to employment and is not ageing as fast as most of Europe is, but it is still ageing. Wales from an employment point of view is in a weaker position than the UK average. From an ageing point of view it is not much different, but from an employment point of view it is. Q1037 Mr David Jones: You mention in your paper that "in terms of dependency there is more to be gained by mobilising the existing population effectively than seeking to rejuvenate the population through immigration or raising the birth rate." I do not know how you raise the birth rate but could you expand on that? Professor Rowthorn: It is simply arithmetically. There are two ways of looking at it. One is the so-called potential support ratio, which is essentially the age structure. Obviously you can only alter the age structure by altering the birth rate or migration or the death rate, of course, if you keep people alive longer you reduce the potential support ratio. So you can do those things but what really matters in a society is the number of people doing things, it is not simply the age structure. One of the problems that many parts of the country have had is that some men retired early as a way of dealing with unemployment and of course they still are not in the potential support ratio because they are not over 65 - they are disappearing now as they get older - but the potential support ratio takes no account of whether people are working or not, and I think that is the central issue. I do not think the potential support ratio is very important for Wales because it is in a fiscal union and there is no point in worrying about one little bit of it, although it may be a problem for the United Kingdom as a whole. Of course, on the other hand, the employment rate is important and it is important for several reasons. It is important because not just people produce more and therefore pay more taxes and the taxes go somewhere else, if the taxes go somewhere else, it is important because it provides income for the families, and the most effective way of reducing poverty is to increase the employment rate. The second thing is that it is the must effective way of reducing poverty in old age because when people have reasonably good jobs they can save for their old age. I think the present tax and benefits system does not encourage lower paid workers to save for old age but that could be altered so that they did, and therefore if people have jobs and save it means they can get better pensions, and I think that is the real issue. The issue is not whether Wales is generating enough tax revenue to pay Welsh pensions; it is whether individual families or individual people in Wales are earning enough and saving enough to provide for their old age. Q1038 Mr David Jones: One final point on that section, you mention the potential benefits of a slight decline in the population in Wales. You say: "South Wales is heavily populated and if the decline were properly managed a modest reduction in population would have environmental benefits." How could you properly manage the decline? Professor Rowthorn: If it occurred at a catastrophic rate, some towns could be rapidly depopulated and you could easily have a situation, if you did have rapid movement, that you have in the mountains of Italy where you have villages which disappear eventually but for about 30 years they are populated entirely by people who are elderly and getting older all the time. Q1039 Mr David Jones: I understood that point but what I cannot understand is how do you manage it? Professor Rowthorn: One way you could do it of course is through immigration. You could say we want to slow down the decline in population by getting more people to move here, for example. Q1040 Mr David Jones: But Wales of course could not do that independently? Professor Rowthorn: No. Q1041 Mrs James: I wanted to turn to economic prosperity, Professor Rowthorn. You say in your memorandum that "there is no statistical evidence that population growth makes the typical nation more prosperous". Can you tell the Committee anything about the relevance of Wales's population size in relation to its economic prosperity? Professor Rowthorn: I do not think it has very much. There are small countries in Europe that are extremely prosperous. Finland is a country that is bigger than Wales but not much. Iceland for example has a population of 300,000 and is very prosperous. On the other hand, it has a gigantic amount of fish and other resources so it is not a fair comparison. Historically the main argument for having a large population, apart from the fact that you could raise a large army and fight other people, was that you would have a large home market for things so that you could produce things on an efficient scale. That is one of the reasons why the United States was meant to be prosperous. That is a very powerful argument but it is not such a powerful argument when most of what is produced is sold elsewhere. That has been the case in Wales for a long time. Welsh coal for example was sold mainly outside Wales. The market for Welsh coal was not predominantly Welsh. Coming from Newport I know that because of all the ships in Newport. I think the answer is that in modern Europe the size of a country is not tremendously important. That obviously would not be the case if the population of Wales fell to a quarter of a million, for example, because the answer is you could not maintain lots of the services you have now. You need a certain size of population to justify things like roads, for example, so if the population went down and down and down you would have complaints in Westminster about why should we pay for these good roads because there is nobody living there any longer. If Wales was independent you would have a question of how could you pay for them because there is such a small tax base. I do not think there is any evidence to support the notion that somehow big economies and large populations are necessarily more successful. Q1042 Mrs James: Okay. You also raise in your paper the relationship between the size of Wales's population, and you have mentioned that, and the nation's subsequent tax revenue. Is it therefore realistic and sustainable for Wales to assume that its tax rates will remain insulated from the local demographic variations, as your paper suggests? Professor Rowthorn: No, I suppose the more devolution there is and the more tax-raising powers Wales has the more it would have to worry about its ability to pay the taxes. Q1043 Mrs James: You say in your paper that the tax payers are southern English? Professor Rowthorn: That is true in Scotland as well. The Scots would say North Sea oil all belongs to Scotland so that is different there but there is no equivalent to North Sea oil for Wales, and the stronger the Welsh economy is from an economic point of view the more sense it makes to have control over its own finances in this sense, but the weaker it is the more it benefits from being linked to a stronger economy. Obviously there is the point that having independence and control over your affairs allows you to tackle the problems more effectively, but if you put that aside, straightforwardly, a strong economy which generates more tax in a fiscal union pays for the others. The south east of England subsidises quite a lot of the rest of the country because it is the strongest part but if Wales became a very strong economy like Ireland the balance would shift and there might be a Barnett Formula in reverse. Q1044 David Davies: You say in the paper that the Welsh economy would certainly benefit from an injection of skilled migrants. To which particular areas do you think that could apply? Are there any particular skills that we are short on in Wales? Professor Rowthorn: It is not just skills, it is people who have some kind of entrepreneurial drive to start business. Nowadays that is increasingly associated with formal education but it is not uniquely associated with formal education. There is a paper by someone called Stephen Drinkwater, another paper, I have quoted him already once, and he has done something on migration from Eastern Europe, and one of the things in this, which I did not mention, is that a lot of the migrants from Eastern Europe are skilled but performing jobs below their skill level. They are obviously highly motivated. You could argue that policies towards the UK not just for Wales would be to get these migrants to move upwards on the economic ladder, so they start to form businesses or they employ their skills in areas where their education is more suited, and that will actually help to generate jobs for less skilled members of the Welsh population. The issue is not just simply what immigrants you get, it is also what use you make of them. Having people with skills who are not properly utilised has two effects. It means that they compete with the weakest members of the domestic local workforce but also their job-creating talents are not utilised. Q1045 David Davies: I should of course declare an interest in that I am married to an Eastern European and I know virtually everyone from Hungary who lives in Monmouthshire, and there are a lot of them! What you say is certainly correct but I think what holds a lot of them back, and I imagine this is the same throughout, is a lack of fluent English in many cases and the strong accent will lead employers to think perhaps their English is worse than it is. I do not think you can get around that. It is not racism or anything, it is just a fact of life. If people do not speak English very well then it is difficult to put them into certain working environments with confidence. I agree with the thrust of what you say but I do not know whether it is that easy to suddenly turn round and say, "Right, we have got lots of intelligent Eastern Europeans, let us get them running businesses instead of doing what they do." Earlier on you made an interesting point and again I agreed with it, but it was a startling one. You actually say that we have got lots of people coming over here who will work better and more enthusiastically for less money, and that is effectively having an impact on wages for the lowest skilled. Is that something that you stand by? I happen to think that you are right. It is a controversial issue but the reality is that the very large amount of immigration we have seen recently has surely had a negative impact on the wages of those doing the most unskilled jobs because there are more people willing to do them for less money. Is that correct? Professor Rowthorn: Yes, it is very controversial except amongst economists. It is not actually that controversial amongst economists. The general view amongst economists - and it is not universal - is to make the following distinction: economists would say suppose you get a group of immigrants coming into a country, their impact on a particular local group of worker depends on whether they are complementary to them or whether they compete with them, so if you have a large inflow of people who enter the least skilled end of the labour market, the lower wage end, other things being equal, that will tend to depress the opportunities at the bottom. If you get people coming in higher up that will tend to create opportunities at the bottom. On the evidence I would say that most economists now think that very large-scale immigration, which has a very large unskilled component or a group of people who are personally skilled but who enter the unskilled part of the labour market does tend to depress the very bottom. On the other hand, immigration raises the standard of living of the average person in society so there is a distribution element in it. I do not think it is enormous, I do not think it is such that it is really gigantic but I think it is significant. Q1046 Chairman: Could I end with a question about international comparisons. You have talked a great deal about eastern Europe and southern Europe. There are many parts of Western industrial societies which have experienced major structural change in terms of collapse of traditional industries, in particular I would say Appalachia. What lessons can we learn from other countries and how they have dealt with major population change as a consequence of structural collapse? Are there any lessons that we can learn from other countries? Professor Rowthorn: I think the thing that is worth saying is that quite a lot of them have not dealt with it very well. They appear to have dealt with it well because many of the people who lost their jobs and their children are not included as being in the labour force, they are not registered as unemployed. Some small countries have done well. Somewhere like Finland has very well and they have done well basically because they have got a very dynamic economy. The main thing is how do you get an economy dynamic to generate jobs, and I think that is more important than anything else. In educational terms, for example, they do not have such a big tail of people that we have because a lot of the younger people that are now unemployed may not be officially classified as unemployed. They are more or less unemployed and they may be recorded as outside the labour force or not participating and also have very low educational qualifications, and I think that we do particularly badly down that end of the educational system. Q1047 Chairman: Are there any other examples? I referred to Appalachia; are you familiar with the changes that have occurred there in the last 30 years? Professor Rowthorn: No. I did a study on the United States which is to do with migration in response to economic shocks, which is unemployment if you like, and the standard argument is that the United States is different from Europe because if you get a shock to an area like the Welsh Valleys people move out very quickly and find jobs elsewhere. The argument is that is what happens in the United States. In actual fact that is not true. The United States has many of the same problems that we do. I do not know about Appalachia itself but the old industrial areas of the United States suffer from a lot of the same problems we do. It is just that it is very difficult to survive without a job in the United States because the welfare system is much more limited so people end up working in very, very badly paid jobs which is different, and that actually may be better than not working at all. Chairman: Thank you very much, Professor Rowthorn. We appreciate your memorandum and also your evidence this morning. Memorandum submitted by Dr Surhan Cam Examination of Witness
Witness: Dr Surhan Cam, Cardiff University, gave evidence. Q1048 Chairman: Welcome, Dr Cam, and could you for the record introduce yourself, please? Dr Cam: Hello everyone. My name is a Surhan Cam and I come from Cardiff University. I am working for the School of Social Sciences and I teach comparative political economics and quantitative methods. I am working on migrant workers in Wales and I am trying to understand and analyse the implications of migrant workers for the Welsh labour market. Q1049 David Davies: Dr Cam, you state in your memorandum that the contribution that migrant workers make to the economy is well-established. That certainly is what most people say but on what basis do you make this assertion? What I do not think happens, and the previous speaker could not enlighten me, does anyone ever take into account the net contributions that working migrant workers make as well as the net costs which all of us, any one of us, whether we are a migrant worker or not, make on society? Have you added up the cost of educating children, of building new houses, of having access to very expensive health services and so on, translating documents, dealing with crime, everything else that all of us make, and can you actually put a figure on what sort of salary does a migrant worker or anyone else have to be earning before they make a net contribution which you state all migrant workers make? Dr Cam: The thing is the migrant worker burden, so to speak, on the social welfare system is relatively limited. The number of dependent people who are not working, for example, among the recent migrants from the European Union, is less than 50,000 as opposed to a rough estimation of 600,000 total migrants, so that implies a relatively low number for example. Q1050 David Davies: Can I just stop you there though because of course that is absolutely correct, but it is also true at the moment that most migrant workers from the European Union are not allowed to access social benefits, so obviously if they cannot get work they go home, that is absolutely the case, but when you talk about migrant workers you cannot just look at whether or not they are accessing social benefits (in any case they are not allowed to do so by and large if they are from the European Union) you have to look at the total overall cost. If somebody comes over here with three children those three children are entitled to be educated, and we would not have it any other way, and the cost of that education would be about £6,000 per child. Anyone coming over here who is pregnant will be entitled to have their child on the NHS, and quite rightly so we would not have it any other way, but there is a cost to delivering babies on the NHS, and is quite significant. Do you take into account all the costs because if you just look at the narrow criteria of whether or not they are allowed to claim social security, of course the answer is no, most of them are not allowed to claim social security anyway so it is just one very small part of the overall picture, is it not? Dr Cam: The current calculations I have, which are more or less in line with the calculations made by the Treasury, show that the total current contribution of migrant workers after all these calculations to economic growth is about 0.7% and that is the net contribution. As you say, the level of cost in terms of welfare spending is obviously different from one community to another but the aggregated result is around 0.7% contribution to the overall economic growth rate. Q1051 David Davies: With absolute respect, I have seen some of these Treasury figures. They first of all take into account the relatively small number of very affluent merchant bankers for example from London who come into the City of London for five years and earn billions of pounds and pay lots of taxation, and they do not take into account the slightly more hidden costs of migration, for example the cost to the environment of having to build houses for half a million people each year, the cost of translating documents, which all public authorities have to do at the moment, into many different languages, and the cost of dealing with all sorts of other problems that can sometimes be caused as a result of large-scale migration. If that is what the figures are based on, it is not true to say that migration overall is a net contributor to the economy. Dr Cam: Actually that is not the only calculation I am using and even if you push these numbers to the worst case scenario, the contribution is not going down to any less than 0.5%. David Davies: May I ask a last question then. Chairman: Mr Davies, could I urge you to make your questions a little shorter, it is becoming a bit of a monologue. Q1052 David Davies: On that basis then, do you think that we need more migration to increase the expanding economy further? Dr Cam: Yes, that is the way I feel. My general impression by the Treasury and my calculation (which are again not exact the same but are more or less on the same line) is that for a scenario which forecasts about a 2% growth rate it requires about 150,000 migrant workers, with certain qualifications, per year over the next two or three decades. Q1053 Mr David Jones: Presumably that 150,000 is a net figure, is it? Dr Cam: A net figure exactly. Q1054 Mr David Jones: It is not a year-on-year figure. Dr Cam: The net migration obviously is people going from Britain or people going back (but you exclude them) and the overall average, if these calculations are right, per annum should be 150,000 net migrant workers if Britain is going to keep around 2% growth rate. Q1055 Mark Williams: Could you outline for the Committee any differences you have identified between migrant employment patterns within a Welsh context and in a UK context? Dr Cam: One apparent difference is the proportion of migrant workers - and I should specify that the migrant workers I am working on, as I specified in my report, are the migrant workers who came to this country in the last decade, and I am talking on the basis of these people right now - is less than 3% in Wales as opposed to 6% in the rest of the country, so in this sense the proportion of migrant workers is less in Wales compared to the rest of the country. That is one difference. There are some other differences as well. In Wales I just analysed the results from the latest Labour Force Survey and as far as the results of these analyses are concerned, in Wales the migrant workers are more bifurcated in terms of skills. There are high-skilled workers and low-skilled workers compared to the rest of the country. For example, in Wales over 40% of migrant workers are working in what I might call high-ranking jobs, which is managers, professionals or associated professions. If you take the other end of the spectrum, so to speak, those who are working in elementary or low-skilled jobs, it is about 35%, which is almost equal roughly (although not exactly) and these proportions are less pronounced, the bifurcation is less pronounced than in the rest of the country. High-ranking workers for example is about 30% as opposed to 25% in the lower end of migrant workers in the rest of the country. So in general, bifurcation is more pronounced in Wales compared to the rest of the country. Q1056 Mark Williams: Has your research led to you look at any of the regional differences within Wales and in particular the urban/rural split? Dr Cam: I have some evidence on that as well although this level of analysis of regional and sub-regional would require further evidence. Having put this in as a warning, I should say in the rural areas people are not working necessarily picking the fields but they are working in food-processing companies and these are usually low-skilled workers and if you take the total proportion of migrant workers in Wales in food processing, which is about 15%, this is higher than the rest of the migrant workers in the country, which is about 10%, and most of those people are located in the rural areas as opposed to Cardiff, and in certain areas like Merthyr Tydfil or Pentwyn or in west Wales in general, the distribution of low-skilled migrant workers is more pronounced compared to the rest. Q1057 Mark Williams: I think in the hospitality sector as well, tourism? Dr Cam: Indeed. Q1058 Mark Williams: Thank you for that. Your paper notes that: "Migrant workers create jobs whilst having little impact on wages." I think that has been borne out by what you have just said but could you elaborate a little more on that please? Dr Cam: The thing is when you are talking about the issues related to migrant workers, probably the best thing to do is to avoid generalisations as much as possible, and this precaution should apply to low-paid workers as well as general wages, and when we look at, for example, the proportion of people who are earning below half of average earnings, that proportion did not change substantially from the year 2001 to the present day. It was about 29%, it was down to 28% at the end of 2003, and it is down to 27% now, so there is a slight decline, so to speak, measured by the definition I gave, but, by and large, there is no substantial change despite the recent wave of migrant workers after the accession of the new EU countries. That is one thing I can say. However, if you take certain very specific sections of migrant workers on the other hand, for example 25% of migrant workers are earning below the minimum wage, and these people are not affecting the total wage inequality, but what is happening is that in certain areas they are becoming more competitive, so to speak, and the indigenous workers are replaced with these people, especially, as I said, in the food-processing industry or in hospitality, as you said, but these are the implications which you should take with caution I suppose rather than making overall generalisations even at the level of low-paid workers. Chairman: Could we pause at that point and could I allow Nia Griffith to have a supplementary and then I will come back to you. Q1059 Nia Griffith: You mention in your paper here that one quarter of migrant workers in Wales earn below the minimum wage. That is illegal so I wonder how that actually happens. Are you referring to people who are in part-time work and, most importantly, if they are earning that little, are they undercutting other workers? Dr Cam: Actually the figure I use covers part-time workers and full-time workers because this is per hour pay as opposed to weekly averages where you might exclude part-timers to get an accurate result, but in the case of minimum wages when people report their situation - this is self-reported data - this covers everybody in the sense that they are not paid sometimes on the basis of hourly pay but they are paid monthly and they are calculating their incomes on the basis of overall earnings, and these are not necessarily accurate and these data do not necessarily imply that these people are employed illegally or paid illegally in law. Q1060 Nia Griffith: Are you referring to deductions that are taken out of their wages? Dr Cam: This is gross income before any deduction. Although this may have implications for illegal employment, it is not exclusively about illegal employment. Q1061 Nia Griffith: I am still a bit confused. Are we talking about people who are being paid less than the legal minimum wage? Can there not be an objective study or is it purely what they think they are getting? I am a bit confused. Dr Cam: There can be more objective studies obviously but there are not and this is based on self-reporting of people about their situation. This is average hourly earnings and this is not necessarily in total less than the minimum wage literally, because if they are earning, for example, a couple of hundred pounds per week then it may not necessarily go down below the minimum wage in actual hours as opposed to the average calculations they are making. Chairman: Mr David Davies wanted to ask a brief supplementary. Q1062 David Davies: Evidence we have just heard from an economist which makes sense is, if you have large numbers of people coming into a country willing to work hard for less money, that will clearly have a negative impact on the wages of the indigenous population. Dr Cam: Definitely, that is not something I am opposing, but the thing is when you take these kind of commonsense ideas you have to test them on the basis of evidence, and real life may be more complicated than you might expect. What I am saying basically is that I have failed to find evidence to support this argument. What I have found is the evidence is suggesting that the implications are in certain pockets of earnings sections, so to speak, rather than general levels. Q1063 David Davies: Obviously at the lower end. Dr Cam: We can study these reasons and we can explain. One is, for example, migrant workers are not necessarily low paid, low skilled people, I said 40 per cent of them are in --- Q1064 David Davies: I do not think anyone would dispute that bankers are finding it harder to compete because of other bankers coming in, I think the evidence is though that British indigenous low skilled workers are losing work and losing money because large numbers of people, hundreds of thousands of people, have come into this country and are willing to do that work for a lower cost. That is correct, is it not? Dr Cam: I would take it with caution and I would not generalise this, as I said before. The evidence does not allow me to generalise. Chairman: That is three short supplementaries, which is more than enough for today. You will have to come back next week. Q1065 Mark Williams: I am concerned and alarmed by what you have told the Committee this morning. How broad an evidence base do you use in reaching the conclusions you have on the wage differential and the fact that a quarter of the workforce in certain sectors is operating under the national minimum wage? Where does your evidence come from to make this point? Dr Cam: Actually this is the latest Labour Force Survey results and the survey covers the national averages and tries to be nationally debated and representative. It covers about 120,000 people and is one of the largest surveys in Britain. There are a statistically reliable number of samples in Wales to make this argument but obviously there is also this fact that if you had more evidence or you can cover more people, the results may get skewed. I can say that the result is fairly reliable and representative from the Labour Force Survey. Q1066 Mr David Jones: Dr Cam, again on the question of wages, could you help me with one matter? You indicate towards the beginning of your paper, and we have touched on this briefly in this discussion, "Despite claims otherwise, migrant workers create jobs whilst having little impact on wages - aggregated differential is below 13% between indigenous workers and those who came to Britain in the last decade." That of course is a UK-wide figure? Dr Cam: That is right. Q1067 Mr David Jones: On the second page of your paper, you refer again to the wage differential and you say in Wales "... weekly earnings on average are nearly 18% less than other workers in Wales, whereas this gap is down to 7% for the rest of Britain." Dr Cam: Yes. Q1068 Mr David Jones: I am not sure I actually make those two percentages stack up. Could you explain that? Dr Cam: They are different because they are calculated on the basis of different measures. One is gross hourly earnings, the other one is weekly earnings. That is why the difference is quite big. Q1069 Mr David Jones: So the first is hourly earnings and the other is weekly earnings? Dr Cam: Yes. Q1070 Mr David Jones: I understand. You also say towards the beginning of the paper, "Certain sections of workers have faced replacement or more pressure on wages ...", which sections in particular? Dr Cam: First of all, I should say this, certain sections of workers which are under pressure are not investigated in Wales. Q1071 Mr David Jones: This is a UK-wide phenomenon? Dr Cam: Actually, yes, a UK-wide phenomenon. The first phrase is referring specifically to Wales, the second paragraph, but the UK is also the case, that certain sections of workers are facing more pressure on wages. Q1072 Mr David Jones: Yes, but which sections would they be? Dr Cam: One is hospitality, the other is food processing and this is not so in Wales. In Wales, as the Welsh Assembly has agreed recently, there is a need for specific further research to cover these people and explore what is happening in a better way. They will be funding research in certain areas of Wales, like Merthyr Tydfil, Wrexham and other areas in the Valleys. Q1073 Mr David Jones: What would you say in broad terms accounts for lower pay levels in Wales than the rest of the UK as a whole? Dr Cam: When you take low paid workers in Wales, the proportion is about 28%, 27% currently - as I define by the proportion of those who are earning below half average earnings - and it is about 231/2 for the rest of the country. So in Wales wage inequality by this definition is more pronounced. Q1074 Mr David Jones: What would account for that, in your opinion? Dr Cam: This gap should not be necessarily related to migrant workers, because the proportion of migrant workers is higher in the rest of the country anyway, so it is difficult to relate to migrant workers. It has different dynamics and those dynamics are related to the industries the Welsh economy has and the shift of the economy in the longer term from the relatively better paying manufacturing industry to the relatively less paying service sector in the last decade or even longer term. That had implications obviously for this inequality, but that inequality has to be explored through the analysis of various factors which I am not aiming at in this presentation. Mr David Jones: Thank you. Q1075 Mrs James: You note in your paper that there is a higher density of union membership amongst migrants in Wales. Why do you think there is a greater level of unionisation amongst migrant workers in Wales as compared with the rest of the UK? Has this got any implications for us in the Welsh economy because of this relatively higher level? Dr Cam: One possible reason for this is the T&G is working better in Wales! This is about the subject of organisation or the nature of this organisation in Wales. People are somehow working, maybe not harder, but more into migrant workers. There are more objective reasons and one is that migrant workers, as I said before, are relatively better skilled in Wales and those better skilled workers, like the indigenous workers, have more tendency to union membership. Q1076 Mrs James: In Wales? Dr Cam: Yes. In Wales this is the case because 40% of migrant workers are in these high ranked jobs and they have tended to join the unions more than the rest of the migrant workers. That is one thing. Also I should say something about the implications of this membership. When you have members in low paid jobs the premium is about 10% compared to your (inaudible) but the difficulty is that this 20% covers all migrant workers, high skilled and low skilled people, and among low skilled people membership is unfortunately too low although it pays off, so to speak; amongst the EU migrants for example it is about 5%. So, yes, union membership has positive implications for pay but among the low paid migrant workers membership is low. This covers the overall applications for all migrant workers. Q1077 Mrs James: I have been aware of work I have done with my migrant workers that they often work in industries where there are no unions and there is not even an ability for them to join unions, do you think this could also have an effect, that they do not have the opportunity to join in many cases? Dr Cam: Definitely. The thing is that one of my figures here is that 35% of migrant workers in Wales are working in workplaces where there are unions, which is considerably higher when you look at the other migrant workers in the rest of the country, which is down to 20% or something. Despite this, however, participation is lower among the low paid or low skilled migrant workers and one reason for this is that they have less job security, because a higher proportion of them are employed in temporary jobs, and they do not know what is going to happen tomorrow and if they join the union they do not know what is going to happen. That is part of the story I suppose, a lack of sense of security or safety, it is one thing keeping workers away from joining the unions which otherwise they would do. That is part of the story sometimes I would say. Q1078 Nia Griffith: Do you want to say anything more about the level of unionisation varying between sectors? Have you anything particular to add? Dr Cam: In the manufacturing sector, when you take the national averages, manufacturing is a little bit at the lower end of unionisation, but in Wales it is just about 20%. That means manufacturing is not necessarily an industry where you can find a higher union membership rate. That is one thing. In the service sector, take the case of hospitality, the membership rate is extremely low, and it is in general correlating - this is not exactly true but in general I would say this - and it would be safe to say that lower paid industries tend to have lower rates of union density. That is, I suppose, a generalisation, generally, although you have to be careful. Q1079 Chairman: Dr Cam, thank you very much for the evidence. I apologise for the length of some of the questions but you have been very patient with us. We are most grateful to you for your memorandum as well. If you feel there is anything else you wish to add we would be very pleased to receive a subsequent memorandum. Dr Cam: Thank you very much. I have just made my remarks. Chairman: Thank you very much. |