RBS: Examining the influx of migrant workers


RBS chief economist Andrew Mclaughlin examines the benefits of a steady influx of foreign workers into the UK

It seems that everybody knows somebody who has had some work done by a Polish plumber. But the benefits of immigration go beyond the mending of leaky taps and burst pipes:

your mortgage payments are lower too. To see why, we need to take a closer look at the quantity and quality of migrant labour.

Migration has added significantly to the number of people available for work in the UK: an average of more than 530,000 a year since 2002. Even once we take account of the Britons that have left for foreign climes, we're still left with a net impact of 180,000 a year. That's close to an 'additional' Glasgow every three years (see chart).

Quantity matters, of course, but so does quality. 45% of migrants have a degree, compared with just 17% of indigenous workers. When we add a superior work ethic to the mix (migrants do two hours more work each week, on average, than UK-born employees), we start to get a sense of the scale of the impact on the labour market.

Now let's think about what this means for interest rates. The Monetary Policy Committee's job is to deliver low and stable inflation, by ensuring that the demand for goods and services does not rise at a faster rate than the economy can supply them.

An increase in the number of skilled and hard-working employees boosts the supply potential of the UK economy, which means that the MPC can let demand grow at a faster rate than would otherwise have been the case. In other words, it can set interest rates at a lower level.

But how much lower? Work by Oxford Economics suggests that the impact in 2006 might have been as much as half a percentage point. A Bank Rate of 5 per cent, rather than 5 per cent, would add around 500 to the average person's annual mortgage payments.

This may turn out to be a temporary boon. 45% of immigrants say they plan to stay for less than three months. But as many have noted, there's nothing as permanent as a temporary job.

Once established, migration patterns often persist. Why else did thousands of 19th century Lithuanians choose the mines of Bellshill over New York and London? Because other Lithuanians had gone there before them.

It is too early to tell what the long-term pattern will be, but the Polish delis and bank branches that are springing-up suggest that a number of people are putting down roots. And with Bulgaria and Romania having joined the European Union at the beginning of the year, there may be more good news for mortgage holders in 2007.


The Royal Bank of Scotland is a major financial services group providing a range of retail and corporate banking, financial markets, consumer finance, insurance, and wealth management services. Locally RBS has a strong presence in the technology sector.

Royal Bank of Scotland (Future Williams & Glyn team)