An increase in population and labour supply does NOT mean a better economy!


The latest report from the Migration Advisory Committee contains some interesting points. It suggests that increasing the labour supply does not improve growth per head. Cornwall is a good example with high rates of population and employment growth but no discernible benefit in output terms.

Policymakers need to rethink their obsession with population growth!

The implication is that lower migration that leads to lower labour force growth will likely lead to lower employment growth but is unlikely to affect the employment rate.

1.118. The MAC view is that it is important to be clear about what the consequences of restricting migration would be. Lower migration leading to lower labour force growth would very likely lead to lower growth in total employment (as shown in Figure 1.9.) and lower output growth. It is, however, important not simply to assume that all growth, either at the individual level of the firm or for the aggregate economy, is desirable. It would not necessarily mean lower growth in output per head which is closely connected to living standards. There is little evidence that, over long periods of time, countries that have had higher rates of labour force growth have had higher rates of growth of output per head. Figure 1.10. shows the relationship between growth in output per worker and labour force growth over long periods. There is no obvious clear relationship.

Migration Advisory Committee, EEA-workers in the UK labour market: Interim Update, March 2018.

We do however have some reservations about the view that more supply leads to more demand for labour. There have been examples in the past where increases in the labour supply did not lead to higher demand and employment – Ireland being a good example!

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