Labour’s ‘Apprentice Tax’ Will Harm the Labour Market

4^th October 2013

ResPublica’s Lorena Papamanci responds to Ed Miliband’s speech on immigration

Labour’s plan to reduce non-EU immigration has polarised public and political agendas over the past week, mainly due to the pledge to secure ‘a Brit job for every foreign worker’, also known in the media as ‘the apprentice tax’. More specifically, Labour leader Ed Miliband suggested that companies hiring foreigners should also train local young people, by taking on one apprentice for each non-EU worker they hire. This measure, Miliband claimed, could create up to 125,000 apprenticeships over a five-year Labour mandate. Although this programme obtained party support in the Labour Party Conference last week, the policy has many caveats in terms of economic logic, the manner of placing and approaching its numerous targets and stakeholders, as well as lack of innovative and radical thought leadership. Should these issues not be considered before implementation, the policy is not likely to succeed.

Firstly, this plan risks failure because it makes very little sense economically. Not only does it discourage employment and place an additional burden on the labour market (John Longworth of the British Chamber of Commerce called it “an apprentice tax on employers and job creation”), but it also proves a poor understanding of labour migration principles. Even though Miliband claims to be targeting the low-skilled workforce, blamed for lowering average wages and stealing jobs from the local working class, his proposed programme does not envisage differentiating amongst the various groups of migrants. Thus, the Labour leader would actually prevent the British economy from enjoying the net benefits of what academic call “good migration” – the hiring of talented, high-skilled foreign professionals whose skillsets complement rather than collide with that of the local workforce.

Secondly, this plan risks failure because while no particular group of stakeholders is clearly made better off, everyone stands to lose. Thus, this proposal for a new deal on immigration stirred controversy within all parties involved, not to mention the migrants themselves, who are being portrayed as a modern version of social and economic pariahs. Thus, business owners and the wider economy are the least pleased with this plan for the reason outlined above. A representative from HSBC (one of the largest providers of apprenticeship in the country) present at this week’s Conservative party conference commented that employers will not take on apprentices if they see them as a burden imposed on their business, instead of being incentivised by policy-makers. With anaemic economic growth of 0.7% GDP, the economy can do without untargeted schemes such as this. Furthermore, as EU regulations currently prevent member-states from favouring their own workforce for any employment programme, this collective scheme would be open to all young Europeans alike. And with youth unemployment levels in Spain higher than 50%, competition will, in no way, have been eliminated for British young professionals.

Most of all, however, this plan risks failure because it exhibits yet another case of treating (or trying to treat) the exhibited symptoms of a disease rather than its cause. We cannot ensure a more competitive youth workforce by pampering it further and removing the competition altogether. Protectionism, as an economic rule, is not a viable option in a globalised, interconnected world. Instead, youth unemployment issues in the UK should be tackled by education reforms, encouraging job creation and economic growth, as well as fostering local partnerships between small businesses (the real motor behind job creation and economic recovery) and their neighbouring universities or education institutions to ensure better skills-matching.

As for ‘unwanted’ or ‘excess’ migration, an alternative policy superior to Labour’s current approach would be to ensure enforcement of the minimum wage. The most common argument against labour migration is that incoming flows of low-skilled immigrants will accept below-market jobs at illegally low salaries, which the indigenous population, for the most part, will not accept. Therefore, enforcing the minimum wage would not only insure fairer competition in the labour market and reduce the migrants’ competitive advantage, it would also benefit migrants themselves, as the policy would prevent them from exploitation and unsustainable pay and living standards. Furthermore, public sector finances could potentially benefit from the additional tax. Coincidentally, this plan was proposed by Miliband himself last year. This is the type of policy Labour should be supporting as a new deal for migration, as it is the type that could succeed. This new programme, however, risks failing both the Labour party and the labour market itself.