Saturday, 12 November 2016

Is populism dumb? A follow up

My article on populism has just been republished on the UEA economics blog. This follow-up is inspired by Sascha Becker and Thiemo Fetzer’s interesting paper on UKIP support.

Their strategy is to look at places in the UK that received migration from Eastern Europe after 2003. They examine how vote share for UKIP grew in these places between 1999 and 2014, over 4 elections, compared to places which received less migration. (So, for stats nerds, this is a difference-in-difference analysis.)

The results show that indeed, UKIP support grew more in places which received many migrants from EU accession countries. That’s not too surprising. In particular the measure they use is the proportion of migrants 2001-2011, divided by the number of EU migrants in 2001 – so it is a relative measure which weights migration more if it starts from a low base. This might reconcile the conflicting perspectives on Brexit – i.e. was it areas with few migrants or many that voted Leave? – perhaps the answer is, areas with a sudden increase from a low base.

What shocked me, though, were the economic effects on these areas that they estimate. Now, be aware that the statistics here are not gold standard in terms of causality: they can’t prove for sure that the following changes happened because of EU migration. Nevertheless, these things did happen where there was more EU migration:
  •  Lower wages, especially for the low paid, though the effect is not large
  • More job seeker allowance and incapacity benefits claimants (NB: this won’t be solely driven by migrants claiming, but also by native claims – in other words, displacement of natives out of the job market)
  •  Higher house prices and more people renting privately

I don’t want to lean too much on a single unpublished study. Nevertheless, this is not what I expected. The consensus position one hears from economists is that migration does little to harm the wages of natives. This paper doesn't fit that picture. If it is right, UKIP support and maybe Brexit voting may be driven less by nationalism, more by economic self-interest.

By the way there is a cautionary tale – yet another – here about over-reliance on “expertise”. The UK government at the time vastly underestimated the level of migration:

A central reason for opening the borders where [sic.] the thriving UK economy and a set of estimates from a Home Office commissioned study, predicting that “only around 5,000-13,000 Eastern Europeans [were] to arrive to the United Kingdom per year” …
The reliance on historical data, which naturally constrains the analysis to periods with relatively high migration cost... and resulting low migration elasticities, in addition to the possible impact of general equilibrium effects (Germany and most other countries restricting free movement for the whole discretionary period) may have contributed to the discrepancy between the projections and actually realized migration flows.

Or, as Daniel Kahneman might say, analysts of migration live in a zero-validity environment....