LPE Approaches to Migration and the Labor Market

This post comes out of the early career workshop ‘Law and Political Economy in Europe’which took place at the Centre for Socio-Legal Studies, at the University of Oxford, on the 7th of October 2019. For all the posts this series, click here.

Manoj Dias-Abey –

PoliticsineuropePlenty of leftists continue to make the case for limiting migration and enforcing border restrictions. For example, in the UK, union leader and close Jeremy Corbyn ally Len McCluskey maintains that the “influx of people willing to work for less money and put up with a lower standard of living” drives down wages. Even Bernie Sanders has come perilously close to sanctioning a nationalist and protectionist stance when it comes to migration by arguing that “open borders” is a Koch brothers’ conspiracy.

Whether we give credence to these claims will depend on how we conceptualize labor markets. If we accept the fiction of national labor markets, and further assume that these markets are governed by the forces of demand and supply, then perhaps these claims might ring true. However, if we understand that labor markets are created by institutions and social forces, then we might look to factors other than supply to explain the phenomenon of declining wages and deteriorating working conditions. In this short post, my aim is to provide two alternative ways of seeing labor markets, and to trace how the impact of migration might be conceived within each. In setting out the neoclassical economists’ vision of labor markets and contrasting it with conceptualizations by more heterodox economists, I pay particular attention to the role attributed to law in each of the models.

Neoclassical economists assume that labor markets operate in much the same way as any other commodity market. According to this perspective, each of the actors in the labor market—workers and employers—act to maximize their utility. For workers, this means that the higher the pay on offer, the greater the number of workers who will enter the market (hence, the upward-sloping supply curve). On the other hand, employer firms will decide to stop hiring when the marginal product of labor falls below the costs of hiring extra labor (hence, the downward-sloping demand curve). In a competitive labor market, the “market clearing” or “equilibrium” rate is the point at which supply meets demand. In a memorable turn of phrase, the economist Robert Solow once quipped that proponents of the neoclassical model of labor markets operate on the basis that “supply and demand actually do balance in the labor market as they do in the fish market.”

From this concept of the labor market, neoclassical economists explain the impact of migration in terms of its effects on supply and demand. Migration can increase the supply of workers and competition for jobs, which put downward pressure on wages. However, neoclassical economists accept that not all migration will have deleterious impacts on the domestic labor market. In circumstances where migrants have skills that complement those of existing workers, this can lead to an expansion of production. In addition, migrants also consume goods and services while they are present in the host state, which can create new jobs and drive demand. Attempts to study the aggregate impacts of immigration on labor markets empirically within a competitive, market-clearing framework have found that migrants have little or no effect on the employment of local workers, nor is migration a major determinant of wages of the local population.

The law is almost absent from neoclassical models of the labor market. Deakin and Wilkinson have written that the “absence of law from general equilibrium models is above all a reflection of the capacity of those models to explain social reality.” Neoclassical economists readily accept that private law (property and contract law) play an important role in underpinning markets but their concessions to lawyers end there. Most other types of laws, for example labor laws, come in for criticism on the basis that they distort efficient market functioning. In the context of immigration, they might acknowledge that immigration laws determine the number of workers entering the labor market as well as their skills profile. The role of law, normatively speaking, is thus relegated to stabilizing expectations, enforcing bargains, and calibrating the entry of workers.

Heterodox economists (made up of institutionalists, economic sociologists, labor geographers, feminists, Marxists etc.) reject the notion that labor markets are regulated only by the laws of supply and demand. Instead, they argue that labor markets are regulated by institutions (unions, laws etc.) or social forces (social norms, power etc.). There is a great deal of heterogeneity among this group, and they may differ on the extent to which they think supply and demand plays a role, if at all. Segmentation theorists argue that labor markets are broken up into segments defined by a combination of occupation, industry and establishment size. One segment provides secure jobs with decent pay and the potential to enjoy some form of career progression. In contrast, another segment provides low-wage jobs that are insecure. This sector is characteristically made up of women, migrants, the young, the differently-abled and workers with other marginalized identities. While some neoclassical economists might be willing to acknowledge the existence of a segmented labor market, they are likely to attribute this to the personal characteristics of workers employed in each sector. Heterodox economists, on the other hand, are likely to insist that employer demand drives segmentation and social structures regulate each segment differently.

For some heterodox economists and those influenced by them, law can play a very prominent role. A multiplicity of laws (contract law, labor law, social security law, immigration law, tax law, company law, competition law etc.), as well as their intuitions and technologies of regulation, construct labor markets and shape market relations within them. In terms of labor market construction, the law might affect issues of supply and demand as well generate labor market segmentation. On the question of how the law shapes market relations, institutionalists argue that legal rules provide a form of shared information that enables parties to coordinate their behaviour on the basis of mutual expectations. There is no apparent consensus on how the legal rules that govern labor markets come about. While some within the heterodox camp propose that legal rules are the outcome of efficiency considerations, others would point to them being rooted in processes of political contestation.

If we understand the segmented labor market as a juridical construct as much as an economic one, how should we conceive of migration’s impacts? I have tried to address this question elsewhere. In summary, I take as a starting point the neoliberal restructuring that Global North countries have undergone in the last few decades. This restructuring has starkly affected labor markets and government services, creating an environment where demand for foreign workers runs high. Governments have responded by devising a variety of immigration programs to sate this demand. These programs usually impose a series of de jure and de facto restrictions on migrant workers, thereby ensuring that they have no option but to occupy the sections of the labor market blighted by precarious work arrangements and extractive management practices. In turn, the presence of migrant workers subjected to immigration restrictions deepens and extends the process of neoliberal restructuring of labor markets. It also allows governments to temporarily address the contradictions created by years of privatization and austerity.

When I presented a variation of this argument at the ‘Law and Economy in Europe’ workshop in October 2019, one my interlocutors questioned whether the notion of the “labor market” might actually obfuscate the issue. This is an important point which merits further consideration.

Labor markets are characterized by buyers contracting with sellers of labor-power to exchange wages for work. However, using the labor market as an analytical category risks underplaying what is distinctive about capitalist labor markets. Under capitalism, employers are constantly on the lookout for ways to extract greater surplus value from their workers. Understanding the impacts of labor migration requires being attentive to this very specific dynamic. It is well-recognized that employers use a range of devices to obtain greater surplus value, from regulatory evasion to regulatory arbitrage.

Those on the left to promote border enforcement don’t understand the ways that employers also regularly engage in a process of ‘border arbitrage’—that is, using immigration law in order to obtain groups of workers who are a cheap, reliable and compliant. Border arbitrage could include wielding the threat of deportation against workers lacking legal status to demand work intensification or petitioning for restrictive temporary visa regimes that produce precarious workers. Employers have been particularly vociferous in their support for guestworker programs where migrant workers are ‘tied’ to an employer for the duration of their stay. The UK has already moved to introduce such a scheme for the agricultural sector, and the Conservative Party has indicated that it supports the introduction of a general guestworker program for “low-skilled” workers in future. This suggests that to understand the function of immigration on workers, labor commodification might be a more productive framing than the notion of labor markets. Focusing on the greater commodification of workers under restrictive visa regimes makes clear that the real issue is the legal rules that govern migrant workers’ entry and stay, and not the workers themselves.

Manoj Dias-Abey is a Lecturer in Law at the University of Bristol, UK.