What do the Brits have to be grumpy about?

UK voters go the polls tomorrow for the EU membership referendum.  Of the two polls of polls I follow, one has a very slight lead to the Leave side, and the other a very slight lead to Remain.

You might have thought –  rightly –  that New Zealand’s productivity performance over recent years had been pretty poor.  But here is what happens if we add the United Kingdom to the chart of real GDP per hour worked (labour productivity) that I ran the other day.

nz aus uk gdp phw

In their case, no productivity growth for eight years.

But even cyclically the story isn’t all bad in the UK.  Take unemployment for example.  Going into the 2008/09 recession, the OECD reckons that if anything the UK had a slightly larger positive output gap than New Zealand did.  British labour market regulation seems to generate a higher “natural” rate of unemployment than New Zealand’s does –  over the decades, the UK unemployment rate has averaged a bit higher than New Zealand’s.   And yet right now, not only is the UK unemployment rate materially below New Zealand’s, but it is right back to where it was – around 5 per cent –  going into the recession.

uk and nz U

By contrast, in New Zealand the unemployment rate is still more than 2 percentage points higher than it was pre-recession.

The British productivity record in recent years has been pretty dismal.  Then again, taking a slightly longer-term perspective, we are the ones with something to complain about, not them.    There are no perfect starting points for any of these sorts of comparisons, but I’ve started this one from the end of 1990.  That was just before our 1991 recession, and before the stresses and disruption that Britain faced culminating in the exit from the ERM exchange rate system in late 1992.

uk and nz gdp phw

I’ll take the British performance over that full period over ours.

Incidentally, I noticed George Soros yesterday suggesting that if the vote went in favour of Brexit, the outcome would be more disruptive for Britian than the ERM exit in 1992.  Even though that exit –  or rather the foolhardy effort to avoid it –  transferred a lot of money from the British taxpayer to Soros and his clients, the economic outcomes were generally pretty positive.  In the chart above, for example, there is no dip in productivity growth in 1992.  Yes, a Brexit would be quite disruptive, but were I a British voter I’m not sure I’d looking for advice from Soros as to whether to stay or go.

Despite my interest in immigration issues, the centrality of immigration in the Brexit debate has intrigued me.  Even in the UK context, I’m don’t find particularly persuasive the case that British citizens have had any particular economic benefit from increased immigration.  Then again, immigration to the UK has been on a much smaller scale than that to, say, New Zealand (or Australia and Canada), and the UK seems to face fewer of the constraints that lead me to question whether New Zealand’s immigration policy is right for us.

Part of the explanation is, no doubt, captured in this chart.

uk population

I showed the NZ and “more developed regions” of the world lines yesterday.  This time, I’ve added population growth rates for the UK.

For a long time, the UK was predominantly a country of emigration.  Yes, they had waves of inward migration  –  West Indian and South Asian in particular –  but it wasn’t until the policy changes of the late 1990s that the UK had had population growth rates even matching those of the advanced countries as a group.   With quite limited rates of natural increase, their immigration policy has now delivered population growth rates averaging higher than those experienced on average in the baby boom years of the 1950s and 1960s.  Whatever the economic impact of that change, seeing it in this perspective makes it a bit easier to understand the salience of the issue in the current debate.

The short answer to the question in my title is probably “less than we do”.  But at least we get to make our own decisions, not having subordinated a huge part of domestic law-making to unelected people in Brussels.

UPDATE:  A commenter provided a link to one academic’s perspective on how large (or otherwise) the EU influence on British law is.  I have no idea what the correct answer is, but I thought this piece on a fact-checking website was a useful perspective on trying to make sense of the issues.





8 thoughts on “What do the Brits have to be grumpy about?

    • Those same betting markets – along with pundits – consistently thought Trump had no chance of getting this far either.

      (to be clear, I’m not a Trump supporter, and am just glad I don’t have to vote in that election so awful are the choices)


    • THanks. Looks interesting I would clarify that “unelected” here means unelected by British voters. Majority decisionmaking by EU governments fits the same bill – British voters can’t (and shouldn’t be able) to topple Merkel, Hollande, or Renzi..


  1. While I’m somewhat on the fence regarding Brexit, if I were British I think I’d take the risk and vote to leave. Leaving would likely result in some short term pain but, hopefully, long term gain. Unfortunately I suspect too many voters will lack the nerve to take that risk. On that note, I unfortunately think NZ is in the same boat regarding reforming many of the policies that you suggest could benefit NZ long term for fear of the short term pain such reform could cause. How do you get a populace to ‘take it on the chin’ for future generations? Old Blighty used to be famous for its stoicism…what happened? I may yet be surprised.


  2. I’m probably less optimistic the quality of policy would be any better out than in, but at least the choices – good or bad – would be being made nationally. GIven the choice between NZ being richer because the “right” policy were being made for us in, say, Brussels, I guess I’d probably prefer being a little poorer, but freer.

    The choice would be more balanced if, say, we were part of an Australasian confederation. I might well vote for that given the choice.


  3. Perhaps you need to look at the real income of the middle of the distribution particularly over the last 10 years.

    On immigration this choice seems like NZ’s largely a policy choice of successive UK governments as a substantial portion of migration in non-EU.

    Lastly on the economic impact of migration. I wondered whether there was anything in the UK experience (I have seen nothing in the summary of the UK econometric evidence that would suggest a negative impact)that would support the negative net you propose for NZ?

    Like NZ productivity in the UK dived from the 1970s even more that most in the west. Population growth has been sustained at artificially high levels by migration but this has been the case through periods of both string and weak UK economic performance. Are the same channels at work in the UK? If not why?



    • Yes, looking at the medians over time would be interesting – at least in terms of voter satisfaction, if not overall economic performance.

      ALso agree that most UK immigration is a domestic policy choice – as I noted I’ve been intrigued by the salience of the issue in the Brexit debate, given both the smaller scale than we have here, and the domestic-policy role.

      I’ve not seen anything suggesting the economic impact of migration to the UK on natives has been negative. Balanced observers seem to describe it as “perhaps some very small adverse effects on native wages, and probably some small gains in per capita GDP”. That sounds plausible, but it is very hard to tell – immigration rose from around 1997, so they’ve really only had one cycle’s experience with it. In an economy that is not natural resource based – and which doesn’t have capital intensive production structures – I’d not expect the sort of population growth the UK has had to produce observable negative effects at an economywide level And in a sense, that sentence touches on your final question:
      – we’ve had rapid population growth, and theirs even at peak has been pretty modest
      – they were long since able to gravitate away from a natural resource dependent/constrained export base, and been able to grow their export share
      – their location is profoundly different
      – they’ve not had above-world real interest rates (modest popn growth, and non capital intensive production patterns)
      – linked to the above they’ve not had persistently (decades long) real exchange rates out of line with relative productivity.


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