Low-skilled migration, under-investment may have hurt UK wages - BoE
By David Milliken
LONDON (Reuters) - Low-skilled migrants and less business investment may have been factors behind Britain's slow wage growth and productivity in the past couple of years, though the effect should fade in time, one of the Bank of England's deputy governors said on Wednesday.
The central bank has wrestled for the last two or three years with unusually weak productivity and wage growth, despite big falls in unemployment, which have complicated its decision on when to start raising interest rates.
BoE deputy governor Ben Broadbent did not directly address when the central bank would start to raise interest rates from their record low, but did look closer at the reasons for weak wage growth in a speech at an economics conference at the BoE.
Hiring had been driven by low-skilled jobs which often paid less than typical jobs before the financial crisis, pushing down on average rates of pay growth and productivity, he said.
"Perhaps easier immigration has made low-skilled labour easier to come by ... (and) maybe deterrents to investment in physical capital, and new technologies, have also reduced the relative demand for high-skilled labour," he said.
Migration is a politically charged subject in Britain. Net migration reached a record-high 330,000 in the 12 months to March, far above the 100,000 level to which Prime Minister David Cameron had promised to reduce it in 2010.
Broadbent cited the example of a small business he had spoken with which hired two, less skilled accountants -- one found by advertising across Europe -- rather than pay more and take longer to find a single, more experienced British employee.
Opponents of migration blame it for pushing down Britons' wages and bringing other economic costs, though most economists say there is a net economic gain and little evidence that many British workers' wages are affected.
The strength of Britain's economy compared to elsewhere in the European Union had pulled in migrants and the unwillingness of banks to lend after the financial crisis had reduced investment in productivity-boosting technology, he added.
Both factors should fade in future, allowing the pick-up in wages and productivity seen since the start of 2015 to gather pace, Broadbent said.
"A strengthening of the recovery in the rest of Europe would reduce the relative supply of low-skilled labour, and a fall in risk premia on new investment, in human as well as physical capital, would raise the demand for high skills," he said.
"I guess we shall see."
* For Broadbent's full speech, see http://www.bankofengland.co.uk/publications/Pages/speeches/2015/842.aspx
(Editing by William Schomberg)
