A2 Macro: EU Context for the UK Economy


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Aspects of the EU including exam style question on the economic effects of labour migration

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A2 Macro: EU Context for the UK Economy

  1. 1. UK CONTEXT
  2. 2. Free trade area v customs union. In a free trade area member countries abolish tariffs on mutual trade, but each partner determines its owns tariff on trade with non-partner countries. A customs union also creates intra-union free trade, but takes away member’s freedom to set their own tariffs against non-member states. Instead, all members of the customs union impose a common external tariff on trade with non-members.
  3. 3. The UK will……. Remain outside the single currency Remain a member of the single market (SEM) and wants a deepening/extension of it Support further EU enlargement but push for more flexible ‘pick and choose’ Europe
  4. 4. Free Trade in Goods Free Trade in Services Free movement of capital Free movement of labour Four ‘freedoms’ of the SEM
  5. 5. Exam Question: Evaluate the view that free movement of labour within the EU is beneficial for the UK economy As of January 1st 2014, restrictions on Bulgarian and Romanian migrants ended. Opinion is divided as to the cost and benefits to the UK of this extension to the free movement of EU labour. Write down one economic advantage of the free movement of labour to the UK economy...
  6. 6. 1. Competition in the labour market has: – Driven productivity – Kept a lid on wage costs Both of which have reduced cost push inflationary pressure and increased competitiveness. Advantages of free movement of labour to the UK RULC’s… (Relative Unit Labour Costs)
  7. 7. …productivity gains and downward wage pressure Price level Real GDP and employment AD Y1 P P1 AS1 AS Y
  8. 8. 2. Migration has filled hundreds of thousands of job vacancies driving economic growth 3. Fiscal dividend Advantages of free movement of labour to the UK Complementary or substitutes?
  9. 9. 1. Extra welfare burden - JSA/Housing/Child - Extra pressure on services i.e NHS/schools BUT….. what does this evidence say? Read the section on the bottom half of page 24. Disadvantages of free movement of labour to the UK
  10. 10. Disadvantages of free movement of labour to the UK
  11. 11. 2. Much of the money earned is sent in remittances… resulting in significant ‘leakages’ from the circular flow Disadvantages of free movement of labour to the UK Show critical awareness
  12. 12. So…..a reasoned conclusion That’s your call………..!! But: 1. Don’t repeat 2. Don’t sit on the fence 3. Use evidence 4. Answer the question
  13. 13. So…..a reasoned conclusion, some ideas… “On balance I believe that this policy has been effective in delivering the key advantages of PRODUCTIVITY GAINS and ECONOMIC GROWTH to the UK. In the long run, these advantages more than outweigh any short run concerns which even if they proved to be accurate, would still be a price worth paying. However much of case against, particularly the NOTION OF WELFARE BURDEN has been discredited by empirical evidence, as I have shown above. Moving forward however, I do believe that the government should prioritise trying to negotiate TIGHTER RULES ON JOBLESS IMMIGRATION in an attempt to bring more BENEFITS TO THE UK ECONOMY WITH FEWER OF THE COSTS”
  14. 14. Anything else………………? THE LAST THING YOU DO SHOULD BE TO DIRECTLY ANSWER THE QUESTION: “As such, the free movement of labour within the EU has been more beneficial than harmful to the UK economy but there are challenges to overcome to ensure that it remains so”.
  15. 15. 10/04/2014 Twitter: @tutor2u_econ