Did immigration really ‘depress the wages and job chances of working-class Britons’?

It's increasingly becoming accepted, even on the left, that immigration to Britain under the previous government had some negative consequences, one of which was to depress wages and increase job scarcity for the indigenous population.

It is increasingly accepted, even on the left, that immigration to Britain under the previous government had some negative consequences, one of which was to depress wages and increase job scarcity for the indigenous population.

Tim Montgomerie has repeated the claim today in a piece for the Times (£). Under Labour, he writes, “immigration rates soured, depressing the wages and job chances of working-class Britons”.

The first misunderstanding here is that the economy has a fixed number of jobs, sometimes known as the “lump of labour” fallacy.

In reality, just as immigration may increase competition for jobs it can also create new jobs.

A 2008 study found that an increase in the number of migrants corresponding to one percent of the UK-born working-age population in the years 1997-2005 resulted in an increase in average wages of 0.2 to 0.3 percent.

The same study did find evidence that the five per cent of lowest paid workers experienced a small short term squeeze on wages as a result of migration. For each one per cent increase in the share of migrants in the UK-born working age population there was a 0.6 percent decline in the wages of the five per cent lowest paid workers.

We are talking very small percentages here, however, and the study also found that migration led to a rise in the wages of medium and high paid workers. Most of the published evidence has also found no correlation at all between immigration and depressed wages.

Another study carried out in the same year by Jonathan Portas of NIESR found “little hard evidence that the inflow of accession migrants contributed to a fall in wages or a rise in claimant unemployment in the UK between 2004 and 2006 (when the study was carried out)”.

And as Jonathan Wadsworth, of Royal Holloway College and the government’s independent Migration Advisory Committee, has said:

“It is hard to find evidence of much displacement of UK workers or lower wages, on average.”

The below chart shows the correlation between wage growth at the 10th percentile (ie very low paid workers) and the proportion of migrants from the new EU member states at local authority level. As you can see, it’s hard to see any link between the number of migrants in an area and wage depression.

Wage growth

Concerns about wage depression must also be offset against the benefits migrants bring in terms of the social welfare pot. A 2009 study found that A8 immigrants – that is those from the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovenia, Slovakia, and Poland – paid 37 per cent more in direct or indirect taxes than they received in public goods and services.

Another study, carried out by researchers at UCL, found that new migrants were 60 per cent less likely than natives to receive state benefits or tax credits, and 58 per cent less likely to live in social housing.

Overall in 2008/9 migrants contributed 0.96 per cent of total tax receipts and accounted for only 0.6 per cent of total expenditures

Of course, low wages should be a concern for all progressives, and we should not shy away from talking about immigration and objectively assessing its costs/benefits.

However considering the paucity of evidence suggesting migration depressed “the wages and job chances of working-class Britons”, there are far more pressing concerns such as ensuring minimum wage legislation is enforced and where possible that employers pay a living wage.

Fear-mongering implying that immigration under the last government was in any way a serious problem or worse “out of control” should simply be ignored: the figures don’t support such concerns.

 

40 Responses to “Did immigration really ‘depress the wages and job chances of working-class Britons’?”

  1. Richas

    Good article.

    The impact of the minimum wage and tax credits should also be mentioned. Enforcing and increasing the minimum wage plus increasing working tax credits for those with kids higher up the income scale was highly redistributive. These measures certainly helped the low paid.

    This excellent article shows how much government redistribution helped the poor, including the low paid:
    //www.leftfootforward.org/2010/03/labours-robin-hood-legacy/

    This is the IFS presentation:
    //www.ifs.org.uk/budgets/budget2010/browne.pdf

  2. OldLb

    Of course it does.

    For a start, someone has to pay for Abu Hamzah. He’s a migrant. He’s good for the UK according to Labour. All migrants are good, so we have to let them in.

    What you’ve missed is that with the average government spend per person being 11K a year, a single (no dependents) migrant needs to be on over 40K a year, or they are taking money from other people, including those on min wage.

    Now why would you omit the subsidy and the spending of people’s pension contributions from the analysis?

  3. OldLb

    But you have missed out the biggy. Pensions.

    For a 26K a year worker, if they had invested their NI over 40 years in the FTSE (risky) they would have a fund of nearly 600,000 pounds.

    The safe option was the state. So how much do they give back? State pension costs less than 130K (from a profit making company).

    You’ve redistributed 470,000 pounds from someone who can hardly be described as rich.

    You’ve made them poor

  4. Cole

    What a crass, cheap and stupid comment about Abu Hamzah. As for LB’s figures,who knows what on earth he’s burbling on about?

  5. justsaying

    I personally would like newer figures/research, alot of have changed since those studies and therefore i think those figures are not relevant to 2013

  6. blarg1987

    You have just entioned it is risky, no doubt if the goverment had done that and it all went belly up you would argue wjy did the goverment waste this persons money on the stock market when itt was a risk and so we have to pay more tax to cover it, correct me if I am wrong?

  7. blarg1987

    I think one thing that should be looked at is skills requirement, as their have been many stories about bus drivers and store manager jobs being advertiesed abroad instead of the Uk, without saying what the wage package is. The argument giving is need experienced staff etc. Whats should happen is that employers have to prove they have explored all avenues before going abroad to look for labour including increasing the salary. If they truly need the labour then they are willing to pay for it properly :).

  8. OldLb

    Is it?

    What about Abramovitch? Good for the UK? Spends lots of cash he. I’d put him in the welcome set.

    Abu Hamzah, I wouldn’t.

    Somewhere between the two, there is a line. Those above are good for the UK. Those below aren’t.

    11K a year.

    Take total spending and divide it by UK population. That gives you a spend per head.

    If you want to know what you have to earn, to pay more tax than the cost of supporting them, you need a tax calculator.

    This one is accurate

    //listentotaxman.com/

    Try thinking for yourself.

  9. OldLb

    Define risk.

    One where with 100 certainty, you get 20% of what you have paid in.

    Or the other, where you would need a 80% fall in the FTSE to end up in just a bad a place.

    You’ve got a very weird view of risk if you think a 20% payout isn’t risky.

    [PS it was a sarcastic statement about being safe. They have already started the default if you haven’t noticed]

    Let people invest their own money, and get 500% more. If you are worried about risk, offer a guarantee for 20%, if and only if you run out. It’s dirt cheap, because its not going to ever be evoked unless you are a Philpott of this world.

  10. Ash

    “Somewhere between the two, there is a line. Those above are good for the UK. Those below aren’t.

    11K a year.”

    Two glaring problems with this:

    One: that’s the *average* spend per person. It’s skewed upwards by the much higher spend on people who are more heavily reliant on public services and benefits – roughly speaking, people who are too young, too old, or too sick/disabled to work. (If you’re in school or claiming a pension, that’s £6,000 a year being spent on you even before you account for child-focused benefits/tax credits and age-related health and social care. If you’re a working-age adult in good health – as most immigrants are – the ‘net contributor’ line is going to be far lower.)

    Two: you’re assuming that each worker receives, in cash, the full fruits of his labour, so that the only way to tax the value of what he produces is to tax his personal income. That’s not right; only 50-odd percent of what we collectively produce is paid out in the form of wages, but that doesn’t mean none of the other 40-odd percent adds (directly or indirectly, e.g. through investment) to tax revenues.

    In the crudest terms, if I produce widgets to the vaue of £40,000 and my employer pays me £25,000 and takes £15,000 profit for himself, the contribution I’m making to the national coffers is not just whatever tax I pay on my £25,000 salary; it’s that plus whatever tax my employer pays on his £15,000 profit. Then there are knock-on effects to take into account – e.g. if my employer invests £1,000 of the profits I generate for him this year in a new widgetmaker that enables me to produce 10% more widgets per day next year, his profits will rise and so will the net contribution I make (indirectly) to the tax system (even if he freezes my salary).

  11. Ash

    “Somewhere between the two, there is a line. Those above are good for the UK. Those below aren’t.

    11K a year.”

    Two glaring problems with this:

    One: that’s the *average* spend per person. It’s skewed upwards by the much higher spend on people who are more heavily reliant on public services and benefits – roughly speaking, people who are too young, too old, or too sick/disabled to work. (If you’re in school or claiming a pension, that’s £6,000 a year being spent on you even before you account for child-focused benefits/tax credits and age-related health and social care. If you’re a working-age adult in good health – as most immigrants are – the ‘net contributor’ line is going to be far lower.)

    Two: you’re assuming that each worker receives, in cash, the full fruits of his labour, so that the only way to tax the value of what he produces is to tax his personal income. That’s not right; only 50-odd percent of what we collectively produce is paid out in the form of wages, but that doesn’t mean none of the other 40-odd percent adds (directly or indirectly, e.g. through investment) to tax revenues.

    In the crudest terms, if I produce widgets to the vaue of £40,000 and my employer pays me £25,000 and takes £15,000 profit for himself, the contribution I’m making to the national coffers is not just whatever tax I pay on my £25,000 salary; it’s that plus whatever tax my employer pays on his £15,000 profit. Then there are knock-on effects to take into account – e.g. if my employer invests £1,000 of the profits I generate for him this year in a new widgetmaker that enables me to produce 10% more widgets per day next year, his profits will rise and so will the net contribution I make (indirectly) to the tax system (even if he freezes my salary).

  12. LB

    Well, that’s one possible test. However, it’s not the best.

    I’m in favour of saying a migrant has to pay more tax than the average government spend. That way its absolutely clear that migrants are not a burden on others. They pay their way.

    Enforced via the tax system, which is already in place, it means its a cost effective test.

    Only addition what do you do for the first, say, 5 years? I would say that you pay the tax up front, or your company enters into a bond to pay it.

    That means no benefits. No one else has to pay for migrants to live and work in the UK. It restricts low skilled migration, because that goes with low wages.

    For those on benefits, that means their low skills become more valuable and in demand. They get jobs and wages for the low skilled go up. The benefits bill goes down.

    For property, low skilled migrants leaving means more cheap housing available to deal with any housing shortage at very low cost.

    Ah yes, we have to have migrants here because of the EU. That’s a lie. Freedom of movement of goods and services, people and capital. Except that Cyprus has just torn up the freedom of movement of capital because Germany told them to steal people’s money. That means the freedom of movement of people isn’t sacrosanct.

  13. LB

    Question. As a guess I would say your on over 26K a year.

    How do you feel about a loss of well over 430,000 pounds from your pension?

  14. domestic extremist

    “Fear-mongering implying that immigration under the last government was in any way a serious problem or worse “out of control” should simply be ignored.”

    Correct me if I’m wrong, but as EU citizens have the right to move around the Union at will, how could that aspect of immigration be anything but beyond the control of national governments?

  15. Tom Walker

    “The first misunderstanding here is that the economy has a fixed number of jobs, sometimes known as the ‘lump of labour’ fallacy.”

    How pathetic that a self-described “Left” blog should be parroting the dumbed-down version of Say’s Law.

  16. Richas

    You seem to think that all NI is pensions. it ain’t. Indeed your comment is evidence that you have no idea of the issue at hand.

    It turns out that the Labour government was also hugely redistributive towards poor pensioners via the tax credit, with a bout a million taken out of poverty but instead you propose a fantasy investment that matches FTSE returns and has no charges made up of money needed for other things like unemployment benefit, the NHS, DLA., IB and other insurance based outcomes paid for by NI.

    If you must troll please try to raise your game.

  17. Richas

    Oh please stop playing silly games.

    Your figures are based on someone earning above average full time wage today, and that same wage for the past 40 years and also ignore that NI is not all pensions.

    Please stop putting up childlike arguments re pensions.

    A core sate pension is an important starting point, please don’t pretend it is a rip off for pensioners, it just plain ain’t.

  18. Tom Walker

    Here is how Mr. Bloodworth improved on one of his source’s unsatisfactorily ambiguous result:

    “A 2008 study found that an increase in the number of migrants corresponding to one percent of the UK-born working-age population in the years 1997-2005 resulted in an increase in average wages of 0.2 to 0.3 percent.”

    Here is what the source (Ruhs and Vargas-Silva) actually wrote:

    “Dustmann, Frattini and Preston (2008) find that an increase in the number of migrants corresponding to one percent of the UK-born working-age population resulted in an increase in average wages of 0.2 to 0.3 percent. Another study, for the period 2000-2007, found that a one percentage point increase in the share of migrants in the UK’s working-age population lowers the average wage by 0.3 percent (Reed and Latorre 2009). These studies, which relate to different time periods, thus reach opposing conclusions but they agree that the effects of immigration on averages wages are relatively small.”

    Notice the “These studies reach opposing conclusions”? Mr. Bloodworth apparently either didn’t notice or didn’t think it was relevant to the point he was trying to make.

  19. Tom Walker

    What’s this? I posted the inconvenient part of the “2008 study” that Bloodsworth left out and my comment has disappeared.

    “Another study, for the period 2000-2007, found that a one percentage point increase in the share of migrants in the UK’s working-age population lowers the average wage by 0.3 percent (Reed and Latorre 2009). These studies, which relate to different time periods, thus reach opposing conclusions but they agree that the effects of immigration on averages wages are relatively small.”

  20. Tom Walker

    What’s this? I posted the inconvenient part of the “2008 study” that Bloodsworth left out and my comment has disappeared.

    “Another study, for the period 2000-2007, found that a one percentage point increase in the share of migrants in the UK’s working-age population lowers the average wage by 0.3 percent (Reed and Latorre 2009). These studies, which relate to different time periods, thus reach opposing conclusions but they agree that the effects of immigration on averages wages are relatively small.”

  21. Tom Walker

    And then I deleted the comment (above) when my original comment (below) re-appeared. But there it is.

  22. Tom Walker

    And then I deleted the comment (above) when my original comment (below) re-appeared. But there it is.

  23. Tom Walker

    And then I deleted the comment (above) when my original comment (below) re-appeared. But there it is.

  24. Tom Walker

    And then I deleted the comment (above) when my original comment (below) re-appeared. But there it is.

  25. blarg1987

    Nope and well I would not be happy, but that is a risk with putting it all in the FTSE is it not?

  26. OldLb

    130K is what you get from the state

    Close to 600,000 from the FTSE.

    The risk is the loss of lots of money, and the risky option is the state.

  27. OldLb

    No. 40 years ago, based on average wage inflation that 26K a year was 700 a year.

    26K is not average wage is median wage. Average wage is much higher.

    When it comes to NI, its bereavement benefit, JSA, max 6 months at a time, for a pittance.

    It’s a rip off. If you were on median wage for each of the 40 years, you would have had nearly 600,000 in the FTSE. The state pension costs less than 130,000 from a profit making private company.

    If you want to disprove me, put up a spreadsheet showing what you would have got for all your NI contributions made in your name.

    You will be quite shocked. I suspect however you won’t do it for fear of being proved wrong.

    That loss has gone on the Philpotts of this world.

  28. OldLb

    It is redistrubutative.

    Those on 26K a year have lost 15K a year, indexed linked off their pensions because it has gone to other people.

    1. NI is not for the NHS. It does not entitle you to any NHS services.

    The money may have gone there but then that is just the same as taxing your pension contributions.

    The lost still remains hundreds of thousands of pounds lost.

    2. You’ve missed off JSA. However that’s a small amount for just 6 months. It doesn’t affect the matter.

    Put up your own numbers. You might educate yourself.

  29. Richas

    You are just making this up.

    Nobodies working life is 40 years full time at the average wage. Income varies over people’s lifetime. NI contributions are not all pension contributions. You can work out what the pension element of NI is by looking at class 3 contributions.

    Here is a PDF table of what they cost for each year – for 2006/7 it is £13.25 a week or £689 for the year.

    //www.pensionsadvisoryservice.o…%202012-13.pdf

    The basic state pension is currently £107.45 p/wk and they are talking about taking it to £140 p/wk at today’s prices. It is also index linked to the higher of 2% or CPI or average earnings so as prices go up or earnings rise the state pension rises. Making up the contributions if you are below the 30 buys you 1/30 of £140 a week or £7280 a year for EVERY year beyond retirement (plus indexation).

    140/30=4.66 so even without the indexation if you live for 3 years into retirement the one years contribution is paid back to you.

    Providing a state pension and pension credits is great value for the low paid, it is redistributive so please stop being silly and pretending every penny of NI is for pensions not health, disability benefits, unemployment benefits, maternity pay and a host of other items and a bit to pensions.

    Also please don’t assume that the FTSE returns of the past 40 years are achieved now and finally just where are you getting that indexed annuity for £7280 for £130k, that’s 5.6% close to the unindexed annuity rate but unachievable with even just CPI indexation.

    To sum up you use a series of false assumptions that mean your figures are nonsense (the error estimate is in brackets)
    include NI that is not pension related (60%+)
    use 40 years not 30 (33%)
    ignore real lifetime earnings patterns (unknown but likely 25%+)
    assume FTSE returns similar to the high inflation and high interest rate past (unknown but big)
    falsely use a flat rate annuity to value the state pension (about 45%)
    ignore pension and investment charges on a private pension (about 45%)
    ignore that most investment managers underperform the index (about 10%)

    and frankly I don’t see why. We have had private index linked contribution based pensions since the 1980s and they have been an unmitigated disaster of misselling, high charges and terrible returns. Just who do you think you can kid on here by pretending that the basic state provision is a rip off compared to that?

  30. OldLb

    You’re being a tad decieptful. Why pick class 3? Why not look at all the NI?

    [PS, I bet you will try and claim that no-one pays VAT because companies pay VAT for you as an angle]

    //listentotaxman.com/index.php

    26K.

    Total NI paid – 2,190.24 + 2,525.95 =4716.19

    That’s for a median wage earner.

    18.14% of wages going in NI

    You are wrong on the indexation. It’s the max of wage inflation, CPI, or 2.5%.

    So 40 years ago, on 700 a year, that’s 127 quid going into the FTSE. You make or lose on the capital. You get some dividends.

    Next year, your wages go up or down in line with average wages (there isn’t a median wage index that I’ve been able to find). Repeat and add to the fund.

    So do the analysis for a median wage earner, rather than trying to cherry picking a winner.

    You could even do the analysis for someone on min wage to see if they would be better off.

  31. Richas

    You’re being a tad decieptful. Why pick class 3? Why not look at all the NI?

    I took the price for the pension benefit. I would have thought a free market guy like yourself could see no other option but using the price.

    It is your entirely false premise that all NI is for pensions and you also use an entirely false model for your fictional charge free private pension. Anyway I am done with this, if you want to pretend that private contribution based pensions are great, go ahead, we have real world experience that shows that they are not, meanwhile the state pension is a core element of pensioner incomes.which costs billions. It is not poor value for pensioners but deep down you know that, you are just anti state provision of pensions regardless of the fact that it is needed and has been running since 1905 and every advanced industrialised country has a state pension..

  32. OldLb

    I’m not being deciptful.

    The problem is with you assertion is that most people pay class 3. They don’t They pay NI as part of PAY, they employers have to pay more for them on top. That makes the cost of their pension far more that just class 3.

    =========

    It is your entirely false premise that all NI is for pensions

    =========

    No its not. The problem is that unless you know what you have lost from a funded scheme, compare to the state unfunded scheme, you can’t tell the cost of these extras to see if that cost is a reasonable one.

    I’m quite aware that NI does go for other things like bereavement benefit. I’m also aware that it doesn’t go the NHS, because there is no connection between NI and the NHS access. It’s also what the government says on its own websites.

    ==========
    very advanced industrialised country has a state pension..

    ==========

    And most are bankrupt as a result. 5,300 bn of debt in the UK hidden off the books.

    250,000 per worker of debt.

  33. OldLb

    No, its not the risk with the FTSE.

    That is the risk with the state. It is what you have already lost. It’s gone. No chance of getting it back. In fact you are going to lose even more, because they have hidden that debt off their books.

    Total government debt per taxpayer, 250,000 pounds.

  34. OldLb

    Here’s a reasonable set of questions.

    1. Is the state pension value for money?

    2. From NI contributions, how much gets diverted/redistributed/siphoned off to other people?

    3. For the other things that NI provide, what’s the cost?

    4. Would people have been better off under a funded scheme, and if so by how much?

    5. What’s the true extent of what the state owes for its pensions?

    6. What are the chances of those promises being met?

    7. How much do people lose by changes to the pension? eg. 1 year on retirement age?

    8. Ditto for the RPI CPI change.

    9. Given the size of the debt, how will future defaults on the promises be implemented?

    10. When will it tip and the state can’t pay?

    11. What effects will a cap on over all benefit spending have on pensions?

    12. Will the young accept being milked?

    13. Will the pensioners cut off welfare to others to preserve their pensions

    14. 110 -> 144 a week. How much extra debt does that generate?

    15. Who has won and who has lost, and if so by how much?

    16. A collapse of pensions. What impact on the welfare state?

    17. Accounting fraud. What excuses will MPs come up with?

  35. OldLb

    obodies working life is 40 years full time at the average wage. Income varies over people’s lifetime. NI contributions are not all pension …

    ===========

    It does vary.

    Some of the time they earn less. Some of the time they earn more. On average, they earn exactly the average.

    I think you’re having a bit of a George Bush moment. e.g. 50% of school kids are below average and something must be done about.

    If you don’t get the joke and why its an idiotic question to ask, ask away.

  36. blarg1987

    Can we see the raw data to see the 600,K and how much would people have to pout in and over what periodd of time add to that inflation as well as devaluation and bubbles, plus company liquidations (the computer industry in the 80’s) etc plus you can’t say if it was all invested in appl shares as that is hindsight.

  37. LB

    //docs.google.com/spreadsheet/ccc?key=0AvnR4AGFSHkocEh3N2FreUtzUnpJbkUtXzdNNDktRlE&usp=sharing

    It’s based on out of date numbers. FTSE is higher since it was updated.

    I also notice today, that the ONS has published some figures for the cost of the state pension. That’s risen since (Gilt rates down)

    I’ll get an update together when I’ve some time.

  38. LB

    Updated with the latest FTSE all share.

    604,000 quid.

    Annuity rates updated.

    //www.guardian.co.uk/money/2013/apr/23/falling-annuity-rates-cost-retirement

    The Office for National Statistics says a man reaching state retirement age in March 2013 will need a pension pot worth £152,800 to buy an annuity paying out £5,000 for the rest of his life, up from £118,000 in December 2009.

  39. blarg1987

    Looking through your data their have been periods where their has been in fall notably late 90’s early 00’s. Now I accept overall the FTSE has gone up, but it is also of note that it has gone down, so it is not accurate to say people have lost 430K, add to that the factures such as fund managrs taking part of the fund as well s a such a large investor still buying in even if stovks keep falling will not necessarily mean that it will be succesful or the yield be as high as you suggest.

  40. LB

    I’ve no doubt. However you can look at what’s called maximum drawdown. What’s the worst percentage loss that the fund has suffered.

    You then take that percentage, and apply it to the 604,000 fund. Now you compare that against the cost of the state pension.

    It turns out that the state pension a rotten deal compared to the funded approach.

    In practice, the solution in retirement is drawdown. You go into drawdown. If, and only if the money runs out does the tax payer help. I accept there will be a section of society, such as the disabled from a young age that will need help.

    For the poor, this is a far better deal than redistribution. The reason is compound interest. There isn’t any with the state, and that is why its such bad value.

    For poor, who also die young, I suggest that any remaining fund goes to their heir’s fund. That makes them richer.

    Having a fund, means that rather than the paltry 2 billion of investment proposed by Osbourne, there is 80-100 bn of investment. That has huge knock ons for those not working.

    On the fund managers, cut them out. Cap the level of charges. With large sums, the charges can be very low. It’s very simple. Do you want to invest the cash? On funds of this sort of size, 0.1% per annum is achievable.

    As for the losses, they have lost 450,000 quid. It’s gone. That pushes them into poverty.

    If the stocks fall and fall and fall, it means the economy is completely screwed. That means no tax. It means the state pension is completely screwed too.

    What this also means is that it is in the interest of the public sector to not screw the private, or they kiss their pension good bye.

    So what are your figures? I’ve posted mine. You can check them,.

    It shows that the risk is the state. They give back 25% of the value of what has been paid in.

    1. Is the 450,000 worth the cost of a 2K payout, if you are under 65, in bereavement benefit? Clearly not. A 2K insurance policy is dirt cheap.

    2. Is it worth JSA? Again clearly not. 6 months of 71.70, and then being locked out of claiming until you’ve worked again for a period.

    //www.gov.uk/jobseekers-allowance/what-youll-get

    So my conclusion is that the difference has been subverted for other purposes.

    That has exactly the same effect as a huge tax on pension contributions. [Taken at the start] ,

    That makes people poor.

    On top you’ve got the next problem. All the state pensions, civil service included etc, has a present value of 5,300 bn. Taxes only raise 550 bn, and people want services other than pensions for other people.

    2005-2010, that debt went up by 736 bn a year.

    Your unlikely to even get the 5,100 a year state pension.

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