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BRITISH IMMIGRATION POLICY AND WORK
David Metcalf
December 2009
Chair, Migration Advisory Committee
and
London School of Economics
www.ukba.homeoffice.gov.uk/mac
CONTENT
1. Context
immigration stock
immigration flows
2. Labour market impact
labour market impact of immigration
how recession alters labour market impact
3. Points Based System
points based system
why skilled workers?
4. Migration Advisory Committee
MAC
tier 1: supply-side
tier 2: RLMT, ICT, shortage; demand-side
accession countries: method and policy
5. Discussion
Stock: share of immigrants (foreign-born) in the UK
working-age population, 1979 – 2008
% of foreign born in UK population
14
13
12
11
10
9
8
7
6
5
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1981
1979
•13% of working age population born outside the UK; corresponding figure for OECD is 12%, world
is 3%
•68% of stock of immigrants born outside EEA
•employment rate of UK born is 74% compared to 68% for non-UK born.
Note: Rate describes working-age population. Immigrants are defined as foreign born individuals.
The per cent is calculated by dividing the foreign born working-age population by the total UK
working-age population. The data are the average of the four quarters for each year.
Source: Labour Force Survey 1979-2008
Flows of long-term migrants to and from the UK
Flows of long-term migrants to and from the UK,
1991-2008
Balance by country of birth, Sept
2007 - Sept 2008
150
800
Balance
Inflow
100
Outflow
-200
Other foreign
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
2007
Mar
Jun
Sept
Dec
2008
Commonwealth
UK
-50
0
A8
0
200
EU15
50
400
1991
Number of migrants (000s)
600
-100
Note: long-term migration is defined in the survey as those intending to change their place of residence
for a year or more. This definition includes all nationalities and countries of birth, including the UK.
Source: International Passenger Survey, 1991-2008, published by ONS.
Flows 2008
• Inflows, outflows, net (all
nationalities)
Inflow
Outflow
Net
• Inflow by nationality
British
Foreign
Total
Total
thousands
Work related
thousands
512
395
+118
202
209
-7
Thousands
%
71
440
512
14
84
100
Flows 2008 (continued)
•
Inflow by reason (all
nationalities)
Work-related
Study
Dependants
Other/no
reason
Total
NB: Work-related only 2-in-5
•
NiNo’s
NI numbers issued to non-UK nationals
year ending March 2009
686 000
change Mar 08 – Mar 09
- 6%
•
Workers Registration Scheme
(A8)
year ending June 2009
change June 08 – June 09
116 000
-42%
Thousands
%
202
160
79
71
40
31
15
14
512
100
Balance of non-EU nationals by reason
for migration, 1991 – 2007
120
Definite job
Looking for work
Accompany/join
Formal study
Other
Net inflows (thousands)
100
80
60
40
20
0
-20
1991
1993
1995
1997
1999
2001
2003
2005
2007
-40
Note: The figures describe the balance of non-EU nationals intending to change their place of
residence for a year or more. For 1995, those looking for work were not recorded separately
from ‘Other reasons’.
Source: International Passenger Survey 1991-2007, published by Office for National Statistics
Labour market impact of immigration
a.
Introduction
•
Most adjustments focus on employment and pay (i.e. factor prices) of natives;
but there are 2 other adjustment mechanisms:
composition of output, e.g. ethnic restaurants, A8 gardeners
production technology, e.g. labour intensive flower picking.
•
The studies have to deal with the no counterfactual problem
they study pay change or employment change before/after immigration
but really should compare such changes with what would have happened with no
immigration
the missing counterfactual is dealt with by identification assumptions
e.g. slice LM into areas which do/do not experience immigration
but immigrants choose where to go, e.g. to region with higher growth in pay
then get spurious positive association: immigration causes pay growth
overcome this problem using instruments OR
might slice by occupation/skill/age
b. Employment and unemployment
• Lump of labour fallacy: aggregate number of jobs is not fixed so there is no one-for-one displacement
e.g. consider baby boom cohorts
if number of jobs fixed, when they entered LM unemployment would rise. Did not happen. Instead
employment rose.
• Unemployment
Portes and Lemos, 2004-06
A8 influx, inflow >500 000
409 districts (study builds on two similar previous studies)
no association between immigrant inflow and rise in claimant unemployment
this holds even for possibly vulnerable groups, such as younger workers or the lower skilled
• Employment
Gilpin 2006
1% point increase in share of migrants in working population (approx. 300 000) would cut employment of
people of working age already in UK by 6 000.
Tiny impact.
But need also to analyse specific occupations
e.g. IT, possibly indirect displacement via intra-company transfers
c. Pay
• Real
wage level, average impact
Dustman (up to 2005) small positive, e.g. because of:
- immigration surplus
- immigrants paid less than MP and surplus captured by
natives
IPPR (up to 2007) small negative: A8 non-complementarity?
specific occupation, e.g. impact of intra-company transfers on IT
sector pay
Wadsworth: biggest impact possibly on previous immigrants
• Distribution
of pay
Dustman: gains at top of distribution, losses at bottom
Nickell: clear tradeoff between immigration and pay in less skilled occupations,
e.g. care homes
Portes: A8, 2004-06, >500 000 mainly less skilled jobs – no wage effect because
less skilled protected by NMW
PBS emphasises skilled immigration. This presumably lowers skilled relative pay
cf what would otherwise have been
if supply of capital not perfectly elastic some of the immigration surplus will go to
capital, impacting on distribution between pay and profits
• Wage
inflation Bank of England (up to 2007)
immigration reduces the NAIRU due to adjustments in labour and product markets
and fear of displacement
d. Skills
• Short term – composition effect
e.g. A8 relatively well educated but substantial occupation downgrading
• Longer term – complementarities and incentives
much more complicated to model and assess
e. Population
• ONS projections state 4 million plus increase to 65.6 million over ten year period up to 2018
• Over two thirds of this is due to net immigration and higher fertility rates of immigrants
• But ONS use 2008 net immigration figure of 180 000
peculiar – true figure is 118 000
so projections much too high
f. Conclusion
• little impact on natives pay/jobs in short run
• Plausible that LR impact good, e.g. skill complementarities, dynamic benefits, but hard to get firm
evidence
How labour market impact alters with recession
a. Employment and unemployment
•
Does immigration help to smooth the economic cycle?
- amplitude of immigrant unemployment was greater than native unemployment, but not
2008-09
- return migration?
- Migration Policy Institute states A8 inflow
employment motivated
no visa (can return later)
no family ties
network important – no jobs to report back
•
Adverse impacts: displacement
Is ‘lump of labour’ fallacy less of a fallacy?
- EU, no controls, less skilled, some displacement?
- RoW – skilled, probably less displacement (but ICTs?)
•
Types of labour shortage
- cyclical, e.g. civil engineers, quantity surveyors
- structural: insufficient training, e.g. some medical consultancies
- publicly funded, e.g. senior care workers, NHS pharmacists
- global excellence, e.g. ballet dancers
b. Wage pressures and levels
• Migration previously reduced NAIRU due to adjustment of
product/labour market and fear of displacement (BoE). But
not so important in recession.
• If capital not perfectly elastic, possible negative impact on
native pay
c. Externalities
• Productivity, little change, no reason to tighten
• Congestion lower, no reason to tighten
d. PBS
• Automatic stabiliser rather than continued recalibration
UK policy on labour immigration
Points Based System (PBS)
•
•
•
•
•
Tier 1 Highly skilled individuals to contribute to growth and productivity
(supply-side)
Tier 2 Skilled workers with a job offer to fill gaps in the UK labour force
(demand-side)
Tier 3 Low skilled workers to fill specific temporary labour shortages
(suspended)
Tier 4 Students
Tier 5 Youth and temporary: people coming to UK to satisfy primarily noneconomic objectives.
Note:
•
•
•
•
•
PBS involves: (i) numbers or scale; (ii) selection or composition; (iii) rights,
e.g. extensions, ILR
Re (i): Tiers 1 (highly skilled) and 2 (skilled) have no cap/quota; Tier 3 set at
zero
Re (ii): focus on skilled workers
Re (iii): migrant initially admitted temporarily
Important to consider (i) inflow and (ii) duration of stay. These two factors
determine stock of immigrants.
Why Skilled Workers?
•
What are the economic objectives of labour market immigration policy?
maximise gain to natives
minimise adverse distributional impact on lower paid
•
Greater complementarity with
capital, e.g. skill-biased technical change
other labour
therefore larger potential ‘immigration surplus’
[efficiency]
•
Dynamic effect: over time productivity up
raise other workers productivity (externality)
innovation (spill over)
•
Stronger net fiscal contribution
less likely to be unemployed than unskilled
pay more in taxes
•
Larger supply of skilled/qualified workers leads to more equal pay
distribution [equity]
Migration Advisory Committee (MAC)
•
•
•
•
•
Independent Committee: 5 economists, small secretariat
Examined
Tier 1: supply side
Tier 2: demand side
EU: Rumania and Bulgaria, A8 registration
Method
evidence based – both top-down and bottom-up
strong interaction with stakeholders
transparent
flexible: government determines work programme
Philosophy
selective immigration (e.g. via PBS) vital
but only positive narrative if:
no undercutting
no displacement
no disincentive to upskill
Not social issues, e.g. health, education, crime (MIF?)
Tier 1
•
•
•
•
Highly Skilled, no job offer required, i.e. supply-side, human capital
emphasised
October 2009 report
General (i.e. from out of country), e.g.:
weighting of points: qualification, age, pay
professional qualifications
higher pay threshold for those with only bachelors degree
salary multipliers
visa 2 years + 3, instead of 3 years + 2
Post study
which colleges/subjects?
why 2 years?
UK graduate unemployment
cross-subsidy to UK students
displacement of less skilled
retrospection
Regarding both the above: what jobs do they do?
Tier 1 (continued)
• Investors/Entrepreneurs
process by which they bring in their money
enforcement e.g. net cf gross job creation
• Keep Tier 1 (cf EU blue card)
• Numbers Sept 2008 to August 2009
Total
86 188
of which
General
58%
PSWR
42%
Investors & entrep.
<1%
Tier 2
Basics
•
•
•
•
•
•
•
Demand-side, employer-led, occupation-based
Skilled, job offer required, 3 year visa plus 2 year extension
Sponsor
Certificate of sponsorship (old Work Permit)
Job title skilled to NQF 3+ (i.e. NVQ 3+)
Pay to be ‘reasonable’ – is no undercutting
Prior entry clearance
Routes: need 70+ points
i. Mandatory
competence in English (level A1)
maintenance requirement (£800)
10 pts
10 pts
shortage occupation
RLMT (35) + pay/qualifications (≥15)
ICT (30) + pay/qualifications (≥20)
50 pts
50 pts
50 pts
ii. Routes
Tier 2 (continued)
•
•
•
July 2009 Report
approx 60 000 in 2009, of which:
- resident labour market test (RLMT)
30%
- intra-company transfers (ICT)
60%
- shortage occupation list
10%
and India
over 50%
Points for qualifications and pay:
required under RLMT and ICT route
Masters degree points raised
pay thresholds raised: £17K - £24K to £20K - £32K
special arrangements for e.g. teachers, nurses
RLMT
retain
advertise for four weeks (up from previous two weeks)
investigate certification
Tier 2 (continued)
•
ICTs
retain
not route to permanent residence
duration with employer up from 6 months to 12 months
discount allowances
•
Compliance and Enforcement
strengthen
ex ante? Not in spirit of trust the sponsor
check displacement/undercutting
•
Fees
raise (from £170) as complement to enforcement?
•
Business visas
– misused?
Tier 2 (continued)
Shortage Occupation Lists
Reports Sept 08, April 09, Sept 09
Top-Down
Indicators
Bottom-Up
Evidence
Skilled
•Occupational hierarchy
•Formal qualifications
•Earnings
•On-the-job training or
experience
•Innate ability
Shortage
•Employer surveys
•Rising earnings
•Vacancies
•Softer labour market
intelligence
•Past/projected trends
Sensible
•Alternatives to
immigrants
•Skills acquisition
•Productivity &
international
competitiveness
•Production technology
•EEA labour supply
•Impact on efforts to seek
alternatives – dependence
on migrants
Tier 2 (continued)
Shortage occupation lists (Results e.g. April 2009)
Whole occupation
Civil engineers
Ships officers
Both removed in September 2009
Subset of skilled occupation
Some specialist medical posts
Maths & science teachers
Skilled ballet dancers
Skilled subset of less skilled
occupation
Skilled sheep shearers
Skilled chefs
Skilled senior care workers
Number of jobs covered by shortage occupation list:
• September 2008
700 000+
• September 2009
500 000-
Tier 2 (continued)
3 hurdles, occupations/jobs where MAC lobbied
• Fail on skill (NVQ 3+), e.g.
chefs, except skilled sub-set
care workers, except senior group
• Fail on shortage
community pharmacists (0/9), no evidence of closure
ships officer, civil engineer, quantity surveyor: previously on
social workers for adults
• Fail on sensible
genetic pathologists: training ceased
land engineer: can get from construction
ships officers: displacement plus disincentive to train UK
officers
future: chefs?
Accession countries: method
• Policy: principle and practice (including possible actions of other EU
countries)
• Context: economy and immigration
• Past experience: A8 experience
• Theory: impact on flows, economic downturn
• Restrictions: Full or partial lifting
• Specific sectors: case for selective, limited, low-skilled
immigration?
Policy for accession countries
• What was the UK’s experience in 2004?
– much larger number than predicted
– lower skilled manual and elementary occupations
– no negative employment impact (but impact on pay?)
– will above hold under a recession?
• Recommend caution: retain restrictions for now
• A2: considered specific sectors (inc agriculture, food processing,
social care)
Discussion
• Regulating scale of immigration and selecting migrant workers
- presently no limit or target
- could have hard quota (say 50 000 Tier 1 or 2) or soft target
(e.g. net work immigration)
- could auction visas, e.g. Tier 2 certificate fee very low
• PBS and other migrant worker admission policies, e.g. does the lack
of cap/quota (tiers 1 and 2) imply effects of immigration largely linear
rather than diminishing returns/increasing costs?
• Managing low-skilled immigration, e.g. social care, agriculture, i.e.
clear trade-off between raising wages or greater immigration
• Is it possible to distinguish in UK system between temporary and
permanent migration? e.g. sector-based schemes (SAWS) and
intra-company transfers
Annex: Recent studies of impact of immigration on pay
Author
Years
Dustman et al 1997 –
(2008)
2005
Observatio
ns
Results
17 regions
1% point increase in share of immigrants in
population:
Pay percentile
%
p per hour
th
5
-0.6
-1
10th
-0.4
-1
50th
+0.7
+1.5
90th
+0.5
+2
(preaccession)
Nickell and
Salaheen
(2008)
1992 2005
25 2-digit
SOC
11 regions
10% point increase in share of immigrants in
population:
Group
Wage %
Average
-0.4 %
Semi/unskilled services
-5.2%
Reed and
Latore (2009)
2001 2007
17 regions
16 1-digit
SOC
1% point increase in share of immigrants in
population associated with decrease in average
wages of 0.3%
Note: All studies: LFS; immigrant is non-UK born; hourly pay; controls include age, skill, time.
Points: 1. Dustman and Nickell: 5th percentile/care workers 5% point increase in immigrant share gives
wage reduction of 18p hour or £7.20 for 40 hour week.
2. Reed (IPPR): note direction now negative. Authors describe it as ‘small’ but 5% point x -0.3 x £10 x
40 hours = -£6.