Download The Economic Impacts of Migration on the UK Labour Market

The Economic Impacts of Migration on the UK
Labour Market
Howard Reed
Landman Economics and ippr
20 May 2009
Introduction
Foreign born as % of UK
workforce
Over the last 10 years, net inward migration to the UK has increased
12
10
8
6
4
2
0
2001
2002
2003
2004
year
2005
2006
2007
Introduction
At the same time, immigration has become
one of the leading public issues in the UK
e.g. Ipsos/MORI poll on ‘the most important issues
facing Britain today’: % of respondents who named
immigration as one of the four most important
issues:
1998: 6%
2003: 27%
2008: 42%
2009: 29% (overtaken by concern about economy)
Introduction
Right-wing populism
•
•
Newspapers (e.g. Daily Mail, Daily Express)
Anti-migration pressure groups (Migration Watch)
Argue that migration is reducing wages and
employment prospects of UK-born workers
Particular focus on immigrants from EU accession
countries (Poland etc.) – UK allowed free movement
to 2004 accession countries’ workers
Introduction
Recession has intensified the debate
e.g. Protests at power stations, January 2009:
“British jobs for British workers”
(a phrase previously used by British Prime
Minister Gordon Brown...)
Economic theory
Theoretical impact of migrants on wages
and employment is unclear
• Predictions that migrants will lower wages
and displace existing workers from
employment tend to be grounded in
simplistic models of the labour market, e.g.:
–
–
–
–
Fixed number of jobs
Labour supply shifting without demand shifting
Short-run response examined only
Constant price differentials between UK and
‘sending’ countries (e.g. Accession countries)
Economic theory
Whereas, in economic models with more
realistic features, things are more complex:
– Economy is flexible and number of jobs adjusts to
demand
– Long-run response includes changes in capital
stock as well as labour market
– Price levels between accession countries and UK
narrowing over time
– Migrants possibly exploited, in the informal sector
of the economy
• Overall, no strong prediction either way – too
many conflicting factors
Existing empirical evidence
Wage effects – UK evidence
• Recent papers: Dustmann et al (2008),
Manacorda et al (2006)
• Either no effects or very small positive
effects of migration on wages overall
• (small) negative effects on certain groups of
workers:
– The low paid
– Existing immigrants
• Fits with OECD evidence – de Longhi (2005)
Existing empirical evidence
Employment effects – UK evidence
• Dustmann, Fabbri and Preston (2005)
• Lemos and Portes (2008)
• No evidence of an adverse impact of
increased migration on employment of
workers already in UK
• Fits with evidence from OECD countries
(Jean and Jiminez, 2007)
Methodological problems
•
Empirical work on migration effects tries to construct
the ‘counterfactual’ – what outcomes for workers in
the UK would have been in the absence of
migration.
• Divide labour market into geographical areas which
experience different amounts of migration; wages
and employment levels compared across these.
• But this is not a good ‘identification strategy’:
– Immigrants are likely to ‘self-select’ into areas
where jobs are available.
• Can divide labour market by education or occupation
instead but many migrants are ‘downskilled’ into jobs
which do not utilise their full qualifications.
Our empirical work
•
•
•
Uses UK Labour Force Survey (about 60,000
households per quarter) and administrative data (at
local level)
Based on data from 2000 to 2007
Descriptive statistics and regression analysis
Wage trends in the UK:
migrants and UK-born
Gross hourly pay median by country of birth and age when left full time
education, 2000-2007
Gross hourly pay median,( 2007=1)
£16
£14
£12
£10
£8
£6
£4
2000
2001
2002
UK born 16 or under
Foreign born 16 or under
Source: LFS and ippr calculations
2003
2004
UK born 17-19
Foreign born 17-19
2005
2006
UK born 20+
Foreign born 20+
2007
Employment trends in the UK:
migrants and UK-born
Employed as % of population of working age
Employment rate by country of birth and age when left full time education,
2000-2007
100%
90%
80%
70%
60%
50%
40%
2000
2001
2002
UK born 16 or under
Foreign born 16 or under
Source: LFS and ippr calculations
2003
2004
UK born 17-19
Foreign born 17-19
2005
2006
UK born 20+
Foreign born 20+
2007
New migrants and wage trends
at local level
Foreign nationals National Insurance Number applications vs gross hourly
pay median increase by local authority, 2007
Annual percentage gross hourly pay
median change between 2006-2007
50
40
30
20
R2 = 0.0014
10
0
-10
-20
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
National Insurance Number Applications as % of population of working age
Source: DWP and NOMIS
New migrants and employment
trends at local level
Foreign nationals National Insurance Number applications vs employment
rate increase by local authority, 2007
Annual percentage employment rate
change between 2006-2007
35
30
25
20
15
R2 = 0.0311
10
5
0
-5
-10
-15
-20
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
National Insurance Number Applications as % of population of working age
Source: DWP and NOMIS
Evidence from regression
Effect of migration on wages in UK
Data: UK Labour Force Survey
Time period: 2000-2007
‘Cell’ level: occupation/region
Control variables:
• Education levels in each cell (proportions at different
levels)
• Average age of UK-born and foreign workers in
working age population
Equation estimated in first differences
Evidence from regression
Results
• A 1 percentage point increase in migrants as
a share of the workforce is associated with a
decrease in wages of around 0.3 per cent.
• Over the period 2000-07, migrants increased
from about 8% to 11% of UK workforce
• Therefore (if this result is reliable) wages
have fallen by about 1% due to increased
migration
New empirical evidence
Checking the results
• Previous work by Dustmann, Frattini and
Preston (2008) shows a small positive
impact of migration on wages.
• Why the discrepancy?
• When we run Dustmann et al’s model on the
more recent data (2000-07 instead of 19972005) we get very similar results to ours (i.e.
a small negative effect)
Conclusions
Economic theory suggests that it is unlikely increased
migration into the UK will have a substantial
negative impact on either wages or employment in
the UK in aggregate.
Empirical evidence backs this up. The effects of
migration on wages (using the most recent data)
seem to be negative, but very small. Effects on
employment appear to be negligible.
The view of several UK newspapers that migrants ‘take
our jobs’ and ‘cut our pay’ is almost completely
misplaced.
Conclusions
Two important qualifications:
1. Data used for this research predates the
recent economic downturn.
2. This work looks at aggregate labour market
effects – there might be more serious local
effects, particularly in the short run. (But the
UK data are not good enough to analyse
this).
The Economic Impacts of Migration on the UK
Labour Market
Howard Reed
Landman Economics and ippr
20 May 2009