IMMIGRANTS’ INTEGRATION IN OECD COUNTRIES: DOES LABOUR MARKET

POLICY MATTER?

presented by Orsetta Causa (OECD Economics Department and PSE)

The project

• Provide comparable cross-country estimates of labour market integration of immigrants in OECD countries. Use cross country comparable household panel data.

• Identify labour market policies or institutions most likely to influence labour market integration and hence explain cross country differences in integration

Motivation (1/2)

• Performance gaps between comparable immigrants and natives differ significantly across countries. Cross country comparable estimates are lacking. – Few exceptions: Peracchi and de Palo, 2006;

Buchel and Frick, 2003, Adsera and Chiswick, 2004

Motivation (2/2)

• What drives cross country differences in immigrants labour market integration?

• Premise: Role of History and Migrant related Policies. Migration and integration policies, Migrant specific policies

• Do framework conditions matter? do general labour market policies (LMP) affect immigrants integration? Existing literature is scant on the subject (exception is Antecol et al.2006)

Outline

• The approach

• The Data

• Results by country

• Cross country results: the role of labour market policies

• Conclusions

• Literature has mostly focused on the US (Chiswick, 1978, Borjas, 1985, 1995). Literature on European countries is scarce (see Zimmermann Constant eds. (2004))

• General view on wage gaps: • Immigrants earn less than natives both at entry and

over time (estimated wage diff. in the US average -20% )

• There is a catch up of wages over time• Assimilation through local human capital accumulation, e.g.

language skills (Chiswick and Miller, 1992, 1995), social capital…

Integration. Literature: Main findings (1/2)

• Literature has mostly focused on wage gaps as opposed to employment gap for the US - for European countries the opposite holds

• General view on employment/ unemployment gaps: • In European countries: immigrants display higher risk

of being unemployed, the gap varies across countries (see OECD, 2005, Angrist and Kugler, 2003)

• Immigrants’ search methods are less effective than natives’ (Frijtesr et al. (2005) , Olli Segendorf (2005) )

Integration. Literature: Main findings (2/2)

• The outcome profile estimated form cross sectional data is known to suffer from potential bias• Changes in the unmeasured dimension of skill

(“quality”) of new immigrants cohort.• Return Migration

• Recent research has focused on distinguishing cohort effects from assimilation effects by relying on the synthetic cohort approach (Borjas, 1994)

• Longitudinal data are important because they enable to track individuals across time

Integration. Empirical approach

LMP - Step1: Why would LMP matter?

• Some immigrants’ characteristics- relative to comparable natives- are likely to interact with LMP:– Productivity level - at arrival – Worker-to-job matching capacities – Reservation wage – Bargaining power– Labour market discrimination

LMP – Step2: Imperfect substitutability in a wage bargaining model (Jimeno and Rodriguez-Palenzuela ’s (2002))

• Basic Set up of the model1)Production and Labour demand. Assume Imperfect substitutability

between two homogeneous categories of workers

2) Wage determination by collective bargaining. Assume lower reservation wage and bargaining power for immigrants.

• Predictions:– An increase in the relative bargaining power of natives increases

their relative wage, but also their relative unemployment rate– An increase in the aggregate wage decreases the relative wage

of natives, while increasing the relative unemployment rates of immigrants.

NINIINNI LLwwuuuu lnln)ln(ln1ln1ln

LMP – Step3: Immigrants in a dual labour market (Blanchard

and Landier, 2002)• Basic set up of the model• Assumption: Consider two population, with the immigrant

population being characterized by a lower expected productivity level

• Predictions:-Immigrants are likely to be overrepresented among outsiders on the labour market, as reflected in a higher prevalence of short-term (and presumably low-pay) jobs

- The higher the strictness of the legislation on the use of regular contracts, relative to temporary contracts, the more pronounced immigrants’ overrepresentation among outsiders, and therefore the wider the difference in the share of short-term jobs, and in wages

The Data• 1) EU15 Countries: ECHP DATA• A standardised annual longitudinal survey carried out at the level of the

European union. • The ECHP has reached 7 waves (from 1994 to 2001). • The target population consists of all private households through the

national territory of each country. • The ECHP is based on a common questionnaire centrally designed by

Eurostat.

2) Other OECD countries:• US:- PSID: longitudinal household data (1997-2001)• Australia- HILDA: longitudinal household data (2001-2003)• Canada: SLID: longitudinal household data (1996-2001)

AttritionAttritors individual characteristics, by migration status

Natives Migrant Non-attritor Attritor Ratio Non-attritor Attritor Ratio

Employed2

Germany 0.94 0.94 1.00 0.82 0.86 0.95Denmark 0.95 0.94 1.01 0.83 0.83 1.00Belgium 0.95 0.93 1.02 0.89 0.89 1.00France 0.91 0.85 1.07 0.88 0.75 1.17Italy 0.87 0.88 0.99 0.86 0.86 1.00Spain 0.83 0.82 1.01 0.75 0.77 0.97Portugal 0.96 0.94 1.02 0.94 0.94 1.00Austria 0.97 0.96 1.01 0.93 0.90 1.03Finland 0.90 0.90 1.00 0.83 0.77 1.08Australia 0.95 0.92 1.03 0.93 0.91 1.02US 0.95 0.95 1.00 0.92 0.94 0.98

Wage3

Germany 11.51 10.87 1.06 9.79 8.93 1.10Denmark 13.33 12.04 1.11 12.70 11.88 1.07Belgium 11.90 11.14 1.07 12.01 11.60 1.04France 10.06 9.33 1.08 9.26 8.74 1.06Italy 9.22 9.36 0.99 8.91 8.28 1.08Spain 8.87 8.17 1.09 7.59 7.48 1.01Portugal 5.45 5.46 1.00 6.40 6.01 1.06Austria 10.22 9.67 1.06 9.15 8.25 1.11Finland 9.66 9.50 1.02 10.18 9.84 1.03Australia 19.59 17.91 1.09 21.20 18.93 1.12US 19.28 19.21 1.00 13.63 13.08 1.04

The Framework (1/3)• Analyses differences in activity rates,

employment rates, and wage rates, across comparable immigrants and natives

• Control for human capital and socioeconomic characteristics

• Immigrant specific variable: – Country of birth criterion– Exposure to the country of residence. Due to the

sample characteristics, separate immigrants based on 15 year duration threshold

– Distinguish EU 15, OECD English speaking.

The Framework (2/3)• The econometric procedure corrects for non

random sample selection into activity and into employment based on observables and unobservable (see Heckman, 1979)

• Three steps:1. Activity rates among working age individuals (16-64).

Separate men and women. 2. Employment rates across active, correcting for sample

selection into activity3. Wage rates across employed individuals, correcting for

sample selection into paid employment

The Framework (3/3)• Estimated equation (general specification):

• Where y is the labour market outcome indicator for individual i, in country c, period t. X are socio economic controls and I indicates immigrant dummy; captures country-level, time-varying unobservable characteristics.

• The selection equation, omitted here,includes an additional regressor, , categorical variable coding for household type for individual i living in household j

ijtcZ

ictictcictcctict IXy

Estimates by country (1/2)

Employment gap among actives versus wage gap for immigrants with less than 15 years residency

CAN (***,***)AUS(***,***)

USA(***,ns)

AUT_n(***,**)

FRA_n(***,***)

GER(*,***)

FIN(ns,***) AUT(***,**)SPA(**,ns)

ITA(***,ns)

FRA(***,***)

DNK(ns,***)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Wage males nonEU, <15YSM

Em

ploy

men

t mal

es n

onE

U, <

15Y

SM

Estimates by country (2/2)

CAN (**,ns)

AUS(ns,*)

USA(***,ns)

AUT_n(***,*)

FRA_n(***,***)

GER(***,***)

FIN(*,ns)

AUT(ns,**)

PRT(ns,ns)

SPA(ns,ns)

ITA(ns,ns)

FRA(ns,***)BEL(**,**)

DNK(ns,**)

-0.05

0.00

0.05

0.10

0.15

0.20

-0.20 -0.10 0.00 0.10 0.20 0.30 0.40

Wage males nonEU, >15YSM

Empl

oym

ent m

ales

non

EU

, >15

YSM

Employment gap among actives versus wage gap for immigrants with more than 15 years residency

Explaining cross country integration differences: the role of labour market policies

• To what extent do labour market institutional differences across European countries explain differences in immigrants’ varying degree of absorption into the labour market?

• Pool countries• Estimate a “full” model- country specific parameters on every

control except immigrant dummies, policy variables and interactions:

– The estimated immigrant/ native gap is allowed to vary with

the level of regulation (variable denoted Reg)

ictictctctictictcctcict IggIXy ReRe

Cross country differences: The role of labour market policies

Policy Activity Employment Wage Wage(in a univariate framework) Women Men Women Men

Average replacement rate _

Minimum Wage _ _

Tax wedge _ +

EPL Dualism + + _ _

Note: Results refer to the sign, if significant See text and annex for details on the specification .Years since migration controlled for. Indicated sign denotes that the interaction is significant at least for one of the two categories (<15ysm or >15 ysm)EPL Dualism is defined as follows: (EPLR-EPLT)/ (EPLT)

Labour market dualism and precariousness- some evidence based on ECHP Data (1/3)

Proportion of non-EU15 born immigrants among individuals declaringto hold fixed-term, short-term contracts, or casual work with no contract

Native Non EU Non EU>15YSM <15YSM

Germany 0.10 0.07 0.18Denmark 0.11 0.13 0.16Belgium 0.09 0.12 0.12France 0.10 0.07 0.17Italy 0.10 0.10 0.10Spain 0.33 0.32 0.48Portugal 0.14 0.18 0.17Austria 0.05 0.10 0.16Finland 0.14 0.11 0.15

Note: Weighted Data. The individuals are employed working in paid employment more than 15 hours per week. Non-EU refers to individuals not born in EU15 countries except in the case of Germany where the nationality criterion is used. > or < 15 YSM refers to more or less than 15 years since migration.Source: Author’s calculations based on ECHP.

Labour market dualism and precariousness- some evidence based on ECHP Data (2/3)

Impact of migration status on the probability of holding a precarious employment contract – cross-country estimates

Male FemalenonEU/nonESC <15YSM (1) 0.079 *** 0.068 ***

(3.95) (3.09)

nonEU/nonESC >15YSM (1) 0.036 ** 0.021(2.00) (0.91)

Observations 117547 88280Nb of cluster 28745 23009Log likelihood -39208 -33350

Labour market dualism and precariousness- some evidence based on ECHP Data (3/3)

Estimated interaction between institutional labour market dualism and immigrants’ probability of holding a precarious contract, relative to comparable natives

Men Women(1) (2)

nonEU/nonESC <15YSM (1) 0.423 *** 0.278 ***(5.79) (2.65)

nonEU/nonESC >15YSM (1) 0.178 ** 0.043(2.31) (0.51)

Interaction terms:EPL differences x (<15YSM) (3) 0.281 * 0.070

(1.95) (0.39)EPL differences x (>15YSM) (3) -0.018 0.258 **

(0.15) (2.00)

Observations 117,547 88,280R-squared 28,745 23,009N_clust -36,762 -32,084df_m 114 114

Conclusions

• Immigrants’ labor market integration remains a challenge

• General-purpose labour market policies matter in this respect: – Given their specificities, immigrants tend to be

especially sensitive to the effect of some policies, such as unemployment benefits and the tax wedge, and most of all to labour market dualism.

• Further investigation would be useful to understand better the links between labour market policies and immigrants’ integration in the host labour market.