the economic impacts of migration on the uk labour market howard reed (landman economics and ippr)...
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The Economic Impacts of Migration on the UK Labour Market
Howard Reed (Landman Economics and ippr)Maria Latorre (ippr)
15 December 2009
Introduction
Over the last 10 years, net inward migration to the UK has increased
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007
Fore
ign
born
as
% o
f UK
wor
kfor
ce
year
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), Nickell and Salaheen (2008)
• 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
£4
£6
£8
£10
£12
£14
£16
2000 2001 2002 2003 2004 2005 2006 2007
Gro
ss h
ou
rly
pay
med
ian
,( 2
007=
1)
UK born 16 or under UK born 17-19 UK born 20+Foreign born 16 or under Foreign born 17-19 Foreign born 20+
Source: LFS and ippr calculations
Employment trends in the UK: migrants and UK-born
Employment rate by country of birth and age when left full time education, 2000-2007
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007
Em
plo
yed
as
% o
f p
op
ula
tio
n o
f w
ork
ing
ag
e
UK born 16 or under UK born 17-19 UK born 20+
Foreign born 16 or under Foreign born 17-19 Foreign born 20+
Source: LFS and ippr calculations
New migrants and wage trends at local level
Foreign nationals National Insurance Number applications vs gross hourly pay median increase by local authority, 2007
R2 = 0.0014
-20
-10
0
10
20
30
40
50
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24%
National Insurance Number Applications as % of population of working age
An
nu
al p
erce
nta
ge
gro
ss h
ou
rly
pay
m
edia
n c
han
ge
bet
wee
n 2
006-
2007
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
R2 = 0.0311
-20
-15
-10
-5
0
5
10
15
20
25
30
35
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24%
National Insurance Number Applications as % of population of working age
An
nu
al p
erce
nta
ge
emp
loym
ent
rate
ch
ang
e b
etw
een
200
6-20
07
Source: DWP and NOMIS
Evidence from regression
Effect of migration on wages in UKData: UK Labour Force SurveyTime period: 2001-2007‘Cell’ level: occupation/regionControl variables: • Education levels in each cell (proportions at different
levels)• Average age of UK-born and foreign workers in working
age populationEquation estimated in first differencesLagged values of migrant share in regional workforce used
as instrument for current migrant share
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 2001-07, 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 1997-2005) 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
15 December 2009