The Economic Impacts of Migration on the UK Labour Market

Howard Reed Landman Economics and ippr

20 May 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

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born

as

% o

f UK

wor

kfor

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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)• 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

Existing empirical evidence

Employment effects

Manacorda, Manning and Wadsworth (2006)• Immigration has small (negative) impact on

existing migrants• No measurable impact on natives

Overall – small impacts or no impactsFits with evidence from OECD countries

(Longhi et al, 2005)

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

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£8

£10

£12

£14

£16

2000 2001 2002 2003 2004 2005 2006 2007

Gro

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,( 2

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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

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ork

ing

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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

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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

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Source: DWP and NOMIS

Evidence from regression

Effect of migration on wages in UK

Data: UK Labour Force SurveyTime period: 2000-2007‘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 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 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

20 May 2009