Some Impacts of Recent Immigration on the London Economy Ian Gordon and Christine Whitehead LSE London Seminar, March 17 th 2007

Outline Selective review/discussion of some (only) of the key issues, focusing on: –Nature of flows and LT effects on London population –Labour market position of migrants and relation to high worklessness in London –Evidence of impacts in bottom quintile of jobs –Implications for housing

London and the New International Migration This city has very long history of immigration, by groups who have played a significant role in its economy, via: – Flows linked to trade and imperial role; and – Periodic waves of refugees But never sustained migration on scale of the last years Part of a new (post-Fordist?) international era of migration: – qualitatively distinct from that of 1950s/60s, when flows largely shaped by importing major employers/states – followed by major cut-backs, in context of recession or political opposition – and from 1980s, a combination of: highly skilled movers; new sets of refugees; speculative/clandestine migrants; trafficking Diverse, autonomous, and more strongly urban in character London

Immigration and London’s Turnaround The new immigration was directly responsible for the the reversal of London’s 50 year population decline, from the late 1980s As such it is one of two key planks on which the Mayor’s growth- oriented London Plan rests The other being the continuing growth of employment in the business service sector Logically, international immigration might be seen as providing the elastic labour supply needed to accommodate this exponential growth But how far the two phenomena are – or can be – linked is very unclear –Particularly since main immigrant groups are not heavily represented in the sector

London’s overseas-born population million – 17.6% of total Of whom 76% from former British territories Majority from just 6 countries –Ireland, India, Kenya, Jamaica, Cyprus, Bangladesh

London’s overseas-born population million – 30.5% of total Of whom 59% from former British territories –Most of the increase (60%) among other groups, who grew by 225% over 20 years –25% less Irish but 200% more French Majority now from 15 countries: –Previous 6 + Nigeria, Poland, Sri Lanka, Ghana, South Africa, Pakistan, Somalia, USA, Turkey

Sources of Growth Worldwide trend to higher levels of mobility, associated with enhanced communication of opportunities, air transport, growth of skilled workforce – and proliferation of refugee-generating crises/conflicts Particularly affecting areas which are: –Economically attractive and ‘urban’ –With existing concentrations of non-native groups –Close to ports of entry  Large share of expanded UK immigration in London Trend is not London specific, but: It gets much above average share of inflows (40%+, cf. 30% of outflows); and Inflow rates reflect not only strong time trend, but also previous year’s employment growth in the city – e.g. flat trend since 1999, as for jobs, after late 1990s growth in both

National Growth in Migration but with distinct London elements Gross International Migration (000s)

Who Counts, and Who Gets Counted, as Migrants ? Formal UK definition = those entrants who had been out of the country for > 1 year and now intend to stay for > than 1 year (plus those ‘visitors’ who later apply to extend their stay beyond a year) –Does not relate directly to the degree of involvement in local labour/housing markets (e.g. long term students versus working visitors) –Includes as immigrants many returning natives (c. 25%), and as emigrants many returning non-natives (c. 50%) Official data comes from sample surveys of international passengers; plus Home Office (HO) admin data on asylum seekers and status switchers –A general issue is that illegals don’t get counted: HO assumption that % are in Census → estimate of 10-20% understatement. –A London issue is significant overcounting in survey of numbers with a final destination within London Making a similar assumption about residential survey coverage (i.e. migrants of all kinds equally likely to be included – except for new asylum seekers, and some students, in institutional accommodation), we rely heavily on LFS data on non-natives and their dates of arrival.

Long Term Impacts on London Population Change Conditioned by three main factors: –Probabilities of return/onward migration In steady state boost to population = annual rate of in-migration/prob. of exit (p.a.) Flows of temporary migrants generate one-off increase (and change population composition) but do not produce continuing growth Flows of permanent migrants (only) produce continuing growth –Displacement effects on other Londoners May include (i.e. select) a ‘white flight’ element But driven by growing gap between space demands and availability Displacement i– estimated at 40-45% by Hatton and Tani - is less than 100% primarily because (effective) space demands of new immigrants are less than of average Londoner : –If this doesn’t persist then impact on London population would be step increase, not continuing growth –Child-bearing by a younger migrant population (20-44)

Contrasting Patterns by Area of Origin High wage countries (EU, USA, Old Commonwealth, Japan / Korea) –predominantly white –38% of recent inflow but only 17% of stock growth post-1986 –Large temporary element (1996 entry down 50% between 1997 and 2005) –Sensitive to cyclical developments in London economy Asylum countries (from where asylum seekers are a large proportion of the UK inflow) –ethnically mixed –12% of recent inflow but 22% of stock growth post-1986 –Delays in entering mainstream housing/labour markets – and surveys –Smaller temporary element (1995 entry down 37% between 1997 and 2005) –Flows driven by push factors, plus perceptions of control tightness Other low wage origins (developing and transition countries) –also ethnically mixed –51% of recent inflow but 62% of stock growth post-1986 –Small temporary element (1996 entry down 16% between 1997 and 2005) –Not evidently sensitive to state of the London economy –A8 countries (inc. Poland) as a sub-set – but not particularly concentrated in London All three groups show more education than the average Londoner – but comparable with similarly young natives

Potential Economic Gains from Immigration A more elastic labour supply Specific types of labour in short supply –Highly skilled labour To compensate for short-fall in home supply To fill specialist niches –To fill jobs rejected by domestic workers Facilitating upward mobility of natives Facilitating trade relations with migrants’ home countries Benefits from cultural diversity –Contributing to supply of exotic products/services Increasing attraction to tourists and mobile ‘talent’ –Stimulating product or process innovation

Some Evidence from Wider Literature Surveys of international literature (Longhi et al, 2004/6) show diverse results but overall point to: –Very small negative effects on both native employment (at least in Europe and for women) and wages For UK, Dustmann et al (2005) show: –No overall effect on native employment, though negative effects in intermediate education group (compensated by probably pos. effect for most educated) –A wage effect, which is (if anything) positive At City level, for US, Ottaviano and Peri (2005/6): –report strong positive relations between change in foreign-born population and both wages and rents –And argue this as consequence of positive effects of cultural diversity on productivity levels In relation to A8 migrants to UK, Blanchflower et al (2007) argue: –No apparent effect on regional unemployment trends –Probably tended to lower natural rate of unemployment –And higher supply outweighing demand effects should moderate inflation

Economic Activity of year olds Among London Immigrant Groups

Continuing Differentials in Employment Outcomes Even after 3 years, migrants from poor countries retain significantly lower employment rates –about half of this differential is associated with racial and religious composition –reflecting broader patterns of disadvantage (and some life choices) among resident population –Poles remain exceptional with very high employment rates And significantly lower hourly earnings –About 30% lower (controlling for years education) –Reducing to 22% after control for ethnicity and gender –Polish earnings differential seems larger (for 0-3 yrs. only)

Worklessness in London – is there an Immigration Connection? London has lowest employment rate of any UK region Attracted attention recently (e.g. GLA, HMT), because of: –shift in focus away from unemployment –relative improvement in rates for north and west versus south (as whole) –Paradoxical position for reputedly successful economy Raised question about whether new immigration could explain – with large supply increases still in post-2000 years when job growth stops However, growth in workless gap (against GSE) has been solely in the group saying they don’t want jobs, which has grown steadily since 1984, independent of demand/supply shifts If immigration plays a role, it seems to be only via migrants’ own lower employment rates (whether reflecting choices or competitive failure/discrimination)

Immigration and the Bottom Tier of the London Labour Market Part of Sassen’s (1991) ‘global city’ thesis was that globalcityisation polarised the employment structure: –With growth among worst paid job types as well as at the top end European researchers challenged this in relation to London, Paris and Amsterdam –suggesting welfare state model made a difference (Hamnett) –or that polarisation in 1980s New York reflected much higher levels of immigration there, offering an elastic labour supply for low paid service jobs (Working Capital hypothesis) Possibly relevant that consumer services have shown much more growth in London during 1990s than in 1980s, alongside the upsurge of immigration here –Visible concentration of some migrant groups in low paid occupations suggested as cause of growth + downward pressure on pay (May, Mills et al, QMUL)

Employment of London Immigrant Groups by High/Low Paid Occupations

Trends in Employment Share and Wages for Jobs in the Bottom Quintile (occupations with lowest hourly pay nationally) Source: analysis by Ioannis Kaplanis of NES microdata

Causal Links Recent migrants from low wage economies are concentrated in the lowest quintile of jobs: –Though concentration reduces with longer stays High rates of immigration to London in the later 1990s depress wages in this segment in London (relative to rest of country) –Nominal wage up 5.5% in London cf. 14.5% in RUK Lower wages in this segment contribute to its employment growth in London after 1994: –Quintile’s share in London employment up from 16.2% in 1995 to 19.2% in 1999 cf. from 19.4% to 20.6% in RUK –Elasticity of employment with respect to wage in this quintile = –1.2 (from regional panel )

Implications for Housing Inmigrants impact on the housing system immediate London’s projected growth in households heavily concentrated on inmigration But inmigrants have lower headship rates than indigenous population – so direct impact less Direct effects on house prices, access to social housing, utilisation of the stock and homelessness

Table 1: Components of the Projected Increase in Households : Regional Analysis (thousands per year) LongevityExternal Migration Separation of Couples Household representative rates Other changes (A) ResidualTotal North East North West Yorkshire and Humber East Midlands West Midlands East of England London South East South West England

(per cent) Age and over Born outside the UK Entered less than 5 years ago Entered UK 5 years but less than 10 years ago Entered UK 10 years but less than 20 years ago Entered UK 20 years or more ago Born in the UK Whole private household population (a) Table 2: Ratios of Household Reference Person to Total Private Household Population: England 2002 to 2005

Competition for Housing Need to distinguish –higher income employed migrants (often shorter term) which affect house prices –Lower income employed migrants who usually enter private renting – often in HMOs initially using less space; relatively low income elasticity? –Refugees and asylum seekers who are mainly dispersed but often return to London –Increased pressure on social housing sector both direct and indirect

Second Round Effects Continued movement out of more established family households to South East and further afield – different household composition of capital Effect on quality and stability of local services but also filling important gaps Higher house prices implies less movement out of social sector  even greater pressure on system Competition for services and its impact on social cohesion

Some Conclusions Major demographic shift in London population – both in scale and diversity: –In long run, principally involving migration from low wage economies – though more flexibility/variety as result of inflow from high wage areas –As housing aspirations among new migrants converge on those of rest of London population, overall growth rates should slow down No evidence yet of effects on overall London employment growth, earnings, productivity or unemployment, but: –Extended education among the migrants from low wage economies is not being reflected in short-medium term by absorption into appropriate job types –Levels of worklessness (principally inactivity) are high among this group of migrants (though partly for cultural reasons, among married Muslim women as well as barriers to accessing jobs) –Concentration of this group in bottom quintile jobs – especially during first 3 years – seems to have significantly depressed London wages at the bottom end, and consequentially boosted employment from mid-late 1990s