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

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

Employment trends in the UK: migrants and UK-born

New migrants and wage trends at local level

New migrants and employment trends at local level

Evidence from regression Effect of migration on wages in UK Data: UK Labour Force Survey Time period: 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 Lagged 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 , 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 als model on the more recent data ( instead of ) 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