Migration impact on labour market: the UK as a study case

Migration impact on labour market: the UK as a study case

Populism lays into reductive statements on topics which may rather be a matter of fear. It concerns the fragilisation of individuals’ identity, perception, imaginary, beliefs… and results in confronting them to an unknown situation[1]. The Unknown, as a projection of what is undetermined[2], is embodied by the Stranger. It can be a source of fascination regarding the mystery it suggests, but it can also be a source of fear and considered a potential threat[3]. When the confrontation to the unknown is suffered, imposed rather than investigated, it triggers reflexive defense and might stir insecurity[4]. Pulling the veil out of the Unknown is necessary to avoid this conflictual relationship between individuals as well as between collectives. Therefore, to diminish populism, providing fact checking and debunking falsely based opinions are key actions. This reasoning applies to migration issues, where immigrants can, to some extent, symbolically represent the Unknown. What is the populist stance towards immigrants? Several things are pointed out such as their dangerosity[5], inability to fit in[6], the cost they make the society bear while they are said to profit from it without complying to their societal implicit duties… Complexity regarding human societies is swiped away in favor of made-up causality[7] which brings expeditive answers to deep doubts. Summing up these issues is a dangerous stance: instead of confronting the individuals’ ignorance, fear and lack of knowledge, it supports them and can even appear as a way to alleviate them.

Fears that immigration takes jobs away from natives and imposes significant costs on taxpayers continue to shape electoral campaigns and policy discourses[8]. The cost of migration is a wide area with deeply blurred lines, which explains why it is easily picked out as an argument against it. However the simple idea of whether it bears a cost or does not hides deeper connections and relies on a complexity that can (or at least should) not be resumed to a reductive assessment of a data point[9]

According to a survey conducted by Gallup World Poll, at a global level, 21.4% of the surveyed population expresses willingness to migrate[10]. Understanding the impact of immigration on the receiving economies is essential. Furthermore, with the large and growing unemployment disparities in Europe in the wake of the global economic crisis (also termed the ‘Great Recession’), the question of whether or not a freer labour mobility can be an equilibrating force on the labour market is a highly topical one.

In this article, we take into account the specific area of labour market: doing so, we will provide arguments addressing some of the most widespread hearsays: are immigrants ‘taking the jobs’ of locals? Do they pressure down wages? We can take the United Kingdom (UK) as a study case. Since its population voted to step back from European Union (EU), studies have been flourishing in order to provide arguments on whether or not tackling migration was a relevant and reasonable argument in favor of Brexit.

1. The UK as a study case: a closer look at the immigration’s impacts on labour market

The instrumental questions we intend to address find a particular echo in the UK, where the Brexit vote has been shaped by arguments in favour of labour mobility restrictions to limit inflows to the UK[11]. The economic impacts of recent EU migration remained the most important issue for many, perhaps most, likely voters[12]. Dispute over figures stirred tensions within the country while filling newspapers’ headlines[13].

Between 1995 and 2011 the foreign-born population in the UK doubled from 3.5 million to about 7 million. Nevertheless, in 2017 about 86% of the UK population were UK-born and about 90% were British nationals[14]. Most workers in the UK labour market are not in high-skilled or low-skilled work but are in the middle-skilled groups, corresponding to jobs requiring training beyond secondary school but not a university degree. The same applies to migrants. In 2017, 57% of EU-born workers were in middle-skilled jobs, compared to 55% of the non-EU born and 63% of the UK born. The skill distribution for UK vs. non-UK born people is roughly similar. However, it is different for EU vs. non-EU migrants, with EU-born workers overrepresented in low-skilled jobs and non-EU born workers overrepresented in graduate jobs. By 2017, a majority (56%) of foreign-born workers in low-skilled jobs were from EU countries. Non-EU workers outnumbered EU workers in the three other skill levels.[15]


Skilled-based jobs distribution relative to specific populations in UK. Retrieved from : Sumption, M., and Reino, M. F. (2018). “Exploiting the Opportunity? Low-Skilled Work Migration After Brexit”, The Migration Observatory.

2. A quick overview: immigration and its positive impact to the host country

Economic insecurity or aspirations belong to factors that drive individuals to migrate[16]: improving one’s situation might imply to move to richer countries where they could benefit from a higher price for their skills, and thus improve their lifetime income. As migrants are more likely to be in working age, even though they may bring dependents, they generally tend to increase the labour force, lower the dependency ratio and increase the potential output capacity of the economy[17].

Immigration affects the labour supply, as it increases the pool of workers in certain sectors of the economy. Besides, immigration is likely to increase the demand for labour, as migrants expand consumer demand for certain goods and services. That same movement increases labor market competition but also allows the economy to fill labor demand shortages by drawing on skills and talent not available in the native workforce[18]. This migration movement might also represent an asymmetric shocks’ smoothing tool (which are changes in the economic conditions affecting differently parts of a region or a country), by allowing workers reallocation where they would be more effective. We can observe the ageing of the UK’s population : at mid-2017, around 18.2% of UK citizens were aged 65 years or over, and this proportion is projected to grow to 20.7% by 2027[19], increasing the dependency ratio (which corresponds to the percentage of people out of working age relative to potential economically active people)[20]. In the UK, this dynamic draws alarming conclusions: estimates healthcare spending underline that it would have to almost double from 6.9% of GDP in the early 2020s to 12.6% by the mid-2060s because of the demographic shift[21]. However, net migration helps to reduce the dependency ratio and to reduce the ratio of retired to working people, and is actually called to increase in the UK’s case[22]. This has benefits for the government’s budget as well: If migrants are of working age, they will pay income tax, Value Added Taxes (VAT), but will not be claiming benefits[23].

Moreover, net inflows of people also lead to an increase in aggregate demand. Migrants will boost the total spending within the economy. As well as increasing the supply of labour, immigration is likely to raise the demand for labour, as migrants expand consumer demand for certain goods and services. Ceteris paribus, net migration should lead to an increase in real GDP[24].

As for the labour market, native workers and immigrants bear some differences in their country-specific human capital, such as language fluency, professional networks, and social and cultural knowledge. One of the most important distinctions between workers is their skill level.. In addition, labor shortages and job vacancies are more common than full employment. Labor, capital, technology and resources are all production inputs that can complement or substitute for one another. Immigrant workers can either be substitutes for native-born workers or complements to them. Initial skill differences make new immigrants and native workers imperfect substitutes. According to economic theory, immigrants, as one of the inputs in production, raise the price of inputs they complement and lower the price of inputs for which they are perfect substitutes[25]. When workers are complementary, an increase in immigrant labour workforce can increase job opportunities and wages for native-born workers. So, the low-skilled immigrant labour reduces the cost of production and increases the output of those goods; this greater output increases the demand for other, higher-skilled workers[26].

3. Do immigrants cause unemployment?

            Migrants have often been blamed for ‘taking our jobs’ – especially in periods of high unemployment, and in local areas of above average unemployment. This assumption lays into the lump of labour fallacy, which states that the quantity of labor required in an overall economy is fixed. However, net migration has been compatible with low unemployment. Migrants bring both an increase in supply of labour and a higher demand for labour.


Unemployment and Net Migration in UK, 1991-2014. Retrieved from Pettinger, T., “Impact of Immigration on UK Economy”, Economics Help, 01/08/2017

Low-skilled workers, who can perform repetitive, manual tasks at a lower cost thanit takes to upgrade equipment, are often substitutes for capital. From this angle, employers may view all low-skilled workers as close substitutes. Immigrants and native workers with low skills would then compete directly for jobs, at least in the short term.

However, taking evidence from the UK, low unemployment has been combined with high immigration rates. Even the short-term migration does not appear to have had a negative impact on the employment outcomes of UK natives, nor is there any evidence that immigration has impacted the employment prospects of specific groups such as the young or unskilled. More often, the negative effects arise in the case of competition between recent and earlier immigrants, who have very similar skills[27]. Basically, immigrants are not taking our jobs – the lump of labour fallacy, which states that the number of jobs or vacancies in the economy is fixed (which generally refers to the medium to long term), turns out to be a fallacy in the short term as well[28].

Nevertheless, unemployment rate for immigrants tends to be higher than for UK born workers. This gap is especially true during recessions. This may be exacerbated if the migrants struggle with the local culture (such as language), or suffer racial discrimination. Though, the underlying cause of unemployment is not the net migration, but the recession. One reason put forward is that immigrants tend to be more likely to be working on short-term contracts, and so in a downturn are more likely to be laid off.
           

4. Do immigrants pressure down wages?

Shortcomings of economic theory might suggest that migration would fill workforce stocks and therefore pressure down wages. This would be especially true if migrants were keen to accept lower ones (e.g. willing to bypass traditional union bargaining). However, this is not an unavoidable feature. Net migration doesn’t have to push down wages. Immigration increases labour supply, but also increased labour demand due to higher spending in the economy. Empirical research has been conducted in the UK lately[29] and concluded that immigration has had little impact on average wages[30]. Some studies[31] have found a small negative impact on average wages while others[32] found positive average effects.

However, particular labour markets may notice lower wages if there is a concentration of immigrants willing to work. For example, if wages are high in a particular agricultural market, migration from a low-income country may lead to falling wages in this specific market. This case relates to the substitutes-complements migrants dynamics within the labour market and its distribution. While effects towards average wages appear to be overall almost non-existent, it is argued that more significant impacts along the wage distribution occur: in this process, low-waged workers lose while medium and high-paid workers gain. The Migration Advisory Committee (MAC) (2018) estimated that an increase in the number of EU migrants corresponding to 1% of the UK-born working-age population resulted in a 0.8% decrease in UK-born wages at the 5th and 10th percentiles (i.e. people in the bottom 5-10% of earners), and a 0.6% increase at the 90th percentile (i.e. high earners). Still, most studies tend to estimate rather small impacts.


Summary of existing literature examining the impact of immigration on wages. Retrieved from Migration Advisory Committee. “EEA migration in the UK: Final report”, September 2018

5. Brexit: what will change?

As mentioned above, the Brexit vote has been partially led by anti-immigration arguments. Tackling immigration , in the pro-Brexit discourse, was supposed to lead to rising up bottom wages at the bottom end of the labour market, which has been increasingly reliant over time – especially since the EU’s eastern enlargement in 2004 – on migrant workers to perform minimum wage jobs. If this supply falls, then there may be pressure to raise the national minimum wage[33].

The government’s white paper on immigration, released on December 2018[34], promises a single skills-based immigration system post-Brexit with transitional measures for low-skilled workers but a proposed £30,000 salary threshold thereafter[35]. Those who don’t meet this income threshold would still be able to come to the UK to work—but only for one to two years.

On the one hand, proponents of strictly temporary migration see it as a way for the government to satisfy employer demand for workers without adding to the long-term growth of the migrant population and without taking responsibility for workers’ long-term prospects for integration. Temporary migration schemes that do not allow dependants may have lower fiscal costs because children’s education is a significant factor affecting the fiscal impact of migration[36].

However, on the other hand, strictly temporary migration also has costs, mostly related to the fact that migrants are not expected to integrate. Newcomers have fewer of the skills and knowledge that are acquired over time within the country—such as language ability, country-specific work experience and understanding of the day-to-day practicalities. Relying on a rotating pool of temporary workers implies higher agitation within the communities where migrants live, endangering the capacity to deliver local public services. Higher turnover implies costs for employers taking on new migrant recruits, and reduced incentives to invest in training them if they have only a short time horizon over which to recoup their investment[37].

So far, the reductions in migration resulting from Brexit are likely to have a significant adverse impact on UK productivity and GDP per capita. The broad scenarios depicted by Portes (2018) imply that the increase in low-skilled wages resulting from reduced migration is expected to be, if at all, relatively modest[38].
                       


Estimated cumulative impact of immigration reduction in 2030 in UK (% fall). Retrieved from Portes, J. “The economic impacts of immigration to the UK”, VOX, 06/04/2018

6. Conclusion

Despite disputes, the gains from labor mobility within countries are largely acknowledged but free movement of labor between countries is politically controversial. Possibilities of international migration are limited, due usually to immigration restrictions in those countries where the price for labor is high[39]. Nevertheless, the principal objections to free mobility from receiving countries are probably cultural, not economic. Concerns about a loss of cultural homogeneity and about the costs associated with social tensions arising from the integration of immigrant communities has more to do with concerns about open immigration policies than with actual worries about narrowly economic effects[40].

The study of the UK case might be meaningful for the European stage as several features appear to be rather common to both situations: In the EU as in UK, population is ageing[41] and votes rely largely on immigration concerns, which are themselves built on fallacies about its costs. While Brexit materialize these concerns by implementing a stricter immigration legislation, it enables the EU to acknowledge its outcome and to avoid the eventual misleading judgements it might reveal.


[1]          Taguieff, P.-A., “Populisme”, Encyclopaedia Universalis. Retrieved from http://www.universalis-edu.com.docelec.u-bordeaux.fr/encyclopedie/populisme/

[2]          Dimon, M.-L., “L’Inconnu, l’Étranger, l’étrangéité”, Collège International de Psychanalyse et d’Anthropologie, 18/11/2017. Retrieved from http://www.cipa-association.org/linconnu-letranger-letrangeite/

[3]          Deleixhe, M., “Democracy and hospitality. A political reading of Waldenfels’ phenomenology”, SociologieS , 13/03/2018. Retrieved from  http://journals.openedition.org/sociologies/6857

[4]          Costa-Prades, B.,  “Notre peur de l’étranger révèle nos failles”, Psychologies, 03/05/2010. Retrieved from https://www.psychologies.com/Planete/Societe/Interviews/Notre-peur-de-l-etranger-revele-nos-failles

[5]          Time,  “Here’s Donald Trump’s Presidential Announcement Speech”, Time, 16/06/2015. Retrieved from http://time.com/3923128/donald-trump-announcement-speech/

[6]          Gotev, G., “Bruxelles réfute la dernière campagne anti-immigration d’Orban”, Euractiv, 01/03/2019. Retrieved from https://www.euractiv.fr/section/migrations/news/commission-responds-to-orbans-latest-anti-immigration-campaign/

[7]          Euronews, “Matteo Salvini fait un lien (populiste) entre migrants et tuberculose”, Euronews, 13/09/2018. Retrieved from https://fr.euronews.com/2018/09/13/matteo-salvini-fait-un-lien-populiste-entre-migrants-et-tuberculose

[8]          Battisti, M., et al., “How immigration benefits natives despite labour market imperfections and income redistribution”, VOX, 08/08/2014. Retrieved from https://voxeu.org/article/how-immigration-benefits-natives

[9]          Badulescu-Bogdan, N. (2018). “When facts don’t matter : how to communicate more effectively about immigration’s cost and benefits”, Migration Policy Institute.

[10]         Grubanov-Boskovic, S. and Kalantaryan, S. (2018). “Trends and patterns of international migration and intentions to migrate”, JRC Science for policy report ‘international migration drivers’, Joint Research Center (JRC).

[11]         Battisti, M., et al. (2014). Op. Cit.

[12]         Portes, J., “Immigration, free movement and the UK referendum”, VOX, 16/05/2016. Retrieved from https://voxeu.org/article/immigration-free-movement-and-uk-referendum

[13]         Barrett, D., “Immigration from outside Europe ‘cost £120 billion’”, The Telegraph,05/11/2014. Retrieved from https://www.telegraph.co.uk/news/uknews/immigration/11209234/Immigration-from-outside-Europe-cost-120-billion.html

[14]         Coates, S., “Overview of the UK population: November 2018”, Office for National Statistics, 11/2018. Retrieved from https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/november2018

[15]         Sumption, M., and Reino, M. F. (2018). “Exploiting the Opportunity? Low-Skilled Work Migration After Brexit”, The Migration Observatory. Retrieved from https://migrationobservatory.ox.ac.uk/resources/reports/exploiting-the-opportunity-low-skilled-work-migration-after-brexit/

[16]         Lanau, G., “Why do people migrate ? Migration drivers”, EU-Logos Athéna, 28/05/2019. Retrieved from https://www.eu-logos.org/2019/05/31/migration-drivers-why-do-people-migrate/

[17]         Pettinger, T., “Impact of Immigration on UK Economy”, Economics Help, 01/08/2017. Retrieved from https://www.economicshelp.org/blog/6399/economics/impact-of-immigration-on-uk-economy/

[18]         European Migration Network (2015), “Determining labour shortages and the need for labour migration from third countries in the EU”, European Migration Network (EMN). Retrieved from https://ec.europa.eu/home-affairs/sites/homeaffairs/files/what-we-do/networks/european_migration_network/reports/docs/emn-studies/emn_labour_shortages_synthesis__final.pdf

[19]         Coates, S., Op. cit.

[20]         Pettinger, T., “Dependency Ratio”, Economics Help, 28/11/2016. Retrieved from https://www.economicshelp.org/blog/glossary/dependency-ratio/

[21]         Partington, R., “More migrant workers needed to offset ageing population, says IMF”, The Guardian, 09/04/2019. Retrieved from https://www.theguardian.com/business/2018/apr/09/get-more-migrant-workers-to-offset-strain-of-ageing-population-warns-imf

[22]         Ibid.

[23]         Pettinger, T. (2017), Op. Cit.

[24]         Ruhs, M. and Vargas-Silva, C. (2018). “The Labour Market Effects of Immigration”, The Migration Observatory. Retrieved from https://migrationobservatory.ox.ac.uk/resources/briefings/the-labour-market-effects-of-immigration/

[25]         Constant, A. (2014). “Do migrants take the jobs of native workers?”,  IZA. Retrieved from https://wol.iza.org/uploads/articles/10/pdfs/do-migrants-take-the-jobs-of-native-workers.pdf

[26]         Wolla, S., “The Economics of Immigration: A Story of Substitutes and Complements”, Economic Research, Federal Reserve Bank of St. Louis, 05/2014.

[27]         Constant, A. (2014). Op. Cit.

[28]         Portes, J. “The economic impacts of immigration to the UK”, VOX, 06/04/2018. Retrieved from https://voxeu.org/article/economic-impacts-immigration-uk

[29]         Ruhs, M. and Vargas-Silva, C. (2018). Op. Cit.

[30]         Migration Advisory Committee. “EEA migration in the UK: Final report”, September 2018. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/741926/Final_EEA_report.PDF

[31]         Nickell, S. and Salaheen, J. (2015). “The Impact of Immigration on Occupational Wages: Evidence from Britain.” , Bank of England, Staff Working Paper No. 574

[32]         Dustmann, C. et al. (2012).  “The Effect of Immigration along the Distribution of Wages.” Review of Economic Studies, 80(1), pp.145-173.

[33]         Bell, B. and Machin, S., “Brexit and wage inequality”, VOX, 16/08/2016. Retrieved from https://voxeu.org/article/brexit-and-wage-inequality

[34]         Secretary of State for the Home Department (2018). “The UK’s future skills-based immigration system”, HM Government. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766465/The-UKs-future-skills-based-immigration-system-print-ready.pdf

[35]         O’Carroll, L., “The post-Brexit immigration plans at a glance”, The Guardian, 19/12/2018. Retrieved from  https://www.theguardian.com/politics/2018/dec/19/the-post-brexit-immigration-plans-at-a-glance

[36]         McNeil, R., “Where is UK labour migration policy heading after Brexit?”, The Migration Observatory, 19/02/2019. Retrieved from https://migrationobservatory.ox.ac.uk/resources/commentaries/where-is-uk-labour-migration-policy-heading-after-brexit/

[37]         Sumption, M., and Reino, M. F. (2018). Op. Cit.

[38]         Portes, J. (2018). Op. Cit.

[39]         Dustmann, C. and Preston, I. (2019). “Free Movement, Open Borders and the

            Global Gains from Labor Mobility”, Centre for Research and Analysis of Migration (CReAM). Retrieved from http://www.cream-migration.org/publ_uploads/CDP_04_19.pdf

[40]         Ibid.

[41]         Eurostat, “Population structure and ageing”, Eurostat, 05/2018. Retrieved from https://ec.europa.eu/eurostat/statistics-explained/index.php/Population_structure_and_ageing

Geoffrey Lanau

Etudiant en Master en Economie Internationale spécialisé en Expertise en Affaires Européennes à l'Université de Bordeaux, je suis passionné par la construction européenne, son sens, ses objectifs et son avenir, et plus particulièrement par les thématiques impliquant le vivre-ensemble et ses perspectives. Responsable du portefeuille Asile et Migration, je considère qu'une information claire et pertinente permettra d'apporter les réponses nécessaires pour résoudre l'enjeu migratoire, et de dégager un avenir européen ambitieux.

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