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Immigration, wages and employment. Part 1

As the rhetoric goes, immigrants take low paid jobs from natives (implying that they are hard workers) or, else, that they are ‘benefit tourists’ (implying that they are lazy and dishonest). Let’s have a look.  

Rawtorn and Ruzicka reviewed twenty academic empirical studies in order to determine the effect of immigrants on native workers in Europe and the Middle East between 1990 and 2015 (see here). They conclude that there is little evidence to support the claim that refugees and migrants from developing countries deprive native-born workers of employment. The studies show that, in terms of wages, immigrants from close neighbouring countries put a small amount of downward pressure on the wages of the lowest-skilled natives. There exists substantial evidence to suggest that birthplace diversity within a country’s university-educated workforce is positively associated with productivity and economic growth. In the US, for example, first- or second-generation immigrants founded more than 40% of the Fortune 500 companies. These are people with a university degree. What about others?

In an article from the Political Economy Research Institute from last year, Doruk Cengiz and Hasan Tekguc looked at the impacts of Syrian migrants on Turkish local economies. Between 2012 and 2015, over 2.5 milllion of Syrians fled to Turkey. Cengiz and Tekguc looked at the effects of this major inflow on local economies. They do not find adverse employment or negative wage effects for native-born Turkish workers, not even for those without a high school degree.

The paper by Cengiz and Tekguc is important because they explain that labour markets do not work solely or mainly on the basis of supply and demand. Wages do not necessarily fall when there is more supply of labour.  In Turkey’s local economies, migration led to increasing demand and to more supply of capital. These factors led to productivity growth, which, in turn, enabled these local labour markets to absorb the inflow of migrant labour. It turns out that the Syrian immigrants made these Turkish local economies more productive, more competitive, less poor and, yes, more populous.

In 2016, Portes and Forte, at the time both at the National Institute of Economic and Social Research (NIESR) reviewed the evidence on migration and wage formation and calculated the loss in wages of UK-born workers in the semi-skilled and unskilled services sector. The loss was about 1 per cent over a period of eight years (from 2004 to 2012). As the average wage in these sectors is about £8 per hour, the loss amounts to a reduction in annual pay rise of about a penny an hour. According to Portes and Forte, in 2012, these workers would have earned 8 pence an hour more in the absence of immigration. Say people work 40 hours a week, this results in an extra £ 165 a year, before deductions. This is not nothing, especially for people on a minimum wage. But it certainly isn’t much either. However, Portes and Forte didn’t go into the macroeconomics as Cengiz and Tekguc did. According to Portes, no immigrant ever dined at the restaurant with a native born waiter. No immigrant ever left a tip. No immigrant ever set up her or his own business. Immigrants do not create aggregate increasing returns. That is a fundamental shortcoming.  

The general pattern seems to be different. Frederic Docquier and his colleagues from the University of Louvain (UCL) looked at the economic impact of immigrants from developing countries on host-country budgets, wages and consumer markets between 1991 and 2015. They find that native born workers benefited significantly from immigrants’ contributions. Research in Sweden, among others by Sandro Scocco, LO’s chief economist, led to a similar conclusion.

The studies contradict the discourse from the extreme right. It is all the more relevant because working age populations in the rich countries – the G12 – are in decline. According to United Nations Population Division forecasts, this decline will accelerate. We will need more immigrant workers in the near future. As Roberts write, of the 14 economies with $1trn or more GDP, there are only two – India and Brazil – where the working age population will grow over the next generation. The US, the UK, Canada and Australia all need to expand their workforce, although the governments in all these countries want to cut back on immigration. In Europe, the most pertinent example is Hungary, which closes its border to the immigrants its economy needs. By 2030, the ratio of working age population / total population will fall everywhere.  

There is, of course, much more to migration than the discussion about wages and employment. It is just that I do not believe that immigrants put significant pressure on wages or that they take jobs away from native workers. No single study – and there have been many – reached this conclusion, so I consider these claims fundamentally untrue.

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