Are wages going down because of immigration?

Published: 17th Dec 2012

"The Migration Advisory Committee... found a clear association between non-European immigration and employment in the UK. 

Between 1995 and 2010, the committee found an associated displacement of 160,000 British workers. For every additional one hundred immigrants, they estimated that 23 British workers would not be employed." [emphasis added]

Theresa May, Speech on 'An Immigration System that Works in the National Interest', December 12, 2012

"A large proportion of the low-skilled jobs created in the boom years didn't go to the British working class but to people from overseas." Tim Montgomerie, The Times, December 17, 2012

Following up on yesterday's factcheck on the impact of immigration flows on housing prices, today we'll take a look at another important claim from Theresa May's Policy Exchange speech last week: immigration negatively affects jobs and wages. 

As we reported in yesterday's factcheck, the impact of immigration on house prices seems to depend heavily on Tier 1 and Tier 2 migrants (skilled and highly skilled) and impact only certain areas. However Conservative commentator Tim Montgomerie added that migrants were in fact responsible for taking a "large proportion" of the low-skilled jobs created during the economic boom. So are these two things contradictory?

It's not the first time the link between immigration and unemployment has been made, and it often proves contentious. Full Fact itself looked into the matter earlier this year and found that a complicated case could be made either way. So what evidence does Theresa May have to support her claim?

Of course the Home Secretary based her speech on a study carried out by the Migration Advisory Committee (MAC), so let's begin by looking at what the report says and, crucially, what it does not say. 

Here is a summary of MAC's conclusions as well as their methodology:

"We found a tentative negative association between working-age migrants and native employment when the economy is below full capacity, for non-EU migrants and for the period 1995-2010. As a starting point for analysis, 100 additional non-EU migrants may cautiously be estimated to be associated with a reduction in employment of 23 native workers. But those migrants who have been in the UK for over five years are not associated with displacement of UK-born workers. The change in the stock of the non-EU working age population between 2005 and 2010 was approximately 700,000. An associated displacement rate of 0.23 suggests that UK born employment was therefore 160,000 lower. Between 1995 and 2010 employment of non-British born working age people rose by approximately 2.1 million. Any associated displacement of British born workers was around 160,000 of the additional 2.1 million jobs held by migrants, or about 1 in 13." [emphases added]

The overall conclusion does chime with Theresa May's speech, with a number of caveats. 

"For every additional one hundred immigrants, 23 British workers would not be employed."

The MAC found that for this claim to be true:

1. The immigrants have to be from outside the European Union;

2. The immigrants have to be in the UK for less than five years;

3. The economy has to be performing "below full capacity." 

The last point means that we can't assume that immigrant workers are displacing thier British-born equivalents in times of strong economic growth, or "the boom years" as Tim Montgomerie calls them. MAC could only find evidence of a link between overseas immigration and unemployment in times of economic downturns.

Jonathan Portes of the National Institute of Economic and Social Research (NIESR) also raised a red flag on how MAC's data was gathered and how Mrs. May presented it in her speech. This is what he said in the Guardian:

"The MAC analysis found that, overall, looking at all immigrants over the entire time period for which data was available, there was no statistically significant impact of migration on employment. They then cut the data in various different ways, and ran 15 different regressions. For 11, there was no statistically significant impact; for four, there was. May is highlighting one of the four."

The impact on wages

"There is evidence, too, that immigration puts a downward pressure on wages. Drawing on several academic studies, the Committee found that immigration can increase wages for the better-off, but for those on lower wages, more immigration means more workers competing for a limited number of low-skilled jobs." (Theresa May, Policy Exchange Speech)

There are plenty of academic reports on this, with conflicting conclusions. Some say wages have gone down, others say they have gone up, and for many others immigration has had no impact on wages. 

MAC listed some of the most relevant academic papers in the table below: 

The Committee once again concluded that the negative link applies to times of economic downturn when there is "increased competition for jobs." MAC also concluded that the effect is "short-term."  

Conclusion

One could argue there are plenty of caveats to the link established in Theresa May's speech between immigration, jobs and wage distribution. These important to bear in mind. MAC also stressed that there is considerable difficulty in isolating "the direction of causality", which makes it difficult to directly answer the question 'to what extent is migration, as opposed to a bad economy, impacting wages and the job market?'

In terms of job wages, while the relationship between migration and pay is by no means simple, there is at least some agreement among the government and academics that migrants increased wages at the top of the wage distribution but reduced wages at the bottom.

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Flickr image courtesy of ukhomeoffice

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