How immigrants affect jobs and wages

Published: 02 Apr 2015

  • UK research suggests that immigration has a small impact on average wages of existing workers but more significant effects for certain groups: low-wage workers lose while medium and high-paid workers gain.
  • The wage effects of immigration are likely to be greatest for resident workers who are migrants themselves.
  • Research does not find a significant impact of overall immigration on unemployment in the UK, but the evidence suggests that immigration from outside the EU could have a negative impact on the employment of UK-born workers, especially during an economic downturn.
  • The impacts of immigration on the labour market depend on the skills of migrants, the skills of existing workers, and the characteristics of the host economy. This means that research evidence on the labour market effects of immigration is always specific to time and place.
  • For both wages and employment, short run effects of immigration differ from long run effects: any declines in the wages and employment of UK-born workers in the short run can be offset by rising wages and employment in the long run.

In the UK, studies suggest that immigration has a small impact on average wages but more significant impacts along the wage distribution - low-waged workers lose while medium and high-paid workers gain

It is difficult to measure the effects of immigration on jobs definitively, as there are a number of methodological challenges that need to be overcome.

However, the available research on the labour market effects of immigration in the UK suggests that immigration has relatively small effects on average wages but more significant effects on low, medium and high paid workers.

  • In the period 1997-2005 when the UK experienced significant immigration of people coming for work, one major study finds that an increase in the number of migrants corresponding to 1% of the UK-born working-age population resulted in an increase in average wages of 0.1 to 0.3%.
  • Another study, for the period 2000-2007, found that a 1% increase in the share of migrants in the UK's working-age population lowers the average wage by 0.3%.
  • These studies, which relate to different time periods, reach opposing conclusions but they agree that the effects of immigration on averages wages are relatively small.

It's important to distinguish between the effect of immigration on the average wage of all workers in the economy, and on the wages of different groups of workers. The effects of immigration on workers within specific wage ranges or in specific occupations are more significant. The studies find that immigration affects low-waged workers the most.

  • Research from University College London finds that each 1% increase in the share of migrants in the UK-born working age population leads to a 0.6% decline in the wages of the 5% lowest paid workers and to an increase in the wages of higher paid workers.
  • Similarly, another study focusing on wage effects at the occupational level during 1992 and 2006, found that, in the unskilled and semi-skilled service sector, a 1% rise in the share of migrants reduced average wages in that occupation by 0.5%.

These impacts were reviewed in two recent government studies by the Department for Business, Innovation and Skills and by the Migration Advisory Committee, respectively.

The wage effects of immigration are likely to be greatest for resident workers who are migrants themselves

The available research also shows that any declines in wages are likely to be greatest for resident workers who are themselves migrants. This is because the skills of new migrants are likely to be more similar to the skills of migrants already employed in the UK than for those of UK-born workers.

  • A study from 2012 which analysed data from 1975-2005 concluded that the main impact of increased immigration is on the wages of migrants already in the UK.

Research does not find a significant impact of overall immigration on unemployment in the UK

The first systematic study of this issue used data for 1983-2000 to analyse how changes in the share of migrants impact on employment, labour market participation and unemployment of existing workers. It concluded that immigration had no statistically significant effect on the overall employment outcomes of UK-born workers.

The study did, however, find statistically significant effects on specific educational groups of UK-born workers: immigration was found to affect employment, activity rates and unemployment of UK-born with intermediate levels of education (defined as O-level and equivalent) and a positive impact on employment outcomes of UK-born workers with A-levels or university degrees (and equivalent).

A separate study carried out by researchers at the Department of Work and Pensions (DWP) analysed the impact of labour immigration of A8 workers on claimant unemployment during May 2004-November 2005. The study found little evidence of an adverse effect.

Two recent studies have provided additional insights on the impact of immigration on employment in the UK using a time period which includes the latest recession. One, undertaken by the National Institute for Economic and Social Research (NIESR) used National Insurance Number (NINO) registrations data from 2002 to 2011 to explore the impact of immigration on claimant count rates (i.e. a proxy for unemployment) in 379 local authorities in England. The results suggest that there is no impact of immigration on the claimant count rate. This result holds even during periods of low economic growth or recession.

Immigration from outside the EU could have a negative impact on the employment of UK-born workers, however, especially during an economic downturn

Research by the Migration Advisory Committee (MAC) studied the impact of migrants on the employment of UK-born people using data from the Labour Force Survey (LFS) for 1975-2010. The study suggests that:

  • Overall, migrants have no impact on UK-born employment. However, the MAC also analysed the specific impacts of EU and non-EU migrants and also distinguished between two sub-periods: 1975-1994 and 1995-2010. It found that non-EU immigration was associated with a reduction in the employment of UK-born workers during 1995-2010.
  • No statistically significant effects were found for EU immigration. The MAC analysis also suggests that the likelihood of a negative impact of immigration on employment of UK-born workers is likely to be greatest during economic downturns.

The impact of migration on jobs and wages depends on whether the migrants that come end up complementing or replacing existing workers

The impacts of immigration on the labour market critically depend on the skills of migrants, the skills of existing workers, and the characteristics of the host economy. They also differ between the short run — when a sudden increase in the availability of workers may be harder to absorb — and the and long run when the economy and labour demand can adjust to the increase in labour supply.

There is some evidence to suggest that, just like the impact on wages, the effects of immigration on unemployment differ between the short and long run. An OECD study of the impact of immigration on the unemployment of domestic workers in OECD countries (including the UK) during 1984-2003 found that an increase in the share of migrants in the labour force increases unemployment in the short to medium term (over a period of 5-10 years) but has no significant impact in the long run.

The immediate effects of immigration on the wages and employment of existing workers depend particularly on the extent to which migrants have skills that are substitutes or complements to those of existing workers.

  • If the skills of migrants and existing workers are substitutes, immigration can be expected to increase competition in the labour market and drive down wages in the short run. The closer the substitute, the greater the adverse wage effects will be.
  • Whether and to what extent declining wages increase unemployment or inactivity among existing workers depends on their willingness to accept the new lower wages.
  • If, on the other hand, the skills of migrants are complementary to those of existing workers, all workers experience increased productivity which can be expected to lead to a rise in the wages of existing workers.

In addition to increasing the number of workers, immigration can also increase the demand for workers. Immigration can increase competition for existing jobs but it can also create new jobs.

  • Migrants expand consumer demand for goods and services. In the medium to long run, immigration can be expected to lead to more investment.
  • Both effects result in greater demand for labour and thus increased wages and employment in the economy. In other words, the number of jobs in an economy is not fixed (This idea is called the "lump of labour fallacy").
  • The extent to which investment and labour demand respond to immigration depends on the characteristics of the economy. During an economic downturn labour demand may respond more slowly than during times of economic growth.

Changes in wages and employment are not the only ways in which an economy responds to immigration. There are at least two other adjustment mechanisms, including changes in the mix of goods and services produced in the economy, and changes in the technology used for producing them.

A key insight from these considerations is that the impact of immigration on the wages and employment opportunities of existing workers is always specific to time and place. This means that the results of research always only apply to the time and place under consideration.

For a more detailed discussion of the methodological issues that arise when measuring the labour market effects of immigration, complete with full academic references, read the Migration Observatory's briefing.

 

This briefing was written by Martin Ruhs and Carlos Vargas Silva of the Migration Observatory in collaboration with Full Fact. With thanks to Jonathan Wadsworth and Cinzia Rienzo for helpful comments on previous versions. This work has been funded by the Nuffield Foundation but the content is the responsibility of the authors and of Full Fact, and not of the Nuffield Foundation. 


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