Anna Ross (National Institute of Economic and Social Research) - Skills Premia and Immigrant-native wage gaps

Introduction Facts and data Results Conclusion Appendix

Skill Premia And Immigrant-Native Wage Gaps

Anna Rosso1

1University College London and NIESR

The Labour Force Survey: past, present and future

BIS, 28th November 2013

1 Anna Rosso


Introduction

I Eastern European immigrants have become one of the largest

immigrant group in the UK labour market, after 2004 Figure 2

I Changes in the migration policies a�ect the composition and

quality of immigrants (Antecol, Cobb-Clark and Trejo, 2004 )

I The 2004 accession has changed the scale and composition of

immigration in the UK (Pollard et al, 2008)

I Large literature on EU8 migration and labour market

performance: better educated than natives but very high wage

penalty.

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The migration theory

I Country-speci�c human capital (Chiswick, 1980 Bell, 1997)

I Transferability of education and labour market experience

I Empirical evidence for other countries on Eastern European

migration

I Temporary migration: lower reservation wages (Dustmann

2000), less investment in country-speci�c human capital

I No evidence of poor skill transferability before the

enlargement: why?

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This paper

I Review and extensions of previous results: compare EU8 with

EU14 and other immigrants

I Analysis of the immigrant-native wage gaps at di�erent

percentiles of the distribution: immigrants' performance varies

widely at the top and the bottom of the distribution (Hunt,

2012)

I Try to identify skills acquired in the source country and

destination country (in addition to education, foreign vs British

labour market experience)

I Apply the unconditional quantile regression to analyse migrant

wages (Firpo, Fortin, Lemieux, 2010)

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Overview of results

I Decrease of return to education, but within industries and

occupations no statistically signi�cant changeI Substantial lower returns to foreign experience compared to

other groupsI Higher wage penalty a the top of EU8 wage distribution (most

unexplained)I Recent immigrants results: EU8 immigrants more similar to

other immigrants, yet occupational downgrading larger for EU8I Lack of skill transferability explains why secondary and tertiary

educated �nd jobs in low-paid occupations (especially at the

top)I What happens to the bottom: downgrading but better wage

structure than natives (relative advantage of immigrants in

manual-intensive tasks - Peri and Sparber, 2009; Peri et al,

2013; D'Amuri and Peri, 2013)5 Anna Rosso


EU8 immigrants in the UK

I Before 2004

I Immigration Act of 1971 and EU8 labour immigrants in theUK were subject to immigration controls (work permits limitedto period and employer)

I In the 90's the EU Association Agreement to establish business

I After 2004

I Free to move and work in the UK only need to register withthe WRS

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EU8 immigrants in the UK

I Before 2004

I Immigration Act of 1971 and EU8 labour immigrants in theUK were subject to immigration controls (work permits limitedto period and employer)

I In the 90's the EU Association Agreement to establish business

I After 2004

I Free to move and work in the UK only need to register withthe WRS

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Data

I British Labour Force Survey - 1998 to 2008

I Immigrants variables: country of birth, year of arrivalI Education: years of education (not quali�cation) as more

representative for immigrants (Saleheen and Shadforth, 2006;Manacorda, Manning and Wadsworth, 2012)

I Earnings: log hourly gross wages (in real terms)I Sample of individuals aged 16-64, employed

I Data issues

I Immigrants may be underrepresented and selected sample,especially this particular group (Saleheen and Shadforth, 2006;Gilpin et al, 2006)

I More likely to exclude short-term migrants

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Some descriptivesBefore 2004 After 2004

UK natives EU8Other

immigrantsEU14 UK natives EU8

Otherimmigrants

EU14

log hourly gross realwage

2.25 2.17 2.32 2.32 2.34 1.99 2.38 2.42

British labour marketexperience

22 14 15 13 23 3 14 13

Foreign labour marketexperience

4 4 3 6 5 4

males (%) 50% 37% 51% 46% 50% 55% 52% 49%Education

Primary 57% 12% 26% 30% 51% 8% 21% 25%Secondary 27% 47% 36% 33% 29% 51% 36% 33%

Tertiary 16% 41% 37% 37% 20% 41% 43% 42%Years of education 11 14 13 13 12 14 14 14Cohort of arrival

before 1998 73% 84% 81% 7% 59% 64%arrival 1998-2003 27% 16% 16% 15% 28% 23%arrival 2004-2008 78% 13% 12%

Age 39 38 38 36 40 30 39 37Marital status

Single 30% 29% 28% 42% 32% 55% 28% 43%Married 58% 58% 61% 47% 55% 36% 61% 46%

Other 12% 13% 11% 10% 13% 9% 11% 10%

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Some descriptives (cont'd)Before 2004 After 2004

UK natives EU8Other

immigrantsEU14 UK natives EU8

Otherimmigrants

EU14

OccupationLegislators and managers 14% 0% 14% 15% 15% 3% 13% 17%

Professionals 15% 6% 21% 21% 14% 5% 20% 21%Technicians 11% 3% 11% 10% 13% 4% 15% 15%

Clerks 18% 9% 16% 16% 16% 8% 12% 12%Service and sales workers 15% 38% 16% 18% 16% 17% 17% 16%

Agricultural and fishery workers 1% 0% 0% 0% 1% 1% 0% 0%Crafts and related trades workers 9% 0% 5% 5% 7% 9% 4% 4%

Plant and machine operators 8% 13% 7% 5% 7% 20% 6% 4%Elementary occupations 9% 31% 9% 9% 10% 34% 12% 11%

Industrya-b: agriculture & fishing 1% 1% 0% 0% 1% 2% 0% 1%

c,e: energy & water 1% 0% 1% 1% 1% 0% 1% 1%d: manufacturing 19% 14% 15% 15% 14% 27% 12% 12%

f: construction 5% 6% 2% 3% 6% 6% 3% 3%g-h: distribution, hotels & restaurants 18% 23% 20% 21% 17% 25% 19% 20%

i: transport & communication 7% 3% 7% 7% 7% 11% 7% 7%j-k: banking, finance & insurance etc 15% 15% 19% 20% 15% 11% 20% 21%

l-n: public admin, educ & health 30% 24% 30% 27% 34% 11% 34% 30%o-q: other services 5% 13% 5% 6% 5% 5% 4% 5%

workplace outside uk 0% 0% 0% 0% 0% 0% 0% 0%

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Changes in the distribution

Figure : Immigrant-Native wage gap by percentile-.

6-.

4-.

20

log

diff

20 40 60 80 100perc

before after

A8 immigrants

0.0

5.1

.15

log

diff

20 40 60 80 100perc

before after

All other immigrants

0.0

5.1

.15

log

diff

20 40 60 80 100perc

before after

EU14

by percentile in the two periods

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Decomposition methods

I Mean wage decomposition and quantile decomposition:

Oaxaca-Blinder decomposition

∆t = W It −WNt = (X It −XNt)βNt︸︷︷︸explained

+ (βIt −βNt)X It︸︷︷︸unexplained

I Explained component: di�erences in characteristics

I Unexplained component: di�erences in the wage structure

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Mean decomposition - EU8Model 1 Model 2

Before 2004 After 2004 Before 2004 After 2004Raw (unadjusted) gap -0.079 -0.369 -0.079 -0.369

British Experience -0.146 -0.339 -0.107 -0.248Education 0.267 0.223 0.131 0.107Marital Status 0 -0.016 0 -0.01Female -0.033 0.012 -0.026 0.009Location 0.089 0.028 0.076 0.024Occupation - - -0.017 -0.168Industry - - -0.018 -0.019

Total Explained 0.18 -0.093 0.039 -0.306

British Experience 0.007 0.023 -0.041 -0.001Foreign Experience 0.089 0.071 0.042 0.042Brit-foreign exp interaction -0.064 -0.019 -0.05 -0.005Education -0.498 -0.713 -0.401 -0.332Marital Status 0.006 -0.029 -0.046 -0.019Female -0.052 0.035 -0.023 0.018Location -0.143 0.028 -0.093 0.031Occupation - - -0.058 0.177Industry - - -0.221 -0.047Intercept and other variables 0.395 0.327 0.773 0.073

Total unexplained -0.259 -0.276 -0.118 -0.063

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Quantile decomposition- EU8Model 2

20th 50th 90thBefore 2004 After 2004 Before 2004 After 2004 Before 2004 After 2004

Raw (unadjusted) gap -0.047 -0.192 -0.050 -0.393 -0.017 -0.589

British Experience -0.083 -0.193 -0.101 -0.240 -0.132 -0.295Education 0.060 0.052 0.111 0.099 0.248 0.187Marital Status 0.000 -0.006 0.001 -0.013 0.000 -0.016Female -0.026 0.009 -0.028 0.009 -0.026 0.009Location 0.060 0.015 0.087 0.028 0.083 0.032Occupation -0.043 -0.150 -0.021 -0.223 -0.010 -0.141Industry -0.027 -0.034 -0.026 -0.028 0.002 0.003

Total Explained -0.055 -0.307 0.025 -0.368 0.173 -0.222

British Experience -0.174 -0.015 -0.070 -0.007 0.166 -0.001Foreign Experience -0.033 0.012 0.021 0.003 0.051 0.115Brit-foreign exp interaction -0.006 0.000 -0.022 0.005 -0.070 -0.023Education -0.286 -0.117 -0.585 -0.393 -0.559 -0.587Marital Status 0.062 -0.005 -0.062 -0.009 -0.141 -0.059Female -0.024 0.048 -0.058 0.027 -0.067 -0.001Location -0.074 -0.035 -0.113 0.102 0.152 -0.059Occupation -0.058 -0.032 0.040 0.010 0.373 0.056Industry -0.035 0.171 -1.573 0.523 0.233 0.477Intercept and other variables 0.636 0.088 2.348 -0.286 -0.329 -0.286

Total unexplained 0.008 0.115 -0.074 -0.025 -0.191 -0.367

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Recent immigrants - descriptives

EU8 EU14Other

Immigrantslog hourly gross real wage 1.87 2.34 2.28

British Experience (year since migration) 1.65 1.47 1.68Foreign experience 6.62 7.41 8.96

males (%) 60% 52% 57%Education

Primary 9% 10% 10%Secondary 53% 29% 33%

Tertiary 38% 60% 57%Years of education 14 16 15Age 28 31 32Marital status

Single 61% 68% 43%Married 32% 28% 53%

Other 7% 4% 5%

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Recent immigrants - quantilesEU8 EU14 Other immigrants

20th 50th 90th 20th 50th 90th 20th 50th 90thRaw (unadjusted) gap -0.216 -0.437 -0.750 -0.059 0.089 0.183 -0.100 -0.068 0.087

British Experience -0.218 -0.270 -0.329 -0.221 -0.275 -0.334 -0.217 -0.269 -0.328Education 0.049 0.093 0.176 0.082 0.157 0.295 0.065 0.123 0.233Marital Status -0.007 -0.016 -0.019 -0.008 -0.019 -0.022 -0.002 -0.004 -0.003Female 0.017 0.018 0.018 0.006 0.006 0.006 0.015 0.015 0.015Location 0.005 0.008 0.009 0.045 0.084 0.106 0.038 0.073 0.088Occupation -0.172 -0.255 -0.164 0.001 0.002 0.003 -0.024 0.008 0.016Industry -0.033 -0.027 0.002 -0.008 0.063 0.088 -0.021 -0.016 0.018

Total Explained -0.358 -0.448 -0.307 -0.104 0.017 0.141 -0.146 -0.069 0.039

British Experience 0.023 0.037 0.001 0.012 -0.058 -0.005 0.008 0.023 -0.002Foreign Experience 0.015 -0.012 0.059 0.126 0.160 0.567 0.047 0.129 0.408Brit-foreign exp interaction -0.001 0.014 -0.003 -0.065 -0.082 -0.194 -0.005 -0.044 -0.144Education -0.118 -0.409 -0.837 -0.199 -0.009 -0.163 -0.245 -0.393 -0.577Marital Status -0.006 -0.010 -0.039 -0.017 -0.021 0.064 -0.015 -0.066 -0.003Female 0.046 0.039 0.027 0.064 0.053 0.016 0.052 0.073 0.050Location -0.036 0.059 -0.009 0.078 0.371 0.156 0.082 0.134 0.080Occupation 0.201 0.439 0.738 -0.150 0.220 -0.015 -0.186 -0.142 -0.161Industry -0.024 -0.034 -0.529 -0.119 -0.120 1.165 -0.130 -0.339 -1.227Intercept and other variables 0.041 -0.111 0.149 0.316 -0.443 -1.550 0.440 0.625 1.625

Total unexplained 0.141 0.011 -0.443 0.045 0.071 0.042 0.046 0.001 0.048

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Summary

I Decrease in wage levels for EU8 immigrants after 2004, at the

mean and at all percentiles, despite high education levels

I Occupational mix and lack of British experience

I EU8 immigrant-native wage gap has increased more at the top

of the distribution

I Change in the wage structure (high negative unexplainedcomponent)

I British experience accumulated is much less valued

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Summary

I Return to education is much lower for all immigrants

compared to natives, especially at the top

I Lower values attached to foreign labour market experience and

education acquired in the source country: poor skill

transferability

I Increase in the wage penalty also at the bottom where they are

more likely to compete with natives for more low-skilled

occupations: temporary migration?

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Conclusions

I Downgrading as a result of poor skill transferability:

I Collaboration across countries?I Increase in the quality of education: indirect positive e�ects

through higher remittances and skill and technologyacquisition on the source country if skills are better matched.

I Lack of knowledge of English? language courses to improvetheir communication abilities (Clark and Drinkwater, 2008)

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Thank you!

email: [email protected]

twitter: annac_rosso

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Appendix - Employment, unemployment and participation

UK natives EU8Other

immigrantsEU14

Before 2004Participation rate 78% 67% 71% 79%Employment rate 74% 62% 65% 75%

Unemployment rate 5% 7% 8% 6%After 2004

Participation rate 79% 87% 73% 81%Employment rate 75% 81% 68% 77%

Unemployment rate 5% 6% 7% 5%

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Appendix - country distribution

Before 2004 After 2004

%meanwages %

meanwages

Hungary 20% 2.07 3% 2.05Poland 43% 2.31 67% 1.98Czech Republic 12% 1.96 6% 2.10Estonia 2% 2.30 1% 2.08Lithuania 9% 2.19 9% 1.88Latvia 3% 2.22 3% 1.90Slovak Republic 10% 1.73 10% 1.89Slovenia 1% 2.60 0% 2.30

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Appendix - occupational distribution

Natives Recent All Recent All Recent AllLegislators and managers 5.57 0.51 0.85 5.19 6.29 3.01 4.59Professionals 2.89 0.26 0.66 3.46 5.06 3.02 3.4Technicians 6.19 1.4 1.69 8.23 7.33 3.92 5.47Clerks 22.13 3.06 4.41 12.12 18.85 9.05 15.03Service and sales workers 27.34 17.73 21.69 30.74 30.81 37.19 31.12Agricultural and fishery workers 0.88 0.13 0.28 0.36 0.1 0.31Crafts and related trades workers 7.66 8.04 7.51 5.19 5.27 2.61 5.29Plant and machine operators 10.27 20.92 19.53 9.09 7.43 9.75 11.63Elementary occupations 17.06 47.96 43.38 25.97 18.6 31.36 23.16

Natives Recent All Recent All Recent AllLegislators and managers 33.33 3.56 9.82 32.52 34.7 27.71 28.75Professionals 37.52 11.88 21.19 47.97 44.8 46.68 47.24Technicians 14.8 6.41 9.17 13.82 12.3 17.84 14.08Clerks 4.63 5.94 11.76 4.07 4.16 3.61 4.95Service and sales workers 3.18 9.5 8.27 0.81 1.59 1.33 1.76Agricultural and fishery workers 0.03 0.26Crafts and related trades workers 3.99 12.35 10.47 0.81 1.65 1.71 1.82Plant and machine operators 1.63 25.18 13.57 0.43 0.19 0.75Elementary occupations 0.9 25.18 15.5 0.37 0.95 0.65

20th

90th

EU8 EU14 Other Immigrants

EU8 EU14 Other Immigrants

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Figure 1

Slide 2

Figure : Total number of immigrants in the UK (in thousands)

2500

3000

3500

4000

4500

Oth

er im

mig

rant

s

020

040

060

080

0E

U8/

EU

14

1998 2000 2002 2004 2006 2008Year

EU8 immigrants EU14 immigrantsOther immigrants

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Anna Ross (National Institute of Economic and Social Research) - Skills Premia and Immigrant-native wage gaps

Business

eu association

specic human

foreign exp

native wage

work permits

labour market

poor skill

native wage