Labour Migration to the UK · immigration shock… our presumption should be that immigration has no long run effect on labour market outcomes “ ... 8 Brent, Harrow and Hillingdon

Labour Migration to the UK

Jonathan PortesChief Economist, Department of Work and

Pensions

Context and summary

• Rapid rise in migration to the UK

• Broadly positive government stance towards economic migration; clear consensus among economists about benefits

• But considerable political difficulties, especially around asylum and irregular migration

• A8 Accession – what can we say about labour market impact.

Total International Migration (TIM) to/from the UK 1991-2004

Substantial increases in UK migration flows

…leading in turn to sizeable shift in the make-up of the UK population

8.6%

11.8%

10.0%

5.8%

4.3%

6.6%

0%

2%

4%

6%

8%

10%

12%

Autumn1993

Summer1994

Spring1995

Winter1995

Autumn1996

Summer1997

Spring1998

Winter1998

Autumn1999

Summer2000

Spring2001

Winter2001

Autumn2002

Summer2003

Spring2004

Winter2004

Autumn2005

% of working age population born outside of the UK

% of working age population from an ethnic minority

% of working age population born outside the UK andfrom an ethnic minority

The government view..

“Migration affects a wide range of Government objectives and has a positive impact on growth and productivity, the public finances and on meeting labour and skills shortages in the public and private sectors”

Pre Budget Report, 2002

Migration and the labour market

• Migrants to the UK concentrated at upper and lower ends of skill and income distribution - if anything recent developments exacerbate this.

• Migrants more likely to be of working age; but

• Working age migrants less likely to be employed

• Clearly overall significant fiscal and economic benefits; but little known about micro-level impacts.

Effect of migration on native workers

“ A large literature exists for the US…the almost universal conclusion of these studies is that there is no large discernible impact of immigration on native wages and employment….

The main empirical result is that there is no strong evidence of large adverse effects of immigration on native employment or wages [in the UK]..”

[Dustmann, Wadsworth et al, 2001]

“ The overwhelming majority of empirical studies agree that there is essentially no statistically significant effect of immigration on labour market outcomes “

[Gaston and Nelson, 2000]

Despite the US debate, these conclusions are probably now stronger rather than weaker…

But common sense says there must be an effect – they compete with natives for jobs

!?!

• “ There is some presumption that output-mix adjustment fully absorbs the immigration shock… our presumption should be that immigration has no long run effect on labour market outcomes “

[Gaston and Nelson]

• A difficult communications job to get this across to the public [indeed even to some labour market economists…

A8 accession - policy background

• Eight Central and Eastern European countries (A8) joined the European Union on 1st May 2004 along with Malta and Cyprus.

• The UK government granted Free Movement of Workers to nationals of these countries while the rest of the EU-15 imposed transitional arrangements.

The Worker Registration Scheme

• Nationals of the accession countries (excluding Malta and Cyprus) are required to register on the Worker Registration Scheme if they are employed in the UK for one month or more.

• This requirement provides the UK Government with an important new source of data about migrant workers from the accession countries.

Assessment

• At the time of accession the UK government committed to continually monitor the impact on the UK labour market.

• The Home Office publish quarterly Accession Monitoring Reports based on administrative data from the WRS.

• DWP published an early assessment of the impact on the UK labour market in May 2005 and a fuller assessment in February 2006, focusing on the impact on registered unemployment.

How many people have registered on the WRS?

0

5,000

10,000

15,000

20,000

25,000

30,000

May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05

Since accession Pre accession No details

WRS applications processed by month

Characteristics of A8 migrants

• The vast majority of applicants to the WRS are Polish (58 per cent), followed by Lithuanian (14 per cent) and Slovak (11 per cent).

• Most applicants to the WRS are young and single – around 44 per cent are aged between 18-24 and 39% are aged between 25 and 34.

• A8 migrants are coming to the UK to work, not claim benefits –99% of applications for National Insurance numbers made by A8 nationals between May 2004 and September 2005 have been for work.

Which parts of the country have A8 migrants gone to?

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353535353535353535

686868686868686868

666666666666666666

131313131313131313151515151515151515404040404040404040

494949494949494949

585858585858585858565656565656565656

888888888 484848484848484848

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121212121212121212

141414141414141414

161616161616161616171717171717171717

181818181818181818

191919191919191919

202020202020202020

232323232323232323

252525252525252525272727272727272727

373737373737373737393939393939393939

363636363636363636

424242424242424242 434343434343434343

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474747474747474747505050505050505050

515151515151515151

525252525252525252

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575757575757575757

595959595959595959

606060606060606060

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636363636363636363

656565656565656565

676767676767676767

696969696969696969

303030303030303030

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282828282828282828

262626262626262626

323232323232323232

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383838383838383838

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Percent (%)

more than 1.5% (11)1% or more but less than 1.5% (7)0.75% or more but less than 1% (12)0.5% or more but less than 0.75% (19)0.25% or more but less than 0.5% (10)less than 0.25% (10)

Concentrations of WRS registrations by Jobcentre Plus districts

Orkney & Shetland Islands

1 Ay rshire, Dumf ries, Galloway & Invercly de2 Barnsley , Doncaster & Rotherham3 Bedf ordshire & Hertf ordshire4 Berks, Bucks & Oxf ordshire5 Birmingham & Solihull6 Black Country7 Bradf ord8 Brent, Harrow and Hillingdon9 Bridgend & Rhondda, Cynon, Taf f

10 Calderdale & Kirklees11 Cambridgeshire12 Cardif f & Vale13 Central London14 Cheshire & Warrington15 City and East London16 City of Sunderland17 County Durham18 Cov entry & Warwickshire19 Cumbria20 Derbyshire21 Devon & Cornwall22 Dorset & Somerset23 East Lancashire24 East Yorkshire & The Humber25 Eastern Valleys26 Edinburgh, Lothian & Borders District27 Essex28 Forth Valley and Fif e District29 Gateshead & South Ty ne30 Glasgow31 Gloucestershire, Wiltshire & Swindon32 Grampian & Tay side District33 Greater Manchester Central34 Greater Manchester East35 Greater Manchester West36 Greater Mersey37 Hampshire38 Highlands, Islands and Cly de Coast39 Kent40 Lambeth, Southwark and Wandsworth41 Lanarkshire & East Dunbarton42 Lancashire West43 Leeds44 Leicestershire45 Lincolnshire46 Liv erpool & Wirral47 Norf olk48 North East London49 North London50 North West Wales & Powy s51 North Yorkshire52 Northamptonshire53 Northumbria54 Nottinghamshire55 Shef f ield56 South East London57 South East Wales58 South London59 Staf f ordshire60 Suf f olk61 Surrey & Sussex62 Swansea Bay63 Tees Valley64 The Marches65 Wakef ield66 West London67 West of England68 West Wales69 Wrexham & North Wales Coast

Labour Market Statistics Team 04/11/2005© Copy right Reserved

What sectors are A8 migrants working in?

Worker Registrations as a proportion of all employees by sector in the UK

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Agriculture Energy Manufacturing Construction Distribution Transport Banking Public admin Other services

What has happened to employment rates?

Migrant and UK born employment rates (four quarter rolling averages)

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

Wint

er 01

Sprin

g 02

Sum

mer 02

Autu

mn 02

Wint

er 02

Sprin

g 03

Summer

03Au

tumn 0

3W

inter

03Sp

ring 0

4Su

mmer

04Au

tumn 0

4W

inter

04

Sprin

g 05

Sum

mer 05

UK Born EU15 Born A8 Born Malta & Cyprus Other foreign born

How might A8 migrants impact on the UK labour market?

• The volume of workers on the WRS is sufficiently high that we expect to see some impact on the UK labour market, particularly in areas and sectors with high concentrations of WRS workers.

This impact may manifest itself in a number of ways:– increased unemployment for some groups (substitute)– lower probability of some groups finding jobs– falls in employment for some groups– falls in wages– increased output and employment (complement)

Model design

ittiL

l litlitititit ffuXwmu ερλδβα +++Δ++++=Δ ∑= −1

itu = our measure of unemployment itm = our measure of migration itw = average wages itX = labour supply shifters

(% women, % minorities, % migrants outside A8) if = tf are individual and time fixed effects itε = the error term in local authority district i and

month t , 409,...,1=i , and 17,...,1=t .

A8 Migrants and unemployment

Table 5 - UNEMPLOYMENT EFFECT OF AN INCREASE IN THE % OF A8 MIGRANTS IN THE WORKING AGE POPULATION

short run coefficient standard errors long run coefficient standard errorsModels

(1) Raw coefficient -0.01 0.02(2) Controlling for individual and time fixed effects 0.01 0.03(3) Allowing for dynamic adjustment (one time period) 0.00 0.03 0.00 0.03(4) Allowing for dynamic adjustment (three timeperiods) 0.00 0.03 0.00 0.03(5) Correcting for serial correlation and heteroskedasticy 0.01 0.03 0.01 0.03(6) Controlling for average wages 0.01 0.03 0.01 0.03(7) Controlling for the proportion of workers in agriculture 0.01 0.03 0.01 0.03(8) Controlling for supply side shocks 0.01 0.03 0.01 0.03

(a) These are GLS estimates where the weights are the square root of the inverse of the population sample size. (b) The dependent variable is unemployment rate and the independent variable of interest is the proportion of migrants from the A8 countries to the working age population.(c) Time fixed effects are modelled with month dummies, individual fixed effects are modelled with local authority district dummies, and labour supply shifters are included as controls.(d) The interpretation of the coefficient is that an increase of one percentage point in the proportion of A8 countries migrants in the working population increases the unemployment rate of UK natives by b percentage points.

Conclusions

• There is no significant statistical evidence to suggest that A8 migration has been a contributor to the rise in claimant unemployment in the UK during 2005

• Robust to alternative estimation methods• Robust to alternative specifications• Robust to alternative sub-samples

(London, Agriculture and Fishing and Polish)