Summary
1. Immigration may well have some effect in reducing wages and may also hold them back from rising.
Detail
2. A summary of the rather limited academic research base for the impact of migration on wages of the UK-born is contained in Annex A together with links to each of the papers or where they can be found.
3. All precede the recession. Broadly, earlier ones find small positive or no impact, later ones negative or no impact. The exception is Nathan’s work that is focussed exclusively on cities; this is a ‘later’ paper that does find a positive impact on wages, but at the cost of an adverse impact on employment.
4. No work seems to have been published on the post-recession period. A simple correlation over this period is bound to be a negative one as real wages have fallen while immigration has continued apace. The likely result of a more sophisticated analysis is uncertain because it would be hard to disentangle migration impacts on wages from the interaction between wages and general employment levels.
5. However, the broad relationship of supply and demand for labour on wages is beyond doubt. If businesses have difficulty recruiting and retaining people, then they come under pressure to increase wages. For some time now Bank of England Agents’ reports have consistently noted that recruitment and retention difficulties have been eased by the availability of labour from abroad and that this abatement of recruitment and retention difficulties has eased pressure on wages. And only last month (September 2015) the Deputy Governor noted in a speech that compositional changes in the workforce had pushed wage changes in a negative direction during the recovery and that one reason for this may be the ready supply of low-skilled migrant labour.
6. This is really the present issue – it is not that immigration necessarily reduces wages, but that it has (and might well still be) holding them back from rising. This is one theme of the Blanchlower and Shadforth (2009) paper ” Fear, Unemployment and Migration” which theorises the very common sense matter that if you think someone else might stand ready to take your job, you mute your own demands for more money.
7 October 2015
/Annex A
Dustmann, Fabbri, Preston and Wadsworth. (2003) ‘The local labour market effects of immigration in the UK’, Period covered – 1992-2000. Findings on wages – Statistically significant positive impact of migration on UK-born average wages, 1 percentage point rise in the non-UK born/UK born ratio for working-age individuals increases average non-immigrant wages by 0.2 percentage points. Source of wages data – LFS. link
Dustmann, Fabbri and Preston. (2005) ‘The Impact of Immigration on the British Labour Market’, Period covered – 1992-2000. Findings on wages – No statistically significant effect of non-UK born on UK born average wages. Source of wages data – LFS. link
Manacorda, Manning and Wadsworth. (2006) ‘The impact of immigration on the structure of male wages: theory and evidence from Britain’, Period covered – 1975-2005. Findings on wages – Little effect on UK-born wages, but more significant negative effect on wages of previous migrants. Source of wages data – General Household Survey and LFS. link
Dustmann, Frattini and Preston. (2008) ‘The effect of immigration along the Distribution of Wages’, Period covered – 1997-2005. Findings on wages – Increasing proportion of migrants in workforce decreased average wages of lower-paid, increased average wages of middle and higher-paid. Source of wages data – LFS. link
Lemos and Portes. (2008) ‘The impact of migration from the new EU member states on native workers’, Period covered – 2004-2007. Findings on wages – No statistically significant impact of A8 migrants on wage levels across the wage distribution. Source of wages data – ASHE. link
Nickell and Salaheen. (2008) ‘The Impact of Immigration on Occupational Wages: Evidence from Britain’, Period covered – 2004-2007. Findings on wages – Increasing non-UK born share of the workforce in a particular occupation reduced average wages of that occupation in the subsequent year for skilled production occupations, semi-skilled and unskilled service occupations, and caring and personal service occupations. Statistically insignificant impact on managers, professionals, and semi-skilled and unskilled production occupations. Source of wages data – ASHE. link
Reed and Latorre. (2009) ‘The economic impacts of migration on the UK labour market’, Period covered – 2000-2007. Findings on wages – Negative impact on wages overall: 1 percentage point increase in non-UK born share of working age population reduces average wage by 0.3%. Source of wages data – LFS. link
Nathan. (2011) ‘The long term impacts of migration in British cities: Diversity, wages, employment and prices’, Period covered – 1994-2008. Findings on wages – Statistically significant positive impact on native wages using ‘spatial correlation’ approach (but alongside negative impact on native employment) No significant impact on wages using ‘skill cell’ approach. Source of wages data – LFS. link