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Brexit

The impact of immigration on wages in the UK #Brexit

BANK OF ENGLAND – Staff Working Paper No. 574 (December 2015)/ The impact of immigration on occupational wages: evidence from Britain

Stephen Nickell and Jumana Saleheen

Extract from the ‘Understanding Brexit’ seminar

by Stefano F. Fugazzi (abceconomics.com)

The recent rise in UK immigration has been a hotly debated and politically charged topic. The debate increased at the time of EU expansion in 2004, when the UK granted nationals from the new member states immediate free access to the UK labour market, and has intensified further ahead of a British referendum on EU membership. At the heart of this debate is the widespread belief by the general public and policymakers that immigration has large effects on the labour market in general and employment and wages in particular. The stereotype of the Polish plumber — used widely as a symbol of cheap labour — encapsulates the commonly held belief that immigration in Britain has pushed down wages in the most affected jobs. However, the balance of the research on this issue suggests that the share of immigrants in the workforce has had little or no impact on the pay rates of the indigenous population.

Immigration across occupations

Immigration to the United Kingdom has risen dramatically over the past two decades. This can be seen clearly from the charts below. Figure 1, panel a, shows that according to the official migration statistics, the net inflow of immigrants to the United Kingdom each year has risen from around 50,000 individuals in 1995 to just under 300,000 in 2014.

f1

Given the recent interest on immigration from the EU, Figure 1c and d set out how immigration from this sub-group has changed with immigration policy. Immigration from the EU-14 countries has been pretty stable in recent decades, with immigration from the new EU member states, the so called A10 countries —Czech Republic, Cyprus, Estonia, Slovakia, Slovenia, Lithuania, Hungary, Poland, and Malta — rising recently. That rise is undoubtedly related to the expansion of the EU to include the new A10 countries in 2004.

f1cd

This rise in immigration to the United Kingdom in recent years has been well documented in past studies. But very little has been said about the occupations in which immigrants end up. In this section, we explore the key facts about immigration across occupations. In particular, we document which occupations attract the most immigrants and whether this has changed over time. We also document the trends in wages in the different occupations.

Which occupations attract the most immigrants? Figure 3a shows the ratio of immigrants to natives in each broadly defined occupation group.

f3a

It shows that the immigrant-native ratio varies considerably across broad occupations. It is highest for elementary workers (for example, cleaners and labourers) and operatives (clothing cutters, plastic wood and machine operatives): in these occupations 1 in 3 workers are immigrants. The immigrant native ratio is also high for professional workers (e.g. engineers): 1 in 5 workers are immigrants. And the ratio tends to be lowest in administrative occupations (secretaries, call centre staff); importantly, although the immigrant to native ratio is lowest here, it should be noted that 15% of all immigrants in 2012-2014 were in administrative occupations.

The chart also shows the split of by immigrants from the EU countries and elsewhere. What stands out here is that EU migrants are most predominant in the low skilled Elementary and Operative occupations.

Figure 3b reviews the immigrant-native ratio in more detail.

f3b

Figure 4 makes evident that immigration has grown across most occupations, with the sharpest rise in the lowest skill occupations (Elementary jobs).

f4

Figure 5 breaks the rise in immigration down into immigration from the EU and non-EU. The pace of rise in immigration from outside of the EU appears to have been steady over time, but growing fastest in low skilled jobs (Elementary and Operatives). In contrast the EU immigrant-native ratio appears to have been rather stable until 2006, rising rapidly thereafter notably in low skilled jobs.

f5

Wage movements across occupations

Figure 6 shows how the average wage in each occupation, has evolved relative to the average wage across all occupations. The horizontal line at 1 is a benchmark that illustrates the occupation where wages are higher than the national average, and which are lower.

f6

Two facts stand out.

First, high-skilled jobs (managers, professionals) earn more than the average wage, and low-skilled jobs (operatives and elementary occupations) earn below the average.

Second, we see that relative wages have fallen in some occupations and have been flat to rising for other groups.

The impact of immigrant workers on UK wages

  • Although immigration appears to have a negative impact on occupational pay (salaries), the overall average effect is relatively small.
  • Not surprisingly, the results show that there are clear differences, in the impact of immigration on wages, across occupations.
  • a 10 percentage point rise in the proportion of immigrants working in semi/unskilled services — that is, in care homes, bars, shops, restaurants, cleaning, for example — leads to a 1.88 percent reduction in pay and to a 0.54 percent fall in all wages within semi/unskilled services (foreigners plus natives).
  • a 10 percentage point rise in the proportion of immigrants working in skilled production workers lowers wages by 1.68% for foreigners and 1.13% overall.
  • the ratio of EU to non-EU immigrants has a very small impact on wages a 10% rise in immigration, and constant EU/non-EU immigrant ratio, would lower overall wages by 0.33%. But if a 10% rise in immigration was such that the EU/non-EU immigrant share also rose by 10%, overall wages would likely fall by 0.31%.
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