Immigration & wages: more evidence

Does immigration cut wages? Here’s some new evidence.  Stephen Nickell and Jumana Saleheen estimate that a five percentage point rise in the proportion of immigrants working in a particular occupation  leads to a fall in wages in that occupation of 0.2%.
This is statistically significant, but hardly economically so. It means that 1.5 million new immigrants would cut average wages by less than 3p an hour.
However, all this effect is concentrated in low-skill service sector occupations, such as retailing, cleaning or bars. Here, a 10 percentage point rise in the immigrant workforce as a share of the total is associated with a 5.2% fall in wages.
Is this significant enough to justify restricting immigration? I’m not sure:
1. There are lots of others things which have depressed unskilled wages in recent years - globalization, technical change, the decline of unions and the fact that new technology allows efficiency wages to be replaced by direct control. It could be that failure to control for these leads to an over-estimate of the impact of immigration.
It's odd to focus so much upon immigration when considering causes of falling relative wages.
2. This paper (pdf) finds that the main effect of immigration is to reduce the wages not of natives but of previous immigrants; the Polish cleaner cuts the wages of the Nigerian cleaner.
3. Even if immigrants do reduce wages of unskilled natives, it doesn’t follow that immigration controls are the best policy response. These have a deadweight cost, and might not work, as restricting non-EU immigration might merely cause a rise in migration from the EU.
It might instead be that a better response would be tax or benefit changes to help those on low pay.
So, my Bayesian prior remains - if you want an argument for immigration controls, you can’t find it in the economic research.

Comments

[john cramerjohn]

No cost to bringing lots of foreigners into the country? All those diversity enforcers can't be cheap.
And using low labour must surely impede the need for technological advance.

[georges]

Immigration increases the supply of people and the demand for homes. You'd expect it to reduce wages and increase house prices and rents. How much it does this depends on how many foreigners immigrate to the UK. If all 5 billion foreigners with current wages lower than UK wages immigrate to the UK, the effects will be more extreme than if just 5 foreigners immigrate. Numbers are crucial.

Apart from increasing the demand for housing, immigrants will inevitably put more pressure on government services, such as schools and hospitals. Low wage immigrants are likely to have more dependents (5 kids rather than 1 or 2), and this will increase still further the demand for housing, schools and hospitals, and for state payments such as child benefit. Chris, we really need more rounded figures, which estimate these other costs.

What if the UK only allowed in immigrants with University degrees? We'd be fairly certain these immigrants would pay more into the system in taxes than they'd take out in benefits. They'd be likely to have smaller families with fewer dependents. They wouldn't be competing with the white underclass for low-paid, low-skilled jobs. But they would be competing with the posh people with Polish nannies. Just a thought.

[Chris Williams]

Is anyone counting the wage-rate and housing demand effects of shedloads of British workers leaving the country to live and work in outher EU states?

[georges]

Good question, Chris. The effects will depend crucially on who these people are, and how many. The worst case would be if they are highly skilled professionals in their late 20s and early 30s - surgeons, software developers etc. The UK government will have just finished subsidizing their expensive University education, partly on the assumption that they will pay lots of income tax into the treasury for the next 40 years, and maybe start successful companies paying corporation tax. All this revenue will be lost. If they are unemployed working-class people moving to Poland, to be builders and nannies for the Polish professional class, sending their kids to Polish schools etc, then their emigration would almost certainly ease the strain on resources. I suspect it's mostly the former.

[Chris Williams]

Is anyone measuring remittances from expat UK workers?

[Denis Drew]

It is not under-priced labor -- in the sense of people here or overseas willing to work for less -- that is dragging down American wages and causing whole-segment unemployment (see very many American born cab drivers or fast food workers lately?). It is the under-pricing of labor that is causing America's Great Wage Depression (my term covering both lost pay and lost jobs).

If Australia had a 1000 mile land border with China -- open, Mexican-American style -- Australian labor would need powerful wage support legislation to maintain its native pay and employment at maximum levels: a solid minimum wage (1/2 the "true" average wage -- USA "true" meaning $25/hr; reported AWI up only 20% since 1968) plus the most up to date collective bargaining structure known as sector-wide labor agreements (not the card check attempt to wring one more drop of life out of all but dead labor law -- Australian could actually consider sector wide now that its once effective if eccentric wage support structure has badly eroded).

America's is the only modern OECD labor market facing the double whammy of globalization and yearly immigrating millions; and yet remains the only modern OECD market seriously devoid of legislative defenses against either outside low wage expectations or against the home grown race to the bottom (recently introducing whole-segment unemployment to middle class, would-have-been supermarket employees).

[Pete Murphy]

Rampant population growth threatens our economy and quality of life. Immigration, both legal and illegal, are fueling this growth.

I'm not talking just about the obvious problems that we see in the news - growing dependence on foreign oil, carbon emissions, soaring commodity prices, environmental degradation, etc. I'm talking about the effect upon rising unemployment and poverty in America.

I should introduce myself. I am the author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, my theory is that, as population density rises beyond some optimum level, per capita consumption of products begins to decline out of the need to conserve space. People who live in crowded conditions simply don’t have enough space to use and store many products. This declining per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge implications for U.S. policy toward population management, especially immigration policy. Our policies of encouraging high rates of immigration are rooted in the belief of economists that population growth is a good thing, fueling economic growth. Through most of human history, the interests of the common good and business (corporations) were both well-served by continuing population growth. For the common good, we needed more workers to man our factories, producing the goods needed for a high standard of living. This population growth translated into sales volume growth for corporations. Both were happy.

But, once an optimum population density is breached, their interests diverge. It is in the best interest of the common good to stabilize the population, avoiding an erosion of our quality of life through high unemployment and poverty. However, it is still in the interest of corporations to fuel population growth because, even though per capita consumption goes into decline, total consumption still increases. We now find ourselves in the position of having corporations and economists influencing public policy in a direction that is not in the best interest of the common good.

The U.N. ranks the U.S. with eight other countries - India, Pakistan, Nigeria, Democratic Republic of Congo, Bangladesh, Uganda, Ethiopia and China - as accounting for fully half of the world’s population growth by 2050. The U.S. is the only developed country still experiencing third world-like population growth, most of which is due to immigration. It's absolutely imperative that our population be stabilized, and that's impossible without dramatically reining in immigration, both legal and illegal.

If you’re interested in learning more about this important new economic theory, I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface, join in my blog discussion and, of course, purchase the book if you like. (It's also available at Amazon.com.)

Please forgive the somewhat spammish nature of the previous paragraph. I just don't know how else to inject this new perspective into the immigration debate without drawing attention to the book that explains the theory.

Pete Murphy
Author, "Five Short Blasts"

[georges]

Chris Williams

I found this:

http://news.bbc.co.uk/2/shared/spl/hi/in_depth/brits_abroad/html/default.stm

And This:

http://www.newstatesman.com/200408020014

The vast majority of Brits leaving the UK are not heading for EU countries, although significant numbers do head for Spain, France and Ireland. I suspect (on no evidence) the Spanish contingent are mostly retirees. The number one destination of choice is Australia, and other Anglophone countries make up most of the remainder. Not surprising, really.

[Chris Williams]

So no-one's counting, then? That's a pity, because I find that numbers are often helpful.