The Impact of Immigration on the Structure of Wages: Theory and Evidence From Britain

Abstract

Immigration to the UK, particularly among more educated workers, has risen appreciably over the past 30 years and as such has raised labor supply. However studies of the impact of immigration have failed to find any significant effect on the wages of native-born workers in the UK. This is potentially puzzling since there is evidence that changes in the supply of educated natives have had significant effects on their wages. Using a pooled time series of British crosssectional micro data on male wages and employment from the mid-1970s to the mid-2000s, this paper offers one possible resolution to this puzzle, namely that in the UK natives and foreign born workers are imperfect substitutes. We show that immigration has primarily reduced the wages of immigrants -and in particular of university educated immigrants -with little discernable effect on the wages of the native-born. JEL Classification No. J6

The impact of immigration on the well-being of natives

“…As the labour market outcomes of immigrants converge with those of natives, indeed immigrants will gain in terms of well-being. However, this might also imply stronger competition pressures given that substitution among immigrants is generally stronger (Card, 2001;Manacorda et al, 2012).…”

“…However, they also find evidence that newly-arrived immigrants are substitutes in production with immigrants already residing in the UK (Manacorda et al, 2012). Analysing the impact of immigration on the employment rates of native Germans, Pischke and Velling (1997) find that immigration does not adversely impact natives' employment.…”

“…Analysing the impact of immigration on the employment rates of native Germans, Pischke and Velling (1997) find that immigration does not adversely impact natives' employment. More recently, D 'Amuri et al (2010) analyse both the wage and employment effects of immigration in West Germany and find that immigration has essentially no impact on natives' labour market outcomes, but has an adverse effect on previous immigrants as in the study of Manacorda et al (2012).…”

Free migration between the EU and Switzerland: Impacts on the Swiss economy and implications for monetary policy

“…Several authors, including Borjas (2003), Manacorda et al (2006), D'Amuri et al (2008), Ottaviano and Perry (2008) and Aydemir and Borjas (2007), have analyzed the effects of immigration on relative wages by estimating substitution elasticities between different types of labor in the framework of multilevel CES production functions. This structural approach is attractive because it identifies not only the negative impact of immigrants on wages of competing workers but also the effects on wages of workers who are complements and therefore may benefit from immigration.…”

Labor Market Competition with Immigrants and Political Polarization

“…A set of papers analyzing US data conclude that there is a high level of substitution between natives and immigrants within these groups (Aydemir and Borjas, 2007;Borjas, 2003;Borjas et al, 2010;Jaeger, 1996), while others find indications of more imperfect substitution (Manacorda et al, 2012;Peri, 2008, 2012). Analyzing Norwegian data, Bratsberg et al (2014, p. 379ff) find a high degree of substitutability between natives and immigrants within these skill cells in the Norwegian labor market.…”