How does immigration actually affect the UK labour market?

October 18, 2013 // By: Faiza Shaheen

This week I was asked to comment on the impact of immigration on wages in the UK, a debate which is likely to get even more airtime early next year as Bulgarians and Romanians gain the right to work in the UK and across Europe. Talking about immigration is always a tricky topic so I wanted to make clear what the evidence says, and what the real focus of the discussion should be.

The first thing to say is that the issue of whether immigration dampens wages is not black and white. Neither can you consider impacts using a simple supply and demand model.

A surge of new migrants can indeed have an impact on the labour market, but this depends on the number of jobs being created (which can be boosted by the ability of businesses to produce more and by immigrants spending their earnings), if there is a drop-off in activity among the existing population (because of retirement for example); and if immigrants fill existing skills gaps.

There is some - often contested - evidence in the UK that immigration from Eastern Europe in the mid-2000s did have a small dampening impact at the bottom end of the labour market. However, it's vital that we recognise this impact is much smaller than the impacts of:

The real question here is why we focus so much on immigration rather than the structure of our economy, the creation of good jobs and how we might increase the power of employees working in cleaning, care, hospitality and other low paid sectors.

Often the question is asked (as I was) if British citizens have gained from immigration. There have been massive positive impacts in terms of increasing skill levels and diversity but it is important to also note the distributional impacts – for example a business owner may have gained more than an electrician, who is experiencing more competition for work. It is also obvious that immigration can have an impact on local communities, especially when there is rapid change. This is why we need to manage migration to mitigate against any negative effects.

However, the way to ‘manage’ migration is not to completely shut the door, stirring up ill-feeling among the existing population and/or making immigrants feel like imposters. Ultimately migration has been around for as long as humankind has. It is inevitable that people will move in and out of the UK. If anything, the coming demographic crunch will mean we need more migrants, not less.

I’ve done a couple of reports on the topic that you may want to take a look at – see here and here.

Issues

Jobs & Industrial Strategy

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