[ 1 ]

MIGRATION AND PRODUCTIVITY. LESSONS FROM THE UK-SPAIN EXPERIENCES

This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, “Policy Support and Anticipating Scientific and Technological Needs”

M. KANGASNIEMI (NIESR)

M.MAS (IVIE & U. VALENCIA)

K. ROBINSON (NIESR)

L. SERRANO (IVIE & U. VALENCIA)

Brussels, March 16th 2007

[ 2 ]

Objectives

• To analyze the impact of migration on productivity growth,

• Comparing two complementary experiences:• Spain: with a very recent presence of migrants• UK: traditional recipient of migration flows *

• From three perspectives:• Impact on GDP per capita. Alternative Scenarios• Growth Accounting• Econometric estimates

* The UK data on migrants are based on the Labour Force Survey micro data, access was provided by the UK Data Archive whose assistance is gratefully acknowledged.

[ 3 ]

MIGRATION AND PRODUCTIVITY

BASIC FACTS

[ 4 ]

MIGRATION AND PRODUCTIVITY. BASIC FACTS

Graph 1. Percentage of migrants in total employment. Spain & UK

0%

2%

4%

6%

8%

10%

12%

14%1

98

7

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

UK Spain

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MIGRATION AND PRODUCTIVITY. BASIC FACTS

Table 2b. Working Age Population/Total. UK

70,00%

75,00%

80,00%

85,00%

90,00%

95,00%

Nationals Migrants

Graph 2a. Working Age Population/Total SPAIN

70.00%

75.00%

80.00%

85.00%

90.00%

95.00%

Nationals Migrants

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MIGRATION AND PRODUCTIVITY. BASIC FACTS

Graph 3b. Activity Rates. UK

40,0045,0050,0055,0060,0065,0070,0075,0080,00

Nationals Migrants

Graph 3a. Activity Rates. Spain

40,00

45,00

50,00

55,00

60,00

65,00

70,00

75,00

80,00

Nationals Migrants

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MIGRATION AND PRODUCTIVITY. BASIC FACTS

Graph 4a. Unemployment rates (%). Spain

0,00

5,00

10,00

15,00

20,00

25,00

30,00

Nationals Migrants

Graph 4b. Unemployment Rates (%). UK

0,00

5,00

10,00

15,00

20,00

25,00

30,00

Nationals Migrants

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MIGRATION AND PRODUCTIVITY. BASIC FACTS

Graph 5b. Share of HIGH skill workers on total. UK

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Nationals Migrants

Graph 5a. Share of HIGH skill workers on total. SPAIN

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Nationals Migrants

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MIGRATION AND PRODUCTIVITY

GDP PER CAPITA DECOMPOSITION:

ALTERNATIVE SCENARIOS

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GDP PER CAPITA DECOMPOSITION

Equation (1)

Y = Real GDP

N = Total Population

WAP = Working Age Population

AP = Active Population

L = Employement

employment productivityGDPpc age activity

demography

Y WAP AP L Y

N N WAP AP L

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GDP PER CAPITA DECOMPOSITIONGraph 6a. Contributions to GDP per capita

growth. ACTUAL SPAIN

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment Productivity

Graph 6b. Contributions to GDP per capita growth ACTUAL UK

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment Productivity

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GDP PER CAPITA DECOMPOSITION

• SPAIN, THREE SCENARIOS ACCORDING TO DEMOGRAPHY

(INCLUDING LABOR MARKET) VARIABLES:

1. ACTUAL

2. VIRTUAL I: NO MIGRANTS (Substitute in (1) all the demography variables by the ones corresponding to Spanish nationals)

3. VIRTUAL II: UKneization (Substitute in (1) all the demography variables by the ones corresponding to UK aggregate (migrant+nationals) population)

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SCENARIOS 1 & 2. ACTUAL AND VIRTUAL I (NOMIGRANTS)

Graph 7a. Contributions to GDP per capita growth. VIRTUAL SPAIN I. NO MIGRANTS

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment

Graph 7b. ACTUAL-VIRTUAL I SPAIN

-0,40%

-0,20%

0,00%

0,20%

0,40%

0,60%

0,80%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment

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SCENARIOS 1 & 3. ACTUAL AND VIRTUAL II (UKneization)

Graph 8a. Contributions to GDP per capita growth. VIRTUAL SPAIN II. UKneization

-1,00%

-0,50%

0,00%

0,50%

1,00%

1,50%

2,00%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment

Graph 8b. ACTUAL - VIRTUAL II SPAIN

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Age Activity Rate Employment

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GDP pc (demography induced) UNDER 3 SCENARIOS

Graph 9. GDP pc growth (demography induced) under 3 Scenarios. SPAIN

80

90

100

110

120

130

140

Actual Virtual I (No Migrants) Virtual II (Ukneization)

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MIGRANTS AND PRODUCTIVITY

GROWTH ACCOUNTING

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GROWTH ACCOUNTING

1

1

ln2

ln Quality effect2

______________

MIG MIG

TOT TOTt t MIG

TOT

NAT NAT

TOT TOTt t NAT

TOT

MIG MIG MIG

NAT NAT NAT

W W

W W HEMP

HEMP

W W

W W HEMP

HEMP

W w HEMP

W w HEMP

_____

TOT MIG NATW W W

ln ln Quantity effectTOT NATHEMP HEMP

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GROWTH ACCOUNTING

Table 1a.'GROWTH ACCOUNTING. TOTAL ECONOMYSPAIN

1996-2000 2000-2004 1996-2004

GVA growth 4.286 2.888 3.587VAConH 2.498 1.547 2.023VAConKIT 0.554 0.286 0.420VAConKNIT 1.407 1.447 1.427VAConLC 0.304 0.382 0.343TFP Euklems -0.478 -0.774 -0.626

VAConHmigrants 0.278 1.056 0.667VAConLCmigrants -0.048 -0.177 -0.113NEW TFP -0.708 -1.653 -1.180Total Migrant Contribution to GVA growth 0.230 0.879 0.554

Labour productivity growth 0.370 0.433 0.401Migrants contribution (Quantity effect) -0.157 -0.623 -0.390Migrants contribution (Quality effect) -0.048 -0.177 -0.113Migrants total contribution to LP growth -0.205 -0.800 -0.503

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GROWTH ACCOUNTING

Table 1b.'GROWTH ACCOUNTING. TOTAL ECONOMYUK

1987-1996 1996-2000 2000-2004 1996-2004

GVA growth 2.482 2.775 2.302 2.519VAConH 0.140 0.664 0.659 0.636VAConKIT 0.570 0.981 0.679 0.804VAConKNIT 0.708 0.800 0.582 0.696VAConLC 0.142 0.439 0.460 0.449TFP Euklems 0.922 -0.108 -0.078 -0.065

VAConHmigrants 0.013 0.157 0.289 0.222VAConLCmigrants 0.002 0.021 0.040 0.030NEW TFP 0.907 -0.286 -0.407 -0.318Total Migrant Contribution to GVA growth 0.015 0.178 0.329 0.252

Labour productivity growth 2.157 1.814 1.373 1.611Migrants contribution (Quantity effect) -0.005 -0.070 -0.118 -0.094Migrants contribution (Quality effect) 0.002 0.021 0.040 0.030Migrants total contribution to LP growth -0.004 -0.049 -0.078 -0.063

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GROWTH ACCOUNTING:

SECTORAL DISAGGREGATION

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Sectoral DisaggregationTable 2. Share of migrants in total employment by sectors. 2004 (%)

UK SPAIN

Total 9,84% 9,23%1 Agriculture 3,35% 13,54%2 Forestry 3,24% 13,48%B FISHING 3,75%10 Mining of coal and lignite; extraction of peat 3,44%11 Extraction of crude petroleum and natural gas and service 8,52% 13,21%12 Mining of uranium and thorium ores

13 Mining of metal ores 17,72%14 Other mining and quarrying 3,33% 8,50%15 Food products and beverages 11,69% 7,89%16 Tobacco products 9,43%17 Textiles 9,59% 7,93%18 Wearing Apparel, Dressing And Dying Of Fur 21,06% 8,53%19 Leather, leather products and footwear 11,83% 8,42%20 WOOD AND PRODUCTS OF WOOD AND CORK 2,86% 11,56%21 Pulp, paper and paper products 7,78% 6,73%22 Printing, publishing and reproduction 7,26%221 Publishing 10,68%22x Printing and reproduction 4,09%23 Coke, refined petroleum products and nuclear fuel 6,70% 2,08%24.Chemicals and chemical 0,00% 3,06%244 Pharmaceuticals 10,39%24x Chemicals excluding pharmaceuticals 9,00%25 Rubber and plastics products 5,57% 6,04%26 OTHER NON-METALLIC MINERAL PRODUCTS 6,11% 9,87%27 Basic metals 3,23% 2,59%28 Fabricated metal products 5,71% 8,41%29 MACHINERY, NEC 7,86% 3,05%30 Office, accounting and computing machinery 10,29% 2,02%31. Electrical machinery and apparatus, nec 3,46%313 Insulated wire 4,23%31x Other electrical machinery and apparatus nec 6,89%32 Radio, television and communication equipment 4,94%321 Electronic valves and tubes 12,85%322 Telecommunication equipment 10,47%323 Radio and television receivers 11,81%33 Medical, precision and optical instruments 1,62%331t3 Scientific instruments 4,58%334t5 Other instruments 7,80%34 Motor vehicles, trailers and semi-trailers 7,39% 2,75%35 Other transport equipment 6,19%351 Building and repairing of ships and boats 4,44%353 Aircraft and spacecraft 5,00%35x Railroad equipment and transport equipment nec 8,60%36 Manufacturing nec 6,52% 7,56%37 Recycling 1,68% 13,19%

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Sectoral DisaggregationTable 2 (Cont.) Share of migrants in total employment by sectors. 2004 (%)

UK SPAIN

E ELECTRICITY, GAS AND WATER SUPPLY1,79%

40x Electricity supply 3,20%402 Gas supply 6,09%41 WATER SUPPLY 4,99% 0,37%F CONSTRUCTION 5,93% 15,89%50 Sale, maintenance and repair of motor vehicles and motorc 5,51% 4,44%51 Wholesale trade and commission trade, except of motor veh 9,81% 7,56%52 Retail trade, except of motor vehicles and motorcycles; r 8,40% 5,17%H HOTELS AND RESTAURANTS 18,32% 18,18%60 Inland transport 12,59% 4,85%61 Water transport 9,11% 1,35%62 Air transport 17,60% 7,91%63 Supporting and auxiliary transport activities; activities 10,43% 7,94%64 POST AND TELECOMMUNICATIONS 9,23% 7,20%65 Financial intermediation, except insurance and pension fu 12,08% 2,12%66 Insurance and pension funding, except compulsory social s 8,87% 0,93%67 Activities related to financial intermediation 8,27% 9,75%70x Other real estate activities 9,36% 9,13%71 Renting of machinery and equipment 6,30% 8,24%72 Computer and related activities 14,69% 6,78%73 Research and development 14,53% 5,00%74 Other business activities 8,08%741t4 Legal, technical and advertising 10,98%745t8 Other business activities, nec 14,86%L PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY7,12% 0,46%M EDUCATION 9,08% 4,00%N HEALTH AND SOCIAL WORK 11,88% 3,44%90 Sewage and refuse disposal, sanitation and similar activi 3,52% 4,71%91 Activities of membership organizations nec 10,89% 6,01%92 Recreational, cultural and sporting activities 9,48%921t2 Media activities 13,01%923t7 Other recreational activites 8,27%93 Other service activities 8,01% 7,82%P PRIVATE HOUSEHOLDS WITH EMPLOYED PERSONS 18,35% 42,83%Q EXTRA-TERRITORIAL ORGANIZATIONS AND BODIES 69,15% 54,66%

Note: Marked with colors when shares are higher than 10%. Spain: yellow; UK: pink; both: green

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GROWTH ACCOUNTING. SECTORAL DISAGGREGATIONTable 3. Growth Accounting by selected sectors. 1996-2004Contribution to Output growth

SPAIN UK

AgricultureOutput growth 0.116 0.248 'Migrants contribution (Quantity effect) 0.748 0.024 'Migrants contribution (Quality effect) -0.123 0.005Migrants total contribution to output growth 0.625 0.028

ManufacturingOutput growth 2.450 0.324 'Migrants contribution (Quantity effect) 0.470 0.158 'Migrants contribution (Quality effect) -0.080 0.022Migrants total contribution to output growth 0.391 0.180

ConstructionOutput growth 6.004 2.410 'Migrants contribution (Quantity effect) 1.490 0.190 'Migrants contribution (Quality effect) -0.237 0.026Migrants total contribution to output growth 1.253 0.215

TradeOutput growth 3.169 3.593 'Migrants contribution (Quantity effect) 0.404 0.191 'Migrants contribution (Quality effect) -0.069 0.025Migrants total contribution to output growth 0.335 0.216

Hotels and restaurantsOutput growth 3.032 3.442 'Migrants contribution (Quantity effect) 1.484 0.467 'Migrants contribution (Quality effect) -0.237 0.060Migrants total contribution to output growth 1.247 0.527

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GROWTH ACCOUNTING. SECTORAL DISAGGREGATION

Table 3 (Cont.). Growth Accounting by selected sectors. 1996-2004Contribution to Output growth

SPAIN UK

Transport and storage and communicationOutput growth 4.938 5.930 'Migrants contribution (Quantity effect) 0.341 0.369 'Migrants contribution (Quality effect) -0.058 0.047Migrants total contribution to output growth 0.283 0.416

Finance, insurance, real estate and business servicesOutput growth 4.478 3.583 'Migrants contribution (Quantity effect) 0.340 0.269 'Migrants contribution (Quality effect) -0.058 0.038Migrants total contribution to output growth 0.282 0.306

Community, social and personal servicesOutput growth 3.395 1.708 'Migrants contribution (Quantity effect) 0.778 0.214 'Migrants contribution (Quality effect) -0.132 0.028Migrants total contribution to output growth 0.646 0.242

Private households with employed personsOutput growth 2.845 _ 'Migrants contribution (Quantity effect) 6.099 _ 'Migrants contribution (Quality effect) -0.826 _Migrants total contribution to output growth 5.273 _

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GROWTH ACCOUNTING. SECTORAL DISAGGREGATION

Table 4. Growth Accounting by selected sectors. 1996-2004Contribution to Labour Productivity growth

SPAIN UK

AgricultureLabour productivity growth 0.677 3.806 'Migrants contribution (Quantity effect) -0.900 -0.012 'Migrants contribution (Quality effect) -0.123 0.005Migrants total contribution to LP growth -1.022 -0.007

ManufacturingLabour productivity growth 0.999 2.841 'Migrants contribution (Quantity effect) -0.254 -0.037 'Migrants contribution (Quality effect) -0.080 0.022Migrants total contribution to LP growth -0.334 -0.015

ConstructionLabour productivity growth -2.195 1.466 'Migrants contribution (Quantity effect) -0.529 0.007 'Migrants contribution (Quality effect) -0.237 0.026Migrants total contribution to LP growth -0.766 0.033

TradeLabour productivity growth -0.014 3.033 'Migrants contribution (Quantity effect) -0.195 -0.080 'Migrants contribution (Quality effect) -0.069 0.025Migrants total contribution to LP growth -0.264 -0.055

Hotels and restaurantsLabour productivity growth -1.635 1.148 'Migrants contribution (Quantity effect) -0.525 -0.136 'Migrants contribution (Quality effect) -0.237 0.060Migrants total contribution to LP growth -0.762 -0.076

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GROWTH ACCOUNTING. SECTORAL DISAGGREGATION

Table 4 (Cont.). Growth Accounting by selected sectors. 1996-2004Contribution to Labour Productivity growth

SPAIN UK

Transport and storage and communicationLabour productivity growth 2.013 5.140 'Migrants contribution (Quantity effect) -0.331 -0.107 'Migrants contribution (Quality effect) -0.058 0.047Migrants total contribution to LP growth -0.389 -0.059

Finance, insurance, real estate and business servicesLabour productivity growth -0.019 0.518 'Migrants contribution (Quantity effect) -0.434 -0.263 'Migrants contribution (Quality effect) -0.058 0.038Migrants total contribution to LP growth -0.491 -0.226

Community, social and personal servicesLabour productivity growth 0.884 -0.140 'Migrants contribution (Quantity effect) -0.180 -0.028 'Migrants contribution (Quality effect) -0.132 0.028Migrants total contribution to LP growth -0.312 -0.001

Private households with employed personsLabour productivity growth -0.598 _ 'Migrants contribution (Quantity effect) 0.000 _ 'Migrants contribution (Quality effect) -0.826 _Migrants total contribution to LP growth -0.826 _

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Preliminary econometric analysis

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Preliminary econometric analysis

• Standard Cobb-Douglas production fct• First difference and fixed effects estimations with year dummies (no

levels available for all variables)• Different specifications for migrant/native labour input: 1) number of

hours (share*total hours), 2) quality adjusted by the overall labour quality 3) quality adjusted by separate indices for migrants and non-migrants (for UK only) 4) migrant share as a separate regressor in standard prod fct

• Data on migrant shares by industry and characteristics available for UK 1993 onwards and Spain 2000 onwards

• Estimations for all observations and three industry groups (1) non-services, (2) retail, transport and communication and (3) other services

• Separately: regressions of tfp growth on changes in migrant share and migrant labour input

[ 29 ]

Some results

• Migrant share alone generally not significant as an explanatory variable in production function but migrants as a separate input are usually significant

• Migrants may be a selected group but using a separate quality adjustment for them makes minimal difference for coefficient estimates: but panel is short and differences between industries don’t count

• Are migrants more productive than natives in the UK and less productive than natives in Spain?

• There are considerable differences between industries: how to control this without splitting the sample?

• Changes in migrant share do not explain contemporaneous tfp growth

[ 30 ]

Results

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Extensions to the econometric work

• Using levels rather than indices to capture variation across industries

• Better control of heterogeneity across industries and dynamic error structures

• Experimenting with different ways of taking into account the characteristics of migrants/non-migrants: different skill indices, ethnic diversity, “old” vs. “new” migrants

• Testing for interaction effects: are migrants complements or substitutes for capital and skilled/unskilled native labour

• Studying endogeneity of migrant share: do industries with declining or improving productivity hire migrants, is production technology adopted related to migrant share?

[ 32 ]

Conclusions

• The characteristics of the migrant population, as well as its evolution over time and sectoral distribution are different between the two countries.

• GDP per capita growth has been driven by productivity growth in UK while for Spain the engine of growth has been demography.

• In both countries total migrant contribution to GDP growth has been positive, while the effect on labor productivity has been negative.

• In both countries, migrants quantity effect has been positive on output growth and negative on labor productivity.

• In Spain, migrants quality effect has been negative, both on output growth and on labor productivity, while for the UK it has been positive.

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• Total migrants contribution to output growth is higher in Spain than in the UK with the exception of Transport & Storage & Communication and Finance & Insurance

• On the contrary, total migrant contribution to productivity growth is negative in almost all sectors and always higher in Spain than in the UK.

• Preliminary econometric results seem to support the suggestion that in the UK migrants are more productive than natives and in Spain vice versa. More work is needed to refine the econometric estimates.