british immigration policy and work
DESCRIPTION
BRITISH IMMIGRATION POLICY AND WORK. David Metcalf December 2009 Chair, Migration Advisory Committee and London School of Economics www.ukba.homeoffice.gov.uk/mac. CONTENT. 1. Context immigration stock immigration flows 2. Labour market impact - PowerPoint PPT PresentationTRANSCRIPT
BRITISH IMMIGRATION POLICY AND WORK
David MetcalfDecember 2009
Chair, Migration Advisory Committeeand
London School of Economics
www.ukba.homeoffice.gov.uk/mac
CONTENT
1. Context immigration stock immigration flows
2. Labour market impact labour market impact of immigration
how recession alters labour market impact
3. Points Based System points based system why skilled workers? 4. Migration Advisory Committee MAC tier 1: supply-side tier 2: RLMT, ICT, shortage; demand-side accession countries: method and policy
5. Discussion
Stock: share of immigrants (foreign-born) in the UK
working-age population, 1979 – 2008
5
6
7
8
9
10
11
12
13
14
1979
1981
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
% o
f fo
reig
n b
orn
in
UK
po
pu
lati
on
Note: Rate describes working-age population. Immigrants are defined as foreign born individuals. The per cent is calculated by dividing the foreign born working-age population by the total UK working-age population. The data are the average of the four quarters for each year.
Source: Labour Force Survey 1979-2008
•13% of working age population born outside the UK; corresponding figure for OECD is 12%, world is 3%
•68% of stock of immigrants born outside EEA
•employment rate of UK born is 74% compared to 68% for non-UK born.
Flows of long-term migrants to and from the UK
Flows of long-term migrants to and from the UK, 1991-2008
-200
0
200
400
600
800
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Nu
mb
er o
f m
igra
nts
(00
0s)
Balance
Inflow
Outflow
Mar
Jun
Sep
tD
ec
2008
Note: long-term migration is defined in the survey as those intending to change their place of residence for a year or more. This definition includes all nationalities and countries of birth, including the UK. Source: International Passenger Survey, 1991-2008, published by ONS.
-100
-50
0
50
100
150
UK
EU
15 A8
Com
mon
wea
lth
Oth
er fo
reig
n
Balance by country of birth, Sept 2007 - Sept 2008
Flows 2008
• Inflows, outflows, net (all nationalities)
• Inflow by nationality
Total
thousands
Work related thousands
Inflow
Outflow
Net
512
395
+118
202
209
-7
Thousands %
British
Foreign
Total
71
440
512
14
84
100
Flows 2008 (continued)
• Inflow by reason (all nationalities)
NB: Work-related only 2-in-5
• NiNo’s NI numbers issued to non-UK nationals year ending March 2009 686 000 change Mar 08 – Mar 09 - 6%
• Workers Registration Scheme (A8)
year ending June 2009 116 000 change June 08 – June 09 -42%
Thousands %
Work-related
Study
Dependants
Other/no reason
Total
202
160
79
71
512
40
31
15
14
100
Balance of non-EU nationals by reason for migration, 1991 – 2007
Note: The figures describe the balance of non-EU nationals intending to change their place of residence for a year or more. For 1995, those looking for work were not recorded separately from ‘Other reasons’.Source: International Passenger Survey 1991-2007, published by Office for National Statistics
-40
-20
0
20
40
60
80
100
120
1991 1993 1995 1997 1999 2001 2003 2005 2007
Net
in
flo
ws
(th
ou
san
ds)
Definite jobLooking for workAccompany/joinFormal studyOther
Labour market impact of immigration
a. Introduction
• Most adjustments focus on employment and pay (i.e. factor prices) of natives; but there are 2 other adjustment mechanisms: composition of output, e.g. ethnic restaurants, A8 gardeners production technology, e.g. labour intensive flower picking.
• The studies have to deal with the no counterfactual problem
they study pay change or employment change before/after immigration
but really should compare such changes with what would have happened with no immigration
the missing counterfactual is dealt with by identification assumptions e.g. slice LM into areas which do/do not experience immigration
but immigrants choose where to go, e.g. to region with higher growth in pay then get spurious positive association: immigration causes pay growth
overcome this problem using instruments OR
might slice by occupation/skill/age
b. Employment and unemployment
• Lump of labour fallacy: aggregate number of jobs is not fixed so there is no one-for-one displacement
e.g. consider baby boom cohorts
if number of jobs fixed, when they entered LM unemployment would rise. Did not happen. Instead
employment rose.
• Unemployment
Portes and Lemos, 2004-06 A8 influx, inflow >500 000
409 districts (study builds on two similar previous studies)
no association between immigrant inflow and rise in claimant unemployment
this holds even for possibly vulnerable groups, such as younger workers or the lower skilled
• Employment
Gilpin 2006
1% point increase in share of migrants in working population (approx. 300 000) would cut employment of
people of working age already in UK by 6 000.
Tiny impact.
But need also to analyse specific occupations
e.g. IT, possibly indirect displacement via intra-company transfers
c. Pay
• Real wage level, average impact
Dustman (up to 2005) small positive, e.g. because of:
- immigration surplus
- immigrants paid less than MP and surplus captured by natives
IPPR (up to 2007) small negative: A8 non-complementarity?
specific occupation, e.g. impact of intra-company transfers on IT
sector pay
Wadsworth: biggest impact possibly on previous immigrants
• Distribution of pay
Dustman: gains at top of distribution, losses at bottom
Nickell: clear tradeoff between immigration and pay in less skilled occupations, e.g. care homes
Portes: A8, 2004-06, >500 000 mainly less skilled jobs – no wage effect because less skilled protected by NMW
PBS emphasises skilled immigration. This presumably lowers skilled relative pay cf what would otherwise have been
if supply of capital not perfectly elastic some of the immigration surplus will go to capital, impacting on distribution between pay and profits
• Wage inflation Bank of England (up to 2007)
immigration reduces the NAIRU due to adjustments in labour and product markets and fear of displacement
d. Skills• Short term – composition effect
e.g. A8 relatively well educated but substantial occupation downgrading
• Longer term – complementarities and incentives
much more complicated to model and assess
e. Population
• ONS projections state 4 million plus increase to 65.6 million over ten year period up to 2018
• Over two thirds of this is due to net immigration and higher fertility rates of immigrants
• But ONS use 2008 net immigration figure of 180 000
peculiar – true figure is 118 000
so projections much too high
f. Conclusion
• little impact on natives pay/jobs in short run
• Plausible that LR impact good, e.g. skill complementarities, dynamic benefits, but hard to get firm
evidence
How labour market impact alters with recession
a. Employment and unemployment
• Does immigration help to smooth the economic cycle?
- amplitude of immigrant unemployment was greater than native unemployment, but not
2008-09
- return migration?
- Migration Policy Institute states A8 inflow
employment motivated
no visa (can return later)
no family ties
network important – no jobs to report back
• Adverse impacts: displacement
Is ‘lump of labour’ fallacy less of a fallacy?
- EU, no controls, less skilled, some displacement?
- RoW – skilled, probably less displacement (but ICTs?)
• Types of labour shortage
- cyclical, e.g. civil engineers, quantity surveyors
- structural: insufficient training, e.g. some medical consultancies
- publicly funded, e.g. senior care workers, NHS pharmacists
- global excellence, e.g. ballet dancers
b. Wage pressures and levels
• Migration previously reduced NAIRU due to adjustment of
product/labour market and fear of displacement (BoE). But not so important in recession.• If capital not perfectly elastic, possible negative impact on native pay
c. Externalities
• Productivity, little change, no reason to tighten• Congestion lower, no reason to tighten
d. PBS
• Automatic stabiliser rather than continued recalibration
UK policy on labour immigration Points Based System (PBS)
• Tier 1 Highly skilled individuals to contribute to growth and productivity (supply-side)
• Tier 2 Skilled workers with a job offer to fill gaps in the UK labour force (demand-side)• Tier 3 Low skilled workers to fill specific temporary labour shortages
(suspended)• Tier 4 Students• Tier 5 Youth and temporary: people coming to UK to satisfy primarily non-
economic objectives.
Note:
• PBS involves: (i) numbers or scale; (ii) selection or composition; (iii) rights, e.g. extensions, ILR
• Re (i): Tiers 1 (highly skilled) and 2 (skilled) have no cap/quota; Tier 3 set at zero• Re (ii): focus on skilled workers• Re (iii): migrant initially admitted temporarily• Important to consider (i) inflow and (ii) duration of stay. These two factors
determine stock of immigrants.
Why Skilled Workers?
• What are the economic objectives of labour market immigration policy? maximise gain to natives minimise adverse distributional impact on lower paid
• Greater complementarity with capital, e.g. skill-biased technical change other labour therefore larger potential ‘immigration surplus’ [efficiency]
• Dynamic effect: over time productivity up raise other workers productivity (externality) innovation (spill over)
• Stronger net fiscal contribution less likely to be unemployed than unskilled pay more in taxes
• Larger supply of skilled/qualified workers leads to more equal pay distribution [equity]
Migration Advisory Committee (MAC)
• Independent Committee: 5 economists, small secretariat• Examined
Tier 1: supply side
Tier 2: demand side
EU: Rumania and Bulgaria, A8 registration• Method
evidence based – both top-down and bottom-up
strong interaction with stakeholders
transparent
flexible: government determines work programme• Philosophy
selective immigration (e.g. via PBS) vital
but only positive narrative if:
no undercutting
no displacement
no disincentive to upskill• Not social issues, e.g. health, education, crime (MIF?)
Tier 1• Highly Skilled, no job offer required, i.e. supply-side, human capital
emphasised• October 2009 report
• General (i.e. from out of country), e.g.:
weighting of points: qualification, age, pay
professional qualifications
higher pay threshold for those with only bachelors degree
salary multipliers
visa 2 years + 3, instead of 3 years + 2• Post study
which colleges/subjects?
why 2 years?
UK graduate unemployment
cross-subsidy to UK students
displacement of less skilled
retrospection
Regarding both the above: what jobs do they do?
Tier 1 (continued)
• Investors/Entrepreneurs
process by which they bring in their money
enforcement e.g. net cf gross job creation
• Keep Tier 1 (cf EU blue card)
• Numbers Sept 2008 to August 2009
Total 86 188
of which
General 58%
PSWR 42%
Investors & entrep. <1%
Tier 2Basics
• Demand-side, employer-led, occupation-based• Skilled, job offer required, 3 year visa plus 2 year extension• Sponsor• Certificate of sponsorship (old Work Permit)• Job title skilled to NQF 3+ (i.e. NVQ 3+)• Pay to be ‘reasonable’ – is no undercutting• Prior entry clearance
Routes: need 70+ points
i. Mandatory competence in English (level A1) 10 pts maintenance requirement (£800) 10 pts
ii. Routes shortage occupation 50 pts RLMT (35) + pay/qualifications (≥15) 50 pts ICT (30) + pay/qualifications (≥20) 50 pts
Tier 2 (continued)
• July 2009 Report approx 60 000 in 2009, of which: - resident labour market test (RLMT) 30% - intra-company transfers (ICT) 60% - shortage occupation list 10% and India over 50%• Points for qualifications and pay: required under RLMT and ICT route Masters degree points raised pay thresholds raised: £17K - £24K to £20K - £32K special arrangements for e.g. teachers, nurses• RLMT retain advertise for four weeks (up from previous two weeks) investigate certification
Tier 2 (continued)
• ICTs retain not route to permanent residence duration with employer up from 6 months to 12 months discount allowances
• Compliance and Enforcement strengthen ex ante? Not in spirit of trust the sponsor check displacement/undercutting
• Fees raise (from £170) as complement to enforcement?
• Business visas – misused?
Tier 2 (continued) Shortage Occupation Lists
Reports Sept 08, April 09, Sept 09
Top-Down
Indicators
Bottom-Up
Evidence
Skilled •Occupational hierarchy•Formal qualifications•Earnings
•On-the-job training or experience•Innate ability
Shortage •Employer surveys•Rising earnings•Vacancies
•Softer labour market intelligence•Past/projected trends
Sensible •Alternatives to immigrants•Skills acquisition•Productivity & international competitiveness
•Production technology•EEA labour supply•Impact on efforts to seek alternatives – dependence on migrants
Tier 2 (continued)Shortage occupation lists (Results e.g. April 2009)
Whole occupation
Civil engineers
Ships officers
Both removed in September 2009
Subset of skilled occupation
Some specialist medical posts
Maths & science teachers
Skilled ballet dancers
Skilled subset of less skilled occupation
Skilled sheep shearers
Skilled chefs
Skilled senior care workers
Number of jobs covered by shortage occupation list:
• September 2008 700 000+
• September 2009 500 000-
Tier 2 (continued)
3 hurdles, occupations/jobs where MAC lobbied
• Fail on skill (NVQ 3+), e.g.
chefs, except skilled sub-set
care workers, except senior group
• Fail on shortage
community pharmacists (0/9), no evidence of closure
ships officer, civil engineer, quantity surveyor: previously on
social workers for adults
• Fail on sensible
genetic pathologists: training ceased
land engineer: can get from construction
ships officers: displacement plus disincentive to train UK
officers
future: chefs?
Accession countries: method
• Policy: principle and practice (including possible actions of other EU countries)
• Context: economy and immigration
• Past experience: A8 experience
• Theory: impact on flows, economic downturn
• Restrictions: Full or partial lifting
• Specific sectors: case for selective, limited, low-skilled immigration?
Policy for accession countries
• What was the UK’s experience in 2004?– much larger number than predicted– lower skilled manual and elementary occupations– no negative employment impact (but impact on pay?)– will above hold under a recession?
• Recommend caution: retain restrictions for now
• A2: considered specific sectors (inc agriculture, food processing, social care)
Discussion
• Regulating scale of immigration and selecting migrant workers - presently no limit or target - could have hard quota (say 50 000 Tier 1 or 2) or soft target (e.g. net work immigration) - could auction visas, e.g. Tier 2 certificate fee very low
• PBS and other migrant worker admission policies, e.g. does the lack of cap/quota (tiers 1 and 2) imply effects of immigration largely linear rather than diminishing returns/increasing costs?
• Managing low-skilled immigration, e.g. social care, agriculture, i.e. clear trade-off between raising wages or greater immigration
• Is it possible to distinguish in UK system between temporary and permanent migration? e.g. sector-based schemes (SAWS) and intra-company transfers
Annex: Recent studies of impact of immigration on payAuthor Years Observatio
nsResults
Dustman et al (2008)
1997 – 2005(pre-
accession)
17 regions 1% point increase in share of immigrants in population:
Pay percentile % p per hour
5th -0.6 -1
10th -0.4 -1
50th +0.7 +1.5
90th +0.5 +2
Nickell and Salaheen (2008)
1992 - 2005
25 2-digit SOC
11 regions
10% point increase in share of immigrants in population:
Group Wage %
Average -0.4 %
Semi/unskilled services -5.2%
Reed and Latore (2009)
2001 - 2007
17 regions
16 1-digit SOC
1% point increase in share of immigrants in population associated with decrease in average wages of 0.3%
Note: All studies: LFS; immigrant is non-UK born; hourly pay; controls include age, skill, time.
Points: 1. Dustman and Nickell: 5th percentile/care workers 5% point increase in immigrant share gives wage reduction of 18p hour or £7.20 for 40 hour week.
2. Reed (IPPR): note direction now negative. Authors describe it as ‘small’ but 5% point x -0.3 x £10 x 40 hours = -£6.