The Way Immigration Impacts Labour Market Outcomes - Book Report/Review Example

The Impact of Immigration on the British Labour Market Dustmann, Fabbri and Preston's (2005) article en d The Impact of Immigration on the British Labour Market investigates on the way immigration impacts labour market outcomes (namely, employment, unemployment, participation and wages) of native-born workers in the British economy. The article provides a theoretical discussion about the nature of long run wage and employment effects of immigration under types of economies which differ in their flexibility to adapt immigration through changes in the that economy's output mix as well as on the degree of openness of the goods sector to trade and ultimately, to the extent output prices are determined locally or on the world markets. Under the different approaches used in the theoretical modelling and analysis on the labour market effects of immigration arising from the adjustments it inserts into the supply of skills and consequent change in the labour market equilibrium, Dustman et al. (2005, F327) cites that there are no defined immigration effects on the labour market outcomes of resident workers based from prior studies done. Particularly, these economic models only predict that effects of immigration depend most importantly on the structure of the receiving economy (in this case, Britain), as well as the skill composition of the immigrants, relative to the resident population (2005, F324). Moreover, prior to the article's publication, empirical studies exist for the United States and other European countries while none exists for Britain. According to the authors, it would be misleading to infer from these existing studies the possible effects of immigration on the British labour market in light of the dissimilarity in recent migration history, settlement, and the type of immigrants to the country, which the article discusses about. Authors cite that unlike the US and other continental European countries, immigration to Britain is not concentrated at the lower end of the skill distribution but immigrants resemble quite closely the skill composition of the resident native workforce. The article's literature recognizes achievements of preceding studies. Dustman et al. cites Borjas' (1999) and Card's (2001) models, which assume limited flexibility of output mix or closedness to international trade. Under these models, immigration is seen to have long-run wage and employment effects. Reversely, economic models that assume a high extent of flexibility in the output mix point to an absence of the long run effects on labour market outcomes. An important factor for consideration on this question is the elasticity of supply of labour of the receiving country. In a hypothetical economy1, if immigrants differ in their skill composition from the natives, per capita income of the native population will rise as a result of migration but these gains will be unequally distributed. In the case of an elastic labour supply, immigration can be expected to bring in (voluntary) unemployment among those natives whose wages fall and who choose to withdraw from supplying labour. Most importantly, if the composition of migrant labour resembles that of the resident pre-migration population, immigration effects on wages and employment tend to be zero. This is the case Dustman et al. wish to investigate empirically for Britain. Authors also note that in general, the lack of flexibility in an economy with a homogeneous traded goods sector implies that there are 'insufficient degrees of freedom" to absorb changes in the skill composition through changes in the output mix and that impacts on wage levels are not even zero in the long run. Dustmann et al. also cite the predictions of the Rybczinski theorem, which points out that instead of impacting on wages, immigration long run effects are felt in the output mix with production of the good using unskilled labour relatively intensively increasing, referred to as the factor price insensitivity hypothesis by Leamer and Levinsohn (1955). Again, if the vase of elastic labour is taken into consideration, there may be both employment and wage effects in the short run before the output mix can fully change in response. Also, if the composition of migrant labour resembles that of the resident pre-migration population, no effects immigration on wages and employment can be expected. Given with the variety of possible outcomes, all of which are consistent with economic theory, authors cite that as for the long run, the critical factors are the openness of the receiving economy to trade and the flexibility of the economy in question to adjust in details other than wages and the output mix manufactured. With regards to the empirical implementation of the study, Dustman et al. cites the use of Borjas' (1999) "spatial correlations' approach wherein effects of immigration are identified from the spatial correlation between immigrant labour inflows and changes in native or overall labour market outcomes. However, the authors recognise the key problem using the above approach that is the comparison of the economic outcomes of certain groups of the native population in particular groups after immigration with counterfactual results that would be observed if immigration had not taken place. In the words of the others, "while the first measure is observable, the second is notconstruction of this counterfactual involves assumptions which are debatable," (Dustman et al. 2005, F328). The authors also considered using an empirical strategy founded on local labour market variation in immigrant populations. However, Dustman et al. recognise the problems on the use of this approach including the bias towards a positive or negative statistical correlation between immigrant concentration and economic outcomes because immigrant share levels and the level of labour market outcomes may be spatially correlated due to common fixed influences, even in the absence of any genuine effects of immigration. Also, the direction of causality between immigrant inflows and labour market outcomes are well defined due to reasons such as immigrants being drawn towards areas enjoying current economic success, leading to an upwardly biased estimate of the effects of immigrant's concentration on labour market outcomes of natives. To solve the problem on empirical implementation, the authors used measures of historic settlement patterns as instruments for immigrant inflows on grounds that immigrants will be attracted to live where there are existing networks and presence of individuals sharing whom they share the same cultural and linguistic background, inducing immigrants to settle in areas with already high immigrant concentrations. Dustmann et al. also address the theory on local labour mobility. Authors cite that local labour markets are not closed economies and native workers are free to move out. If immigration depresses local wages for certain skill groups, then it is expected that a pressure will exist for native workers of that skill type to move elsewhere, resulting to a dispersion of the impact of immigration through the national economy and weaken the ability to determine the impact on the local level. This then leads to a downward biased estimates of the effect of immigration on say, employment of native workers, a problem cited by Borjas (2003) and Card (2001). In the case of Britain, mobility is generally low as shown by study done by Gregg et al. (2004), suggesting that the mobility among low skill/education people is limited and are often hampered by the housing market. The authors emphasize in their discussion of the underlying theoretical model that no immigration effects can be expected on the labour outcomes of the natives if such does not change the skill composition of the native labour force and if capital is perfectly elastic. The case is different for Britain, as immigrants tend to be more similar in their education and skill distribution to the resident workforce. The authors, based on their educational and occupational classification ratios on immigrants and natives (as shown in Table 1, F330), conclude that on the national level there is no proof that past or more recent migration caused a rise in the ratio of unskilled to semiskilled or skilled workers. However, the Dustman et al. note that this does not necessarily mean that the skill distribution of immigrants across all labour markets is likewise similar to that of the native population. Hence, the authors emphasize that inferring only from the above findings, one cannot immediately conclude that immigration does not have effects on the British labour market outcomes (2005, F331). The OLS estimator, a difference estimator the IV estimator in differences were used in analysing data obtained by the British Labour Force Survey (LFS) from 17 regions across Britain. The OLS regression showed a slight positive relationship between employment and the immigrant-native population. Further tests also indicated that immigrants tend to settle in areas with favourable employment conditions. Immigration is then associated with a decrease in employment. However, though an increase in immigration amounting to one per cent of the native population would result, according to the results obtained, to a decline of 0.07 percentage points in the native employment rate, the hypothesis of no effect can not still be rejected as this estimated effect is far from significantly different from zero at standard levels. Also, the OLS estimate reveals an optimistic impact of immigration on other labour market outcomes i.e., unemployment, participation and wages. According to Dustmann et al., these are brought about by persistence in economic conditions and immigrant concentrations.2 Meanwhile, IV estimation results show that point estimates decrease slightly and suggest that there is no strong evidence of impact on native unemployment or participation rates. Estimated wage impacts are positive and substantial but these are again statistically insignificant. However, the authors note that results for wags must be dealt with caution as only a smaller range of years were available for estimation. As to the measurement on the impact of immigration across education groups (in this case, the advanced, intermediate and the unqualified), estimated employment, unemployment and participation effects are individually statistically significant only for the intermediate education group for whom the effects of immigration suggest a depressive impact on labour market activity and probability of working. However, authors note that this impact is offset by increasing employment of the more educationally qualified, the total effect not significantly different from zero. Here, immigration seems to have expanded the intermediate education group in particular.3 Based from estimation results Dustmann et al. conclude that that there is little evidence of overall adverse effects of immigration on native outcomes. The evidence of negative effects on employment circle around the group with intermediate education levels, which is the offset by positive effects on the employment among the better qualified. However, estimations on age effects, according to the authors, are still poorly determined in their study (2005, F337). As can be inferred from the results of the study, the labour group with better qualified education levels enjoy the positive effects of immigration at the expense of those with intermediate education levels. The fact that employment for those native workers with intermediate education levels are put at risk, policy systems geared to promote equal distribution of gains in migration must limit or control the access of immigrants in their application for jobs that require intermediate education levels and widening the access of immigrant job applicants to jobs requiring better and advanced education.. This can be done by raising the standards or qualifications of immigrants when applying for jobs so as in turn, they can be accommodated further to jobs that require better qualified education levels and not settle for those only requiring intermediate education levels. On the other hand, policy systems can opt to open access for immigrants for those jobs only requiring low skill levels as long as these immigrants can still resemble the skill levels of native workers in Britain. Also, employment centres for those with intermediate education levels can be established in different parts of Britain so as to "grease" the mobility of these native workers to other places in Britain that offer better working opportunities, while still accommodating immigrants to apply for the same employment opportunities. In contrast to Dustmann's study o Britain, Borjas' study on immigration in the United States is centred on the immigrant's use of welfare. The study found out that the longer immigrants are in the United States the more likely they are to use welfare. As time passes, immigrants learn about the welfare system as they learn about the labor market. Borjas cites evidence that immigrants may be more likely to be dependent on welfare. As noted his question is whether immigrants should receive welfare of all and he suggests that immigration policy can identify and screen out potential welfare recipients. According to Borja, income-maximizing behavior implies that foreign-born welfare recipients unlike their native-born counterparts, may be clustered in the states that offer the highest benefits. As we can see from study done by Dustman et al., immigrants into Britain tend to settle in most favourable working environments. Borja's empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high-benefit states than the immigrants who do not receive welfare, or than natives. As a result, the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives. Welfare becomes a "magnet" as it encourages immigration endangers our migration evidence of clustering within geographical areas suggest that this. Immigrants who entered the United States after welfare reform was enacted are prohibited from receiving most types of public assistance until they become citizens (Padilla 2003, p.1-3). Given study results by Dustman et al. and Borja, public debate on immigration, its effects on wages and employment in Britain must be considered together on the debate whether immigrants should receive welfare at all. Immigration policy systems must now take into account the factoring of welfare in its decision making process. Reference List Borjas, G 1999, 'Immigration and Welfare Magnets', Journal of Labor Economics, vol. 17(4), pages 607-37 (October), University of Chicago Press, United States of America. Retrieved 23 April 2006 from National Bureau of Economic Research Website Dustmann, C, Fabbri F, & Preston, I 2005, 'The Impact of Immigration on the British Labour Market', The Economic Journal, 115 (November), Royal Economic Society, United States of America. Retrieved 23 April 2006 from http://www.blackwell-synergy.com/doi/full/10.1111/j.1468-0297.2005.01038.x. Francis, D 1999, Immigrants Tend to Live in High Welfare Benefit States, National Bureau of Economic Research Website. Retrieved 25 April 2006 from http://www. nber. org /digest/apr99/w6813.html Padilla, W 2003, Borjas Chapter 6, Immigration and the Welfare State. Retrieved 24 April 2006 from http://www.csus.edu/indiv/w/wassmerr/PPA220BM12h. pdf#search=' immigration % 20and%20welfare%20magnets,%20borjas' Read More