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The Impact of Immigration on the British Labour Market - Book Report/Review Example

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Dustmann, Fabbri and Preston's (2005) article entitled 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…
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The Impact of Immigration on the British Labour Market

Download file to see previous pages... 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 ...Download file to see next pagesRead More
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