Media Briefings

UK IMMIGRANTS AND NATIVE WORKERS: New evidence on comparative earnings

  • Published Date: April 2014

Most immigrants to the UK earn about the same as similarly skilled native workers – some might even earn more. These are among the findings of research on the immigrant-native earnings gap by Sara Lemos, which she presented to the Royal Economic Society’s 2014 annual conference.

Her study looks in detail at differences between the wages of immigrants and natives in the UK over the period 1978-2006, taking account of other key factors that influence the distribution of earnings, such as gender, continent of origin and date of arrival.

According to the report:

· If average earnings between natives and immigrants are compared in a simple analysis, there appears to be a large earnings gap between whites and non-whites. Non-white immigrants earn between 16.5% and 21.8% less than natives; and white immigrants earn up to 26.5% more than natives.

· However, using a more sophisticated analysis, the earnings gap narrows: the gap for non-whites is 0%, whereas it is between 2.9% and 10.7% for whites.

· These findings suggest that most immigrants do not earn significantly less than comparable natives – except for the lowest and highest paid immigrants, their wages depend more on their skills rather than where they came from.

· There is little evidence of discrimination by employers. This facilitates the assimilation of immigrants into the UK labour market.

· There is a link between immigrants’ continent of nationality, when they arrived, and the income bracket into which they fall. For example, whereas many of the high skilled North Americans that arrived during the 1990s and 2000s ended up as high earners, many of the low skilled Eastern Europeans that arrived in the 2000s ended up as low earners.

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The immigrant-native earnings gap matters: in other words, whether immigrants earn more or less than natives matters. It matters because the earnings gap is a measure of the assimilation of economic immigrants into the labour market and into society more generally.

For example, the immigration debate is more heated in countries where economic immigrants are perceived as a threat to natives’ job opportunities. This is the case, for example, if immigrants are unskilled and work for comparatively lower wages.

In contrast, in countries where economic immigrants are perceived as filling up vacancies where there is a labour shortage, they are seen as contributing to the economy. In this case, their skills might be favourably rewarded and they might work for comparatively higher wages.

Whether such earnings gap is positive or negative, therefore, is a measure of how immigrants assimilate into the labour market – and this informs policy-making in the face of continuing public debate on immigration policy in the UK.

The existing rather small research literature on this topic is sometimes hindered by the use of unsophisticated models of average gaps and by limitations in the data. The new study fills this blank by using more sophisticated models and better quality data – which were previously unavailable – to carry out a detailed analysis of the immigrant-native earnings gap across the entire earnings distribution, by gender, by continent of nationality and by cohort of arrival.

The results are striking. In keeping with previous UK research, the new study finds a clear and wide dividing line between whites and non-whites when estimating the earnings gap using simple models. In the base model, non-white immigrants earn between 16.5% and 21.8% less than natives, whereas white immigrants earn up to 26.5% more than natives.

But estimating more complete models leads the earnings gap estimates to narrow and become smaller than those in previous UK research. In the preferred model, the gap for non-whites is 0%, whereas it is between 2.9% and 10.7% for whites.

This suggests a much narrower and subtler dividing line. It also suggests that the rewards of the labour market primarily come from individual characteristics other than immigration status – and this hints at little evidence of, say, discrimination by employers. This, in turn, facilitates the assimilation of immigrants into the UK labour market. This is an important contribution of this study in informing policy-making.

When estimating the gap across the earnings distribution, the study finds that it was between -7.4% and 0.7% below the median, where non-white immigrants are overrepresented, and between 2.4% and 8.7% above the median, where white immigrants are overrepresented. This suggests that most immigrants do not seem to suffer an earnings penalty in the labour market.

It suggests that, except for the lowest and highest paid immigrants, the labour market primarily rewards individual characteristics other than immigration status. In other words, it suggests that, except for the lowest paid, immigrants are well assimilated into the UK labour market, with an earnings gap that is, often, favourable.

Finally, the study finds less favourable gaps for cohorts that witnessed proportionately larger non-white and lower paid white immigration. This suggests that, for these groups, assimilation has been slower. For example, the earnings gap is between -1.7% and 0% for the 1985-94 cohorts, when there was proportionately large non-white immigration (although this period also coincides with greater, lower paid, white immigration following the European Union enlargement in the mid-1980s when Greece, Portugal and Spain joined).

This contrasts with an earnings gap between 3.7% to 8.6% following proportionately large white immigration in the 1995-2004 cohorts, when EU immigration increased – accelerating dramatically after further enlargement in the mid-2000s when East European countries joined in – along with increased immigration from North America, Australasia and Oceania (though this period also witnessed greater non-white immigration from Africa, Asia and the Middle East).

There is something of a correspondence between immigrants’ continent of nationality, their cohort of arrival and the section of the earnings distribution where they are located. For example, whereas many of the high skilled North Americans that arrived during the 1990s and 2000s ended up at the top of the earnings distribution, many of the low skilled East Europeans that arrived in the 2000s ended up at the bottom of the distribution.

‘Mind the Gap: A Detailed Picture of the Immigrant-Native Earnings Gap in the UK using Longitudinal Data between 1978 and 2006’ by Sara Lemos, University of Leicester

Contact:

Sara Lemos +44 (0)116 252 2480, sl129@leicester.ac.uk

Romesh Vaitilingam: romesh@vaitilingam.com, +44 7768 661095