Media Briefings

IMMIGRATION BOOSTS THE PAY OF LESS EDUCATED NATIVES; EMIGRATION DOES THE OPPOSITE

  • Published Date: September 2014

Governments in rich countries should worry less about immigration and more about the potential consequences for job creation and less-skilled workers of high rates of emigration. That is the conclusion of research by Professor Giovanni Peri and colleagues, published in the September 2014 issue of the Economic Journal.

Their study of the economic effects of immigration and emigration in OECD countries during the 1990s analyses newly available data on the stocks of immigrants. Using simple labour market analysis of demand and supply determining wages in each country, it shows that:

· Immigration usually had a positive effect on the average wages of lower-skilled workers in OECD countries. These ‘less educated natives’ are exactly the group of people who are usually thought to be most damaged by new arrivals.

· The positive effect is because OECD immigrants are typically more educated than non-migrant natives. Educated people create jobs and complement less educated people in productive activities. Hence, higher immigration leads to more job creation and greater demand for people further down the job ladder.

· Less educated workers experienced particularly large wage and employment gains in countries where the immigration system favours educated immigrants, such as Australia and Canada. But in Ireland, Luxembourg, Switzerland and the UK, less educated natives also gained because of immigrants, raising their wages by 2-5%.

· The economic effects of emigration from OECD countries are quantitatively as large as those from immigration, but they have the opposite sign. For example, in Cyprus, Ireland and New Zealand, less educated workers suffered a wage decline of 3-6% due to emigration during the 1990s.

· The flight of highly skilled workers meant fewer job opportunities and lower demand for less educated ones: fewer firm managers were left to employ manual workers, fewer households to demand cleaning, gardening and personal services and fewer engineers needing construction workers.

The researchers note that OECD countries had very different immigration rates (the size of the immigrant flow relative to the population) between 1990 and 2000. For example, the immigration rate was 7.6% for Ireland and 5.7% for the United States. At the other end of the spectrum, Poland, Hungary and Romania hardly had any immigration at all.

Different rates imply different economic effects, but the composition of immigrants in terms of their skills is just as important for determining the effects. By 2000, foreign-born residents comprised 7.7% of OECD countries’ population. About half of that group was from other OECD countries.

So there was a fair amount of migration between rich countries during the 1990s. More importantly, in essentially all OECD countries, recent immigrants were more likely to be college graduates than were members of the native population. Hence immigration increased, on average, the share of college-educated workers in most OECD countries.

Professor Peri comments:

‘Most of the debate about immigration into European countries focuses on the idea that immigrants are largely unskilled and hence they may hurt the wage and employment of less educated natives. But very little time and discussion is spent on the economic consequences of emigration.

‘All this may be quite misguided in the light of our new research. Indeed, the data and very simple economics should make us rethink commonplace views about immigration into Europe.

‘College-educated workers are much more mobile than less educated ones and they move to countries where they are better paid. Hence immigration tends to reduce wage differentials between the lowest and the highest paid workers in receiving countries. Emigration does the opposite.

‘It seems clear that governments should worry less about new arrivals and a little more about the potential consequences on less-skilled workers and on job creation of high emigration rates.’

ENDS

Notes for editors: ‘The Labour Market Effects of Immigration and Emigration in OECD Countries’ by Frederic Docquier, Caglar Ozden and Giovanni Peri is published in the September 2014 issue of the Economic Journal.

Frederic Docquier is at the Catholic University of Leuven. Caglar Ozden is at the World Bank. Giovanni Peri is at the University of California at Davis.

For further information: contact Giovanni Peri via email: gperi@ucdavis.edu; or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh).