Commentary | Immigration

UK debate sheds light on the impact of immigration on the economy

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Three new reports have ignited a lively debate in the U.K. about immigration, the economy, and jobs. Above are but two of the many conflicting headlines that threaten to muddle the key findings, which reveal important principles about how the United States could better manage the part of the immigration system that involves recruiting and bringing migrants into the country to work. Specifically, we should tie our employment-based migration levels to economic conditions, so that we always have enough immigrant workers to support an expanding economy, but also avoid recruiting excess workers during economic downturns, when job vacancies are scarce.

In a January 9 press release about its new report, Youth Unemployment and Immigration from the A8 Countries, Migration Watch U.K., a think tank that favors reduced immigration levels, “highlighted the ‘remarkable coincidence’ between the rise in youth unemployment in the UK and the huge surge in immigration from Eastern Europe over the last eight years.” This report led to some of the more ridiculous headlines—such as “East European surge blamed for 1m young Britons being on dole” in the Daily Express. But analysis by Matt Cavanagh at the Institute for Public Policy Research (IPPR) quickly and convincingly discredited the report.

Examining the Relationship between Immigration and Unemployment Using Number Registration Data, a discussion paper published the same day by the National Institute of Economic and Social Research (NIESR), looked at U.K. National Insurance Number (i.e., unemployment insurance) data and found “no association between migrant inflows and claimant unemployment.” The NIESR study also examined “whether the impact of migration on claimant unemployment varies according to the state of the economic cycle.” Oddly, NIESR found that during periods of lower growth, migrant inflows are associated with lower claimant rates for unemployment benefits. But the authors admittedly found this result to be less convincing. They offer conjectures regarding this finding, but cannot explain it completely, and declare it “may not be robust to alternative specifications” (i.e., they believe this latter finding may not hold up under further scrutiny).

Analysis of the Impacts of Migration, a report from the U.K. government’s Migration Advisory Committee (MAC), was more comprehensive than the other two reports. Looking at U.K. Labour Force Survey data going back to 1975, it asked three major questions, one of which is within the scope of this commentary: “Do immigrants displace British workers in the labour market?”

On this question generally, the MAC report was not inconsistent with the NIESR study. As Jonathan Portes, NIESR’s director and co-author of the study, noted on his blog, “the MAC emphatically did not find … that immigrants overall have an impact on employment at all times.” But the MAC went much further in their analysis of the data, which led to additional, but narrower, findings. Here, specifically, is what they had to say:

We find no association between working-age migrants and native employment: (i) in buoyant economic times; (ii) for EU migrants; (iii) for the period 1975-1994.

By contrast, we find a negative association between working-age migrants and native employment: (i) in depressed economic times; (ii) for non-EU migrants; (iii) for the period 1995-2010. A ballpark estimate is that an extra 100 non-EU working-age migrants are initially associated with 23 fewer native people employed. Such evidence suggests that successive governments since 2008 have been right to make non-EU migration more selective…

But this possible displacement of British workers only holds for those migrants who have been here for under five years. Both EU and non-EU migrants who have been in the UK for over five years are not associated with displacement of British born workers. [emphasis added]

These are interesting findings indeed, and reveal two important principles the United States should consider for reforming its immigration system. The first key finding is that in times of economic growth, immigration does not have a negative impact on employment. But during periods of very low growth or during a recession, it might.  As the MAC study showed, migrants from non-European Union countries were associated with a reduction in employment for native U.K. residents during recessionary or low-growth periods. Later in the report, the authors elaborate, explaining that this “seems sensible, since migrants are more likely to compete with natives for jobs during an economic downturn when native unemployment is high and job vacancies are low.”

The second key finding is that any negative impact on employment caused by migration only holds for any migrants (EU or non-EU) who have resided in the U.K. for less than five years. After five years, the labor market has had enough time to adjust to the new migrant workers, and the displacement effects disappear.

Both of these findings are also consistent with those of University of California-Davis professor Giovanni Peri in The Impact of Immigration in Recession and Economic Expansion, his 2010 study for the Migration Policy Institute (which I have praised before). Peri analyzed U.S. data and found no negative impact on native employment during times of economic growth, but a “small, negative short-term impact” during a recession (the MAC authors recognize this similarity and cite Peri’s study). Peri’s study found that during a recession:

new immigrants are found to have a small negative impact on native employment in the short run (but not the long run). The economy does not appear to respond as quickly to new immigrants in terms of new job creation and productivity boosts during recessions.

After seven to 10 years though (a longer period than the MAC estimated for the U.K.), Peri asserts the U.S. labor market has had enough time to adjust to the new immigrant workers, and “the gains to productivity and income become significant.”

The authors of the MAC study were extremely careful about their findings, by subjecting them to a number of “robustness” tests, and then describing their results. They found that the significance of their results diminished under some alternative specifications, but that the direction of the estimates (i.e., whether they are positive or negative) did not change. When considered in conjunction with Peri’s findings for the United States, the MAC study strongly suggests that immigration levels should be tied to economic conditions. This means that when the economy is healthy and expanding, the United States should permit higher levels of immigrant workers to enter the country, since the economy and employers need them to keep growing the economy by filling vacancies during times of low unemployment. As demonstrated by these studies, these new workers will not have a negative impact on the employment of U.S. workers. But during an economic downturn, Congress should be able to adjust employment-based migration quotas downward, since the economy doesn’t need as many additional workers—who will ultimately compete with U.S. workers for scarce vacancies—when unemployment is high. This is an important principle—now supported by careful econometric data—that should guide future reforms to the U.S. immigration system. (It’s also a common sense component of the value-added immigration strategy that EPI has been talking about for years.)

The other important guiding principle for U.S. immigration reform that the findings of the MAC study reveal, is that the United States should shift away from using temporary “nonimmigrant” guest workers—i.e., those who are not on a path to legal residency or citizenship—in our labor market. As studies have now shown in both the U.K. and the United States, immigrants who are only temporary participants in the labor market of a new country can have a negative impact on employment during a recession. But if they remain and participate in our labor market for the long term, the economy will adjust and benefit from the value they add to it. In addition, when immigrants know that they are welcomed in their new country, they’ll be motivated to invest in the United States, whether by creating new businesses, purchasing a home, or simply engaging in civic life. In other words, they’ll be better able to integrate into the social and economic fabric of their new country. As Dowell Myers’ January 11, 2012, op–ed in the New York Times predicts, it’s exactly this type of integration that will be “The Next Immigration Challenge.”

Guest workers, on the other hand, enter the country to work for a few months or a few years and lack basic worker protections, most notably the ability to switch employers if they are unsatisfied with the wages and conditions offered by their employer. If guest workers get fired, they are instantly deportable, which means they are too afraid to complain about employer abuses even when ostensibly, they are protected under the law. Guest workers have little incentive to integrate, since they have no say politically (they can’t vote) and can never be sure how long they will stay (because that’s subject to the will of their employer and the duration of their visa). The resulting abuses that occur in this context have been well documented by numerous civil and human rights organizations.

In sum, the U.K.’s Migration Advisory Committee study reveals the mounting evidence that the United States needs to continually adjust employment-based migration levels so that they are higher when the economy is growing and lower when it is stagnant or shrinking. The solution for this is simple, and has been discussed at length by organizations such as EPI and the Migration Policy Institute, and a handful of ad-hoc bipartisan expert groups, including the Council on Foreign Relations’ Task Force on U.S. Immigration Policy, co-chaired by Jeb Bush and Thomas McLarty III. We need a permanent, independent commission to study labor market conditions and assess labor shortages (similar to the U.K.’s MAC), that can recommend to Congress the appropriate levels of employment-based migration necessary to meet labor demand every year or every quarter. Furthermore, because new economic migrants economically benefit their new country most when they remain for longer periods, they should enter the United States as permanent immigrants on the path to citizenship (i.e., with green cards) rather than as guest workers with temporary visas and limited rights.

See related work on Unions and Labor Standards | Immigration

See more work by Daniel Costa