Are Immigrants Really Undermining The Wages Of Low-Paid Britons?

Do Migrants REALLY Drive Down Pay For Low-Paid Brits?
Prime Minister David Cameron and Home Secretary Theresa May visits UK Border Agency staff at Terminal 5 of Heathrow Airport, Middlesex, where they were shown differences between fake and real passports.
Prime Minister David Cameron and Home Secretary Theresa May visits UK Border Agency staff at Terminal 5 of Heathrow Airport, Middlesex, where they were shown differences between fake and real passports.
Steve Parsons/PA Archive

There is a new consensus in British politics: foreign-born workers hurt the wages of British-born workers.

Ukip, which came top of the European elections, has warned vehemently about migrants undercutting hard-working, low-paid British employees in their campaign messaging.

Speaking in January, Farage said: “There is no question that it’s pushed wage inflation down; it’s helped big companies and big corporations and big landowners to make bigger profits - no argument about that.”

He said that construction workers had been badly hit by unskilled migrants bringing down wages across the sector, with Brits now earning less than ten years ago and suffering higher living costs.

Ed Miliband has weighed in too. "When millions of workers already have low pay and poor job security in Britain and we add high levels of low skilled migration mostly from within the EU, some benefit but some lose out," the Labour leader said in January, adding: "It isn't prejudiced to believe that."

The Tories agree just as much, with James Brokenshire using his first speech as immigration minister in March to lash out at "employers who wanted an easy supply of cheap labour" at the expense of "ordinary, hard-working people of this country".

The wariness towards migrants is shared among all the major parties, except for the Lib Dems, whose business secretary Vince Cable recently waged war on "immigration scare stories".

Farage, Miliband, Cameron and co do have some evidence to support their concerns about EU migrants and their impact on pay. A joint Home Office and Business Department report reads: "Using a simple supply and demand model, immigration will tend to lower the wages of workers who are considered to be ‘substitutes’ to the immigrants".

Alongside this, a London School of Economics study in 2009 concluded that migrants have a "significant, small, negative impact on average wages", adding that it tended to have the biggest impact on the semi/unskilled services sector.

However, there is a wealth of empirical evidence and academic research on the effect migrants have on Britons' wages that challenges this wholly negative view.

Leading economist Jonathan Portes, head of the National Institute for Economic and Social Research, said: "EU migrants don't appear to have a negative impact on the employment prospects of natives - several different studies have failed to show any link.

"However, there is some evidence that migration, while having some positive impact on wages overall, might have a small negative impact for the low-paid. But these impacts appear quite small - other factors, like general labour market developments, or the minimum wage, appear to be considerably more important."

A 2009 study by labour market expert Professor Danny Blanchflower, a former Bank of England rate-setter, and Bank of England analyst Chris Shadforth found that any negative impact on wages is "statistically insignificant".

In their paper, they conclude that "there is only a weakly positive but statistically insignificant relationship between those regions that have witnessed the largest increases in youth unemployment and those that have seen the biggest influxes of new immigrants".

And who exactly is hit by new migrants entering the labour market? Some may be surprised to hear it is more likely to include other migrants rather than the 'native' workers Farage champions.

As the University of Oxford's Migration Observatory points out, "this is because the skills of new migrants are likely to be closer substitutes for the skills of migrants already employed in the UK than for those of UK-born workers."

A report for the Low Pay Commission found that between 1997 and 2005, migrants made a positive contribution to the average wage-increase experienced by native Britons. Professor Christian Dustmann of UCL's Department of Economics, the report's author, said: "Economic theory shows us that immigration can provide a net boost to wages."

Others find that migrants can help boost high-paid Britons' pay packets as they can offer the right skill-set. As London School of Economics professor Jonathan Wadsworth, who sits on the government's Migration Advisory Committee, writes: "There may also be a positive effect on wages in the high wage labour markets where it may take more time for the skills that immigrants bring to transfer."

The government itself has been much warmer about the impact migrants have on Britons' pay packets. In 2008, the government's response to a House of Lords Committee on Economic Affairs stated that research "continues to find no significant evidence of negative employment effects from immigration”.

It went on to say that "migration has not had a significant negative impact on unemployment", confirming that its view was "in line with the clear consensus among most UK labour market economists."

But why are anxieties running high about the impact of migrants for native British workers when the government used to think there was nothing wrong?

Professor Blanchflower notes that fear of unemployment has recently risen in the UK, which is "likely" to have limited prospective wage rises for workers.

While Jonathan Wadsworth, concludes: "the evidence for the UK labour market suggests that fears about adverse consequences of rising immigration in general and EU immigration in particular have still not, on average, materialised."

Even though politicians like Nigel Farage insist there is "no argument" about migrants pushing down Britons wages, the evidence tells a much less scary story.

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