National Institute For Economic And Social Research Fails To Convince With Assertion That Reducing Migration Would Lead To Slower Growth

Economics, Employment, European Union

A new paper published by the National Institute for Economic and Social Research (NIESR) claims that reducing migration to the UK would result in slower growth for the UK economy with a key driver being the impact lower migration would have on productivity.

However, given that prospective post-Brexit restrictions on migration would likely restrict the 80% of EU work-related migration that goes into lower-skilled jobs, it is unfortunate that the NIESR seem to have come to their conclusion without any evidence that such migration has enhanced or would enhance UK productivity

Productivity measures the value of what is produced by each worker in an economy. Increases in the value of what each worker produces is what enables wages and profits to rise and is the key to real growth in an economy. There have been a number of academic studies of the impact of migration on productivity and the NIESR paper relies on two of these for its calculations of the impact of lower migration to the UK.

The first of these papers [Boubtane et al] looked at a number of different countries including the UK and estimated that for the UK a one percentage point increase in the migrant share of the working age population had led to a 0.4-0.5% increase in productivity. This was higher than in most other advanced economies and reflected the relatively high skill levels of migrants to the UK in the period from 1986 to 2006. Notably, this will have included only the earliest arrivals to the UK from the accession countries of Eastern Europe, who will thus have comprised a very small proportion of total immigration over that period, whereas since 2006 half of the increase in workers from abroad in the UK is comprised of workers from these countries (including Romania and Bulgaria).

It is well-established that for these workers their skill levels are not a good indicator of the level of work that they actually do [Migration Advisory Committee report on low-skilled work, July 2014] and that their pay is considerably lower than the UK average [MW  paper, July 2015,and Migration Observatory 2016]. This means that their impact on productivity is likely to be quite different from previous arrivals from other parts of the world. Indeed, other research noted that over the period 1990-2005 twice as many immigrants worked in professional and managerial occupations relative to other less-skilled occupations [Ottaviano, Peri and Wright  2015] whereas in 2016 only 20% of EU migrant workers were in high-skilled occupations [MW paper, May 2015].

The changing mix of migrants to the UK, and the undeniable fact that a large proportion of recent flows have very different labour market outcomes from earlier arrivals means that they cannot be assumed to have had the same impact on productivity, nor can the likely impact of future flows be extrapolated from the 1986-2006 period. Indeed, as the positive impact on productivity established by Boubtane et al relied fundamentally on migrants higher-skilled than the existing population entering high-skilled work, it does not seem appropriate to use this research to support an argument that immigration to low-skilled work in the UK has or will have the same effect.

The second paper that the NIESR rely on, by Jaumotte et al, argues that migration for both high-skilled and low-skilled work can enhance productivity, but neither this paper nor the NIESR paper reports any specific finding for the UK. However, the NIESR appear to adopt an overall result from Jaumotte et al that a 1% increase in migrant share led to a 2% increase in productivity. The migrant share in the UK has increased by 6% since 2006 – from 11% to 17% of the workforce. That would imply that migration should have pushed up productivity in the UK by 12% since then, but according to the Office for National Statistics it actually increased by barely 2%, diverging significantly and negatively from longer term trend in UK productivity.

The NIESR provide little explanation of how migration to low-skilled work might enhance UK productivity except in noting that low skilled migration might increase labour force participation among women in the existing population, and referring to a further study of Italy. However, while labour force participation of women in the UK has increased, this is largely due to changes in the state pension age leading to a significant rise in the proportion of women working over the age of 50 and there is no evidence whatsoever that this has been enabled (unlike in the case of Italian women) by low-skilled migrants taking on their household tasks.  Inactivity rates among women aged 25-49 have been in a slow and consistent decline for decades that shows no correlation with changing levels of migration. In contrast, inactivity rates for 18-24 year olds, having been stable from 1994, then rose quite sharply from 2006 and have only just returned to previous levels.

Without any better explanation of the mechanism(s) by which migration to lower-skilled jobs might increase UK productivity and evidence to show it working in practice, and with such marked divergence between the results of Jaumotte et al and what has actually happened in the UK, it is quite unsafe to use these to make any prediction of the impact of lower migration to the UK.

In conclusion, neither paper relied on by the NIESR looks at the impact on productivity in the UK of the high levels of migration particularly from Eastern Europe which is most likely to be affected by any future restrictions imposed by the UK. Instead, it is simply assumed that such migration continuing into the future would have had a positive impact without any evidence being offered that such migration over the past decade has actually had any positive impact at all on productivity.

The NIESR report also considers the possible impact of lower migration on UK wages, and notes earlier Bank of England research which found in December 2015 that increasing migration had driven down pay in already low-paid sectors such as catering, hotels and social care in the semi/unskilled services sector.

The NIESR estimate that reducing EU migration could boost wages for the low-paid in the UK by as much as 0.5 per cent by 2030.

8th December 2016

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