The debate on migration has often focused on how the arrival of overseas workers affects existing UK workers. But what impact does the arrival of migrant workers have on the effectiveness of the economy? New research presented today suggests a positive effect.
Concerns over migration have often focused on how migration affects the employment prospects of the native population. On that issue, there is already a vast amount of empirical evidence which shows the arrival of workers from overseas actually has a positive effect.
The extent to which the UK economy benefits more widely from the increasing supply of foreign-born workers has received less attention, with only few empirical studies investigating the relationship between immigration and labour productivity (and hence prosperity and GDP per capita) in the UK.
The effect of immigration on the productivity of a country is a result of complex interactions of different factors, and is influenced by the characteristics of the migrants, industrial arrangements, whether the migrants’ skills complement those of the natives and also natives’ responses to immigration.
Between 1997 and 2007 – during which time the UK economy grew by 2.43 per cent – the share of immigrants increased in most sectors of the UK economy.
This research investigates the relationship between immigration and labour productivity in most of the sectors in the UK during that period. In order to do so it uses a specially constructed set of data that uses two sets of official figures – the Annual Respondents’ Database and the Labour Force Survey. The main variable is changes in the proportion of migrants in the workforce. We also take account of factors concerning how firms are run – whether they are foreign-owned, for example – and concerning the workers themselves, such as how many hours they work and how their levels of education compare with native workers.
The results confirm some findings from earlier research, namely that the proportion of immigrants in most economic sectors has been growing, that immigrants tend to be more educated than natives and that they tend to work longer hours.
They also show a small but positive and significant association between increases in the employment of migrant workers and the growth of labour productivity. Specifically, a one per centage point change in the proportion of immigrants as a share of initial employment is associated with a change of 0.06 and 0.07 per cent in productivity.
We also look at each economic sector separately, and this analysis reveals an even stronger effect in the manufacturing, real estate and wholesale sectors. The table shows the strength of the association in each area.
While the effect captures an association rather than a causal relationship, the estimates are consistent with previous studies and are in line with the idea that increased numbers of migrants in the labour force stimulate productivity growth by creating efficient specialization of immigrants and natives in different tasks, by increasing the human capital stock of the receiving country, by boosting competition and by influencing the way in which business are run.
The lack of causality in the results makes hard to rule out the possibility that they might be driven by shocks in productivity, and/or by the fact that more productive sectors or regions attract a more qualified workforce. Despite these limitations, the results imply that between 1997 and 2007 labour productivity in the UK has certainly benefited from the presence of immigrants.
This research is part of a wider project: ‘Migration and productivity: employers’ practices, public attitudes and statistical evidence’ Joint with H. Rolfe, M. Lalani, and J. Portes carried out with funding from: Barrow Cadbury Trust, NASSCOM and Unbound Philanthropy.” Cinzia Rienzo will present the work at an event on migration research this Thursday in London, organised by the ESRC Research Centre on Micro-Social Change.