Migration, Low Pay and Work Incentives in London

Ian GordonLSE London research group, London School of Economics

LSE London HEIF5 Seminar:‘Migrants and Low Pay in London’

9th June 2014

Acknowledgement: This presentation draws (in section 2) on research undertaken jointly with Ioannis Kaplanis, within the Spatial Economics

Research Centre

Outline1. Framing the relation between

international migration and the low pay segment of the London economy

2. How has recent migration affected the incidence of low paid work in London ?

3. Have depressed pay levels for such work reduced incentives for labour market participation in London

4. Implications for policy ?

1. A Simple Framework for Analysis

Getting a Handle on the Diversity of Migrants’

Roles• The ‘new migration’ into London since late 1980s notable for its diversity as much as its scale:– geographic origins (Somalia, Poland, Africa,

France ! ...)– languages / culture (well beyond ex-colonial world)– motivation (refugees, experience seekers, family,

economic) – legal standing (PBS admissions, A8s, fake

students ...)– organisation/spontaneity (agencies, traffickers, intra-

firm, speculative migrants– human (and other) capital (the full range !!!)

• Leading to enormous range of work niches varying in:– conditions and integration with economic/LM core;

but each– with substantial links / implications for the rest ?

• Need to understand via a few simple distinctions

What Aggregate Analyses Have Shown

• Key message of early (migration) research = – no predictable / clear-cut links with LM supply-

demand balance (locally or nationally), UE levels or average wages

– Later work did, however, indicate negative effects on earnings (for natives) in the bottom tier of jobs

– And recent MAC / GES (cross-region) studies suggest quite substantial negative effect on UK-born employment levels

• at least from those arriving within last 5 years• A distinct strand of research on minimum

wage effects – indicated broadly neutral effects of NMW on employment– suggesting low wages might blunt competitive

performance?– what might this imply about effect of cheap migrant

labour ??

Some Crucial Distinctions• Focus of presentation on 4 sorts of distinction:

– Where migrants came from:• Rich/poor countries (global north/south; European

west/east)• Differing in: economic motives; duration of stay; initial

barriers– When they came/went: gross vs. net flows + years in UK

:• Impacts not only on supply/demand balance – but also

on progress past initial barriers– Tiers of labour market (esp. bottom quintile or above)

• Jobs: occupations grouped by average (UK) pay across decade

• Prospective workers – by (UK-wide) likelihood that jobs would be in this tier (based on age/sex, education, health, family, ethnicity, housing tenure etc.)

– Labour market position (of working age pop. out of education)

• Employed; short term/long term job seekers; inactive wanting/not wanting work

The bottom quintile/low pay sector

• In the low pay sector (roughly bottom quintile of occupations):

• activities are typically labour intensive & undifferentiated

– agglomeration economies are minimal– demand is price/cost sensitive

• jobs have been squeezed out of successful high-cost areas

– except for more/less untradeable services with a local market

– still subject to mechanisation & partial contracting out– unless protected by very dynamic elite demands– and /or some very elastic supply of cheap labour

• human capital development (and worker organisation) is very limited

London Migrant Jobs by Type and Quintile

2008Migrant Origin Years in

the UKBottom quintile

2nd quintile

3rd quintile

4th quintile

Top quintile

Non-Migrant .. 11.3% 16.0% 17.4% 24.0% 31.3%

High Wage countries 0-3 13.5% 11.6% 10.2% 24.3% 40.5%

HWC >3 9.5% 12.6% 9.8% 24.3% 43.8%

Low Wage countries 0-3 40.5% 19.7% 9.0% 9.1% 21.7%

LWC >3 23.9% 21.3% 17.7% 17.3% 19.8%

Crowding, Competition and Discouragement

• This bottom tier is:– the realistic aspiration for many marginal workers, with

disadvantageous characteristics - presently in/out of work– a destination for many ‘bumped down’ from better one by

recession– the initial ‘place of insertion’ (A. Portes) for half of those

arriving from poor countries – including many with qualifications / skills

• though many move on rapidly - and proportion converges to (native) norm within c.30 years (half way within 7 or 8)

– a highly competitive sub-labour market with flexible wages more directly reflecting supply/demand

• subject only to NMW and/or benefits ‘floor’ – where applicable

• For those with outside options – in terms of income/status– even a perception of low wages here may discourage not

only active search but any positive interest in the labour market (for some time)

Relation between Years in UK and Working in Bottom Quintile Jobs

for Migrants from Poor Countries

0.00 10.00 20.00 30.00 40.00

Years in the UK

0.20

0.25

0.30

0.35

0.40

0.45

0.50

Pro

port

ion

in B

otto

m Q

uint

ile

2. Has recent immigration to London seriously

affected wage levels in bottom tier jobs ?

Our Hypotheses• Increased rates of overseas migration –

specifically the recent inflow level from poor countries – will have depressed earnings in the bottom tier of jobs (specifically) in main recipient regions – via initial crowding of new arrivals into this tier

• The resultant lowering of wage costs (more than e.g. growth of elite demands for local services) would be the most likely cause for any significant growth of jobs in this section of any regional economy.

Our Evidence• Panel of New Earnings Survey data

– for regions, years 1976-2008 and job quintiles– on numbers employed and hourly earnings+ other data on migrant numbers and on household structures

• Regressions of earnings on alternative migration indicators, potential NMW impacts & poss spillovers

• Regressions of employment levels on earnings + independent sources of demand growth (elite earnings, all-worker households)

Findings• London earnings in the bottom quintile fell by

about 15% (relative to trend and other regions) 1995-2000 – Partly reflecting limited NMW effect, but primarily

effect of rapid upsurge in migration– Effect was in BQ only and specifically linked to recent

gross inflow rate from poor countries• London employment in this sector grew

substantially (relative to trend and other regions) in these years – predominantly reflecting reduced labour costs– though key was relation to those in neighbouring

regions• implying local substitution effects – not any boost to

overall national employment in the sector

Bottom Quintile Real Earnings

45

67

8re

alho

urly

1

1970 1980 1990 2000 2010year

London Rest of GSE S West W Mids E Mids Yorks and H N West N East Wales Scotland

In-migration from Overseas (per cap)

0.0

1.0

2.0

3la

g m

igra

tion

(pop

.adj

uste

d)

1975 1980 1985 1990 1995 2000 2005 2010year

LONDON SE & ESWest WMidsEMids Yorks&HNWest NorthWales Scot

Bottom Quintile Share of Regional Employment

.15

.2.2

5.3

shar

e of

bot

tom

qui

ntile

1975 1980 1985 1990 1995 2000 2005 2010year

LONDON SE & ESWest WMidsEMids Yorks&HNWest NorthWales Scot

3. How has this impacted on worklessness and work

incentives ?

The Hypothesis• Migrants may effectively displace (some)

others from jobs (as suggested by MAC/GSE work)– Not simply by creating excess supply

• and pushing native job searchers back in the queue (and into unemployment)

– But by lowering rewards for work • in the segment of the labour market where the least

integrated of them compete with the most marginal part of native workforce –

• leading to a withdrawal of interest in work

Our Evidence• LFS analyses relating personal attributes of

workers to chances of employment in bottom quintile jobs – generating comparable probabilities for rest of

(working age non-student) potential labour force• The distribution of actual labour market

positions for a (statistical) population of lower tier job candidates then tabulated; and– compared over years(1996-2013), broad regions

(London vs RGSE and RUK), migrant status (more/less recent & native), and with those outside this tier;

• Looking for indication that – in London and BQ tier specifically (and for established groups) - voluntary inactivity grew when migration lowered BQ wages

Findings• Key change = growth in people not wanting

work– specifically among those (only) likely to be employed

in BQ– and within London, not in rest of Greater South East

or RUK= only labour market status where London trends differ from RGSE

– evident both among UK-born and settled (5 yr) migrants

• not those arriving within last 5 years• Upward trend dates from end of 1990s

– peaking 2004-2009 [some 3% higher as prop of WAP]– several years later than the BQ wage shifts– maybe triggered by level of available wages (not

change) – or simply delayed response among those not in

market• as might reasonably be expected

– anyhow hard to think of alternative explanations

London: Current Labour Market Position of all working age residents not in education

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

EmployedInactive - would not like workInactive - but would like workUnemployed - short termunemployed - long term

London: People not Wanting work: Bottom Quintile probables vs improbables

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Not wanting work_BQ probables_LondonNot wanting work_BQ improbables_London

BQ Probables:Not Wanting Work London vs RGSE and RUK

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Not wanting work_BQ probables_LondonNot wanting work_BQ probables_Rest of GSENot wanting work_BQ probables_Rest of UK

London-RGSE Differences (BQ probables)

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Inactive - would not like workInactive - but would like workunemployed - long termUnemployed - short termEmployed

Not Wanting Work: by Migrant Status (London BQ probables)

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

UKBornMig More than 5 yrs UKMig Less than 5 yrs UK

4. In Summary

Summary– There is reasonable evidence (for London at

least) to support the popular suspicion that increased in-migration from poor countries has had socially very unequal effects:• depressing wage and employment rates among

those only able to access jobs in the bottom tier (including those bumped down from better jobs in the recession)

– Not because of mass immigration of the unskilled.• education levels (and motivation) at London

standard• but various barriers confine many initially to

bottom tier• alongside Londoners with comparable constraints

Implications for Policy • Continuing migration may not produce any

further deterioration – and there was a respectable (1950s/60s) argument

for recruitment of such migrants as replacement labour in such jobs enabling upward mobility among settled population

• But current outcomes seem socially unjust, economically wasteful and politically unacceptable.

• Suggests a necessary response with 3 prongs:– more positive support to make able (poor country)

migrants eligible more rapidly for productive jobs outside this sector

– parallel action to improve advancement prospects of all others (unnecessarily) stuck in this sector

– substantial increase in London minimum wage to cut the link between migration, depressed wages and inactivity

Sources