Examination of Witnesses (Questions 260
- 265)
TUESDAY 20 NOVEMBER 2007
Ms Rebecca Riley, Mr Simon Kirby and Dr James Mitchell
Q260 Lord Turner of Ecchinswell:
Could you comment on the extent to which either this macro-model
that you have done or other research suggests anything in relation
to the distributional effect of immigration, its impact on the
wages of low paid people? As I read it, the model itself tends
to assume those away because it sees immigrants and natives as
perfect substitutes of the same skill level, so I guess the question
therefore is about other research that you have done. What is
your belief in the best existing understanding of the distributional
impact between, for instance, skilled and unskilled labour?
Ms Riley: We have tried to look at the distributional
impacts using a different type of model which explicitly allows
for different labour demand for different skill groups and also
different wage setting behaviour for different skill groups. Migration
to the UK, as we have seen in the last decade, has probably not
changed the skill distribution very much. Migrants have typically
been relatively skilled or unskilled. They tend to fall on either
side of the middle, but in thinking about A8 migration this is
quite a distinct group of migrants in the sense that they are
typically working in relatively low skilled, low paid occupations.
What we have tried to do is to look at what happens in a model
that tries to take into account these different wage setting behaviours,
different labour demands for different skill groups. What happens
if there is a migration shock that does not change the skill distribution
of the population and one that does change the skill distribution
in a way which is similar to what we have seen with the A8? What
we find is that the wages of low skilled workers fall relative
to high skilled workers in this type of exercise by about 0.1
or 0.2%, so a relatively small effect. One of the reasons that
the wage effect is relatively small is because low skill wages
tend to be relatively inflexible downwards compared to other skill
groups. Therefore, there is also a small unemployment effect which
is concentrated amongst the low skilled, about half a percentage
point. What that type of exercise takes into account is the differences
in wage-setting behaviour and labour demand of different skill
groups. What it does not take into account, which you might also
argue is relevant, is that migrants going into low skilled occupations
may change the parameters of wage setting. They may increase competition
in the labour market, such that wage rigidities observed in the
data historically change. That kind of effect is not taken into
account in these estimates.
Q261 Lord Moonie:
The Government argues that recent immigration has no statistical
effect on unemployment. Do the findings from your own research
back that up and, in particular, has that had any effect on the
employment of young people?
Ms Riley: First of all, we could comment briefly
on the study that you are referring to, which is a very useful
study, particularly because it is only one of the very few that
looks at the data trying to uncover these effects. It does not
find any statistically significant effects on unemployment. We
would not necessarily take that evidence to imply that there is
no effect on unemployment. What the study does is it tries to
look at migration in a particular area and the change in unemployment
we have seen. It tries to relate those two things. It does not
take into account the fact that you might have onward migration
as a consequence of that migration. That may be one of the ways
in which the local labour market adjusts. There is evidence to
suggest that that happens. Therefore, it does not necessarily
pick up all the effect on unemployment of migration. Any unemployment
effects are likely to be small in A8 migration certainly. It is
likely to be a relatively small change in the population. We should
not expect to see huge unemployment effects. Looking at the particular
group of workers amongst which you might expect to see an unemployment
effect, you might detect something that you do not detect in the
annual unemployment rate. In the evidence that we have constructed
and discussed, we find a short-term effect on unemployment and
that is based on model simulations, which is a different type
of evidence, of course. We do note that there has been this rise
in youth unemployment. If there is any unemployment effect of
A8 migration, we would expect to see it amongst the low skilled,
which are typically young, or the low paid, which are typically
young. The expectation is consistent with what we have seen. That
does not necessarily mean, though, that migration is what is driving
observed changes in unemployment. We would not want to say that
because there are other factors going on that could have contributed
to those changes in unemployment. For example, the minimum wage
has been increased relatively quickly over the same period of
time that A8 migration has happened and that could contribute
to the patterns we see in the labour market at the lower end of
the skill distribution. We are not saying that this is the case.
It is possible that the increasing labour supply that comes about
through the welfare to work scheme is also concentrated in the
lower end of the skill distribution. That could also contribute
to the patterns we see in youth unemployment. We are not able
to pin down what we see in unemployment to any particular explanation.
What we are trying to say is that, because there are so many different
things going on, we cannot really attribute that to one particular
factor.
Chairman: We are running out of time so can
we have short answers? If the answers you give are not adequate,
would you be kind enough to send us in writing anything which
you feel you cannot say?
Q262 Lord Paul:
It has been suggested that immigration may reduce the skill level
of the indigenous population because it reduces pressure on employers
to offer training to indigenous workers. How important is this
effect likely to be in practice and how much empirical evidence
is available?
Ms Riley: In theory, that is an effect that
is possible. We are not aware of any evidence to support that
that is going on or that it is not going on.
Q263 Lord Vallance of Tummel:
You skirted round this in your answer to question two but your
2006 paper argues that the most coherent means of assessing the
fiscal implications of immigration is to consider the net budgetary
cost of any individual over the whole time that he or she is in
the country. Do you have any empirical estimates for the impact
of recent migration on public finances in that regard?
Ms Riley: In an early study, we have some estimates
of the impact on the public finances in the medium term of recent
A8 migration. They show a small positive effect which arises through
increased revenues from profits and lower interest payments on
government debt. It is a relatively small effect. That type of
calculation is not based on the dynamic approach that we were
discussing earlier so we do not have any calculations of the lifetime
contributions.
Q264 Chairman:
I think Dr Mitchell mentioned this in one of his answers but I
wondered whether there are any comments on the Government's evidence
that they gave to us. Are the Government's conclusions about the
economic impacts of immigration based, in your view, on a balanced
assessment of the available evidence?
Dr Mitchell: I think we have concluded that
overall we felt the Government position did offer a balanced assessment
of what evidence is available. We did feel that that evidence
was stressing the likely macro-economic effects of migration rather
than the micro-economic effects. By that we mean the distributional
effects. Obviously, when the migration inflow is not skill and
age neutral, we would expect there to be some winners and losers
from the recent migration inflows. For example, we might expect
the return on capital to rise. That is great for owners of capital
but not so good perhaps for the low skilled. Overall it is a fair
assessment but we felt that further evidence and work would be
welcome looking at these distributional effects, to try and work
out who is winning and who is losing.
Q265 Lord Layard:
What about the economic effect of remittances? Surely, in so far
as there is a net, positive contribution, it must to some extent
be offset by remittances?
Ms Riley: We have not looked at any remittance
numbers. We do not have any.[11]
Remittances are likely to be relatively important for recent migrants
and A8 migrants in particular because they are typically coming
for a short period of time and going back again, so you would
expect remittances to be relatively large compared to if they
were permanent migrants, say. We have not done a quantitative
analysis of what that implies for the macro-economic impacts but
what we would expect is that demand would rise less quickly. We
have had a change in the supply capacity of the economy. We are
changing the number of people who are here who are able to work.
What we then expect is that they also demand something and that
demand helps the economy move towards its supply potential. You
might see a slower adjustment from the demand side if that money
is not being spent in the UK but being sent back to the migrant's
country of origin. It should also have a small negative effect
on the balance of payments. The demand effect could also be somewhat
offset by increased export demand. If we say that remittances
slow the demand effect of people spending elsewhere, that could
put some down pressure on the exchange rate and cause greater
export demand, so that could offset some of the lower effects
on consumption that you would see with remittances. That is just
based on what we might expect and it is not based on any quantitative
analysis.
11 Note by witness: The ONS does not publish
separate data for remittances with the National Accounts. Chairman:
We are all very grateful to you. It is a very substantial amount
of information you have given us in the course of the last hour
or so and we are extremely grateful to you. We shall obviously
want to read carefully what you said to us, both in your written
submission and today, and if we have any more queries we will
come back to you. If, when you look at the evidence, you feel
there is anything you want to amplify any more, please do so.
We are extremely grateful to all of you for coming along and giving
us your evidence. Back
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