The government has targeted low-skilled workers in the recently leaked government papers, suggesting a restriction on the amount of foreigners in low-skilled occupations. The paper insinuates that low-skilled immigrants are not valuable to the country because they don’t make existing residents better off. The argument consists of beliefs that UK wages are being driven down and that UK jobs are being taken away from natives. This is a common fallacy in the public debate and I beg to differ. Here’s why:
A paper from 2016 written by Mette Foged and Giovanni Peri looks on the longitudinal data from the period 1991 to 2008. Throughout that period, Denmark experienced an immense inflow of low-skilled workers from Bosnia, Somalia, Iraq and Afghanistan and it therefore gives Foged and Peri a good foundation to assess data from this period.
The three main findings in their analysis are as follows:
First, the increase in refugee-country immigrants pushed less educated native workers to change occupation. [...] Second, less educated natives experienced positive or null wage effects and positive or null employment effects. [...] Third, as we compare a cohort-based analysis and an area-based analysis we find that the direction and magnitude of the effects on native outcomes are similar using either method and the wage and specialisation effects persist in the long run.
Nonetheless, it’s true that immigrants are taking native jobs. However, it’s not because of the reasons normally stated in the public debate. Rather, it’s because immigrants basically forces natives to be mobile and specialise themselves and thus gain entry to a higher paying job. Therefore, immigrants are stepping onto the lowest step on the ladder while pushing the natives upwards in the process.
Although, the paper states that there is not necessarily a positive change in natives’ wages, but there is not necessarily a negative effect as well. If there are any positive effects, they occur after three years and are permanent afterwards.
The reason for this potential gain in wages is explained in another paper and is complementary to the paper referred to above.
It too suggests that native workers are able to generate higher wages through specialization. According to this study, production consists of different kinds of skills. Immigrants who are less educated have a comparative advantage when it comes to physically demanding tasks, whereas natives of the same level of education have an advantage in tasks demanding better communication and language skills. Therefore, when the increase in physical labour supply pushes native working to a job demanding better communication and language skills, the natives are rewarded through their wages.
As it turns out, immigrants can in fact be an asset in the future and make the current residents better off. The leaked government proposal therefore seems to be projected at addressing the concerns of the public rather than actually looking at the reality of things.
Our Executive Director, Sam Bowman, wrote an article on this a few years back. If you enjoyed this piece, have a look at his piece as well.