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Whats the link between labour productivity and immigration in the UK?

What's the link between labour productivity and immigration in the UK?

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New research from NIESR finds that a 1% point increase in the immigrant share in the labour force is associated with an increase in labour productivity of between 0.06 and 0.07 percent.

The increasing number of immigrant workers in the UK is a controversial issue amongst policy makers, the media, academics and the general public. Rather than evidence based, the debate is largely unsupported by statistical evidence and research findings, and policy appears to be increasingly influenced by perceptions of public opinion on the effect of immigrants on the UK economy. Those claims and perceptions do not necessarily accord with empirical evidence provided by researchers and experts.

Moreover, while the debate has been widely focused on concerns that immigrants may harm the labour market opportunities of natives, the extent to which the UK economy benefits more widely from the increasing supply of foreign-born workers has received less attention. Few empirical studies have investigated the effect of immigration on labour productivity (and hence prosperity and GDP per capita) in the UK.

In a report published today, I and colleagues at NIESR look at some of these wider impacts on the UK economy, labour markets and workplaces.  In particular by using a specially constructed dataset that combines both firm and individual data, aggregated at sector and region level, I carried out an empirical analysis to investigate the relationship between the presence of immigrants in the workforce and labour productivity in UK companies between 1997 and 2007.  The results confirm some findings from earlier research;

  1. the presence of immigrants has been increasing in most sectors;
  2. immigrants are on average more educated than natives;
  3. immigrants tend to work longer hours than natives.  

In addition, an important new finding is a positive and significant association between increases in the employment of migrant workers and labour productivity growth; even after controlling for changes in the skill mix of the workforce, a 1% point change in immigrant share in employment is associated with an increase in labour productivity of 0.06% to 0.07%.

Further research is required to establish the nature of any causal relationship, but these findings are consistent with qualitative research which highlighted some of the potential productivity-enhancing impacts of migrants in the workplace.

Now, how could  immigration increase labour productivity? Existing evidence and new findings from the same NIESR study suggests the following are important potential channels through which immigrants may boost labour productivity:

  • Though their specific skills and aptitudes: immigrants arrive with “country” specific skills,  and aptitudes and transmit those to non-immigrant colleagues (and vice versa);
  • Immigrants bring knowledge of and connections with the markets, the populations and the economies of their home countries;
  • When  immigrants are a complement to some groups of natives, they could increase the incentive for natives to acquire certain skills by boosting competition;
  • Immigrants can also influence the way in which firms conduct business.

These findings suggest that in the workplace at least, immigration should be seen at least as much as an opportunity as a threat, both for the UK economy as a whole and for British business and workers.

Further Reading:

New research on skilled migration sheds light within an overheated debate - Heather Rolfe, NIESR

 

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