Migration, Low Pay and Work Incentives in London

1. Migration, Low Pay and Work Incentives in London Ian Gordon LSE 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 IoannisKaplanis, within the Spatial Economics Research Centre

2. Outline • Framing the relation between international migration and the low pay segment of the London economy • How has recent migration affected the incidence of low paid work in London ? • Have depressed pay levels for such work reduced incentives for labour market participation in London • Implications for policy ?

3. 1. A Simple Framework for Analysis

4. 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

5. 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 ??

6. 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

7. 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

8. London Migrant Jobs by Type and Quintile2008

9. 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)

10. Relation between Years in UK and Working in Bottom Quintile Jobs for Migrants from Poor Countries

11. 2.Has recent immigration to London seriously affected wage levels in bottom tier jobs ?

12. 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.

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

14. 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

15. Bottom Quintile Real Earnings

16. In-migration from Overseas(per cap)

17. Bottom Quintile Share of Regional Employment

18. 3. How has this impacted on worklessness and work incentives ?

19. 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

20. 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

21. 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

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

23. London: People not Wanting work: Bottom Quintile probablesvsimprobables

24. BQ Probables:Not Wanting WorkLondon vs RGSE and RUK

25. London-RGSE Differences (BQ probables)

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

27. 4. In Summary

28. 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

29. 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

30. Sources