Labour Migration

Question 1

Current UK view on migration

B) how are considering to do this? (2)

Answer 1

Aim to reduce net migration (Sunak “levels of legal migration are simply too high”)

B)
Foreign care workers can no longer bring family with
Same for foreign students: student dependant applications fallen by 80%.

Question 2

Main effect of Brexit on labour migration

Answer 2

No free movement of people between EU countries.

(Adjusts decision to migrate!)

Question 3

UN definition of migrant

Answer 3

Someone who changes their country of residence for at least a year, thus becoming their country of usual residence

Question 4

Why is measuring migration important

B) what do we use to measure net migration, and issues (3)

Answer 4

Statistics are used for planning and resource allocation, and to judge government against its migration target.

B) international passenger survey problems: Distinguishing between tourists vs migrants.
Wizz Air - tourist in usual big airports, migrants arrived in Luton.
Not compulsory, can lie

So all distort immigration numbers.

Question 5

Application in UK: how many immigrants/migrants/net migration 2022-2023 June

Answer 5

1.18M migrants to UK (immigration)
508k left UK (emigration)

So net migration is 672,000

Question 6

Hatton’s 2005 observations (2)

Answer 6

A downward trend in emigration, especially to ‘Old commonwealth’ countries

An increase in immigration of EU citizens from 1991 (as EU gets larger)

Question 7

Hatton’s observations of immigrants (4)

Answer 7

Increasingly likely to be female

Immigration is increasing for 15-24 age group, but emigration falling for 25-44 age group. (Young people are entering UK, and less midage people are leaving)

Increasing number of people coming to study

Both those who leave and enter the UK have become more skilled overtime

Question 8

So as just mentioned, study is a reason for immigration.

Why else do people migrate to the UK (4)

Answer 8

Formal study
Work (2 largest)

Other
Accompany/join someone who has migrated
No reason stated

Question 9

2 factors impacting migrants decision to migrate

Answer 9

Government policy e.g influence cost of work permit
(Japan harder to get work permit, so low net migration!)

Economic forces e.g income and income inequality

Question 10

UK migration policy

B) Why is this good for government?

Answer 10

Points based system for economic migrants.

Skilled labour get high points allowing them to get work permits and move to the UK. (job offer of £38,700> by 2025 + doesn’t apply for health work)

Thus, government has a certain amount of control over b) migration flows

Question 11

What are EU citizens entitled to do (3) (us pre-brexit!)

B) What has happened to UK migration since brexit?

Answer 11

Work in another EU country without a work permit
Reside and stay there even after employment
Enjoy equal treatment e.g tax & social advantages

B) Increased non-EU migration into the UK, reduced EU migration.

Question 12

Hatton’s model on decision to migrate - what is it based on, and explain it’s design.

Answer 12

Individual rational choice

Consider a person i with skill level si

Living in country y, considering emigrating to x.

Question 13

What would be the earnings functions for country Y and X

Answer 13

Wyi = αy + βySi

Wxi = αx + βxSi

α high - higher level of general wages
β high - greater return to skill

Question 14

What else does a higher β imply?

Answer 14

A higher β implies a greater return for person’s i’s given skill si!

Therefore a more unequal earnings distribution! (As a skilled person wed wanna go for a country with a higher B since rewards skill better! E.g America Wallstreet)

Question 15

There are 3 types of costs in this model, how are they expressed?

Answer 15

Zi - Idiosyncratic cost e.g leaving family behind, social life

Ci - Direct cost e.g relocation fees

Government policy - included in C e.g cost of work permit

Question 16

So now we have earnings functions and costs,

How to we express the decision to migrate expressed?

Answer 16

Prob(wxi - wyi -zi - c > 0)

Migrate if expected benefits of migration exceed the expected costs.
Wage differential has to be positive, and also survives the costs!

Question 17

What must we be aware of when analysing the earnings differential?

Answer 17

Earnings differential is necessary but not sufficient to induce a person to migrate, since we also need to consider the costs

E.g even if earn more in destination, costs may outway it

Question 18

Inequality function, and what assumption do we have to make, and implicatin

Answer 18

Country x: wxi = αx + βxsi

Assume αx>αy
an increase in wage inequality (βx) in country x would attract high skilled workers from country y.

E.g US more attractive so migrate their. Brain drain for other country!

Question 19

Hatton’s general findings (5)

Answer 19

Increase in UK unemployment reduces immigration
(E.g less attractive)

A rise in UK GDP relative to foreign GDP increases immigratation

An increase in wage inequality increases immigration from developed countires but decreases immigration from less developed (developed have high skilled labour, attracted to inequality; better rewards for their skill)

More immigrants currently in destination country, the more people are included to migrate. (Zi falls - perhaps more confident to follow others, establish social connections)

Government lowered costs of work permits (C falls), increasing immigration.

Question 20

Implications if markets are fully flexible vs not fully flexible

Answer 20

Flexible - immigration will cause a fall in wages (by usual increase in supply)

Not fully flexible e.g a binding minimum wage -
An increase in immigration could cause higher unemployment instead (since labour market cannot absord the supply since have to comply to the min wage)

Or could just consider flexible as high skilled sector vs low skilled (since would be effected by min wage)

Question 21

Main assumption for this model

Answer 21

Workers can move freely between sectors, implying wage equilisation

(no training lags in order to switch etc which may be more realistic)

Question 22

What wage do they receive

Answer 22

VMPL i.e marginal product is their real wage. so high productivity is rewarded.

Downward sloping as pay less for lower productivity!

Question 23

2 cases: draw diagrams (pg15)

Case 1: No minimum wage (flexible/high skill i.e where min wage has no effect)

Consider an increase in immigration

Answer 23

2 DEMAND CURVES VMPLs and VMPLm

As we increase immigration: Os to Os* to show increased LS

Effects:
VMPLs needs to shift by the same amount to keep its relative location.

So wages fall for everyone following immigration!

Question 24

Case 1: Diagram following an increase in immigration

Answer 24

Extend horizontal distance (since it represents total labour supply 0s > 0’s)

Since we move the origin, now we have to move the VMPLs to keep it constant. VMPLm doesn’t shift since 0m doesn’t move. We reside at a lower wage for everyone

If we were to shift 0m as well, we’d shift VMPLm as well as VMPLs which requires greater accuracy, hence why better to only extend one.

Question 25

Case 2:
A binding minimum wage (low skill/non-flexible)

Outline initial position (increase in immigration next FC)

Answer 25

Similar to A-level: Wm set above W*

Manufacturing hire where Wm=VMPLm (instead of VMPLm=W*)

Services hire up where Wm=VMPLs.

Thus they employ LESS than if no min wag existed, creating unemployment

Question 26

Case 2: now an increase in immigration

Answer 26

Move 0s again to increase total labour supply.

Like case 1, VMPLs shifts by same amount to maintain relative position.
(VMPLs > VMPLs’)

Services now employ up to where
Wm=VMPLs’ (the new services curve)

Overall effect: just an increase in unemployment; workers just add to the unemployment issues caused by the minimum wage jamming the market clearing mechanism.

Question 27

Benefits of immigration to host country (4)

Answer 27

Immigration lowers wages, reducing price-wage inflation (if no min wage!)

Heterogeneity by sector - may fill in gaps/be complementary (Dustmann & Manacorda)

Tend to be young, pay tax and do not claim unemployment benefits

Useful in an ageing society (fill in gaps in labour market)

Question 28

What did Dustmann find?

Answer 28

Little evidence on immigration causing adverse effects on wages or unemployment. (shows complementarity with domestic workers)

but possible slight adverse effects for native workers with intermediate levels of education. (less skilled lose out)

Question 29

Manacorda

Answer 29

Native workers and immigrants are imperfect subs.

Immigration reduces wages of immigrants themselves relative to native workers. (so are not subs, they complement!!)

Question 30

Slight cons of migrants (3)

b) overall evaluation

Answer 30

1. consume public services - school, healthcare etc
2. access to UK benefits system. (however often young and pay tax and dont claim benefits as mentioned)
3. private sector implications - housing where supply is slow to change

Overall eval: the net fiscal impact can be positive i.e if their benefits (tax revenue) exceed the cost of them being here.

Question 31

Dustmann & Frattini looked at fiscal impacts between 1995-2001

a) Migrants from EEA
b) Non EEA migrants
c) Overall migrants (both EU& Non) after 2000!

Answer 31

EEA migrants - pos fiscal contribution of £8.8bn context: 4% more than what they receive in benefits/transfers etc
(esp countries joining 2004-2007 e.g Croatia)

NON-EEA - negative contribution
but so have UK natives.

Since 2000, net fiscal contributions have been positive for both £25BN!! (no longer neg for non-EEA)

Question 32

EU Migrants fiscal contribution most recent (2018)

Answer 32

Positive £4.7bn - they pay more in taxes than they receive in benefits or public services (£4700 net fiscal contribution per adult migrant!)

So migrants are good in terms of fiscal impacts!
Especially compared to non EEA migrants, and natives (bad fiscally)

Question 33

How has migration affecting the individual income groups

Answer 33

Negatively impacted the lower 25% quartile (i.e still increased over the period obviously but it has weakened it)

However migration has positively contributed to the top 50% (links back to Dustmann & Manacorda, complements and imperfect subs, so do not harm wage and help increase domestic worker wages also!!)

so overall impact is good for wage growth