Competitive Economies Can Expand to Accommodate Immigrant Workers

Authors: Christian Dustmann (University College London, CEPR and CReAM) and Albrecht Glitz (University College London and CReAM)

In a new Report 'Immigration, Jobs and Wages: Theory, Evidence and Opinion', published by the Centre for Economic Policy Research (CEPR) and the Centre for Research and Analysis of Migration (CReAM), Christian Dustmann and Albrecht Glitz provide a brief historical overview of Europe's migration experience since World War II. They show that there have been large differences in the immigration experience of European countries over the last six decades. These differences are important when the effects of immigration on labour markets, or the formation of attitudes towards immigration are examined. Some of the perceived benefits of rising immigration flows are believed to come from gains in increased efficiency of the economy. Those who favour more liberal immigration polices in Europe argue that immigrants fill vacancies for jobs that could not otherwise be filled by native workers. The authors provide some support for this view by demonstrating that much of the large-scale economic immigration into Europe and between European countries since the Second World War has been driven by labour shortages in recipient countries.

The Report then discusses the effects of immigration on the economy of the receiving country within an economic model. The discussion and analysis emphasizes that different types of immigration lead to different responses. Furthermore, the effect on the labour market depends on particularities of the economy under consideration. The discussion emphasises the multiple ways an economy can adjust to increased immigration. The public debate about the possible consequences of immigration for employment and wages often seems to be led by the perception that there is a fixed number of jobs in the recipient economy, and that immigration will lead to more competition for these jobs. The discussion presented in this Report shows that this is untrue - even in the authors' simplest model, an economy embedded in a competitive international market can always expand production, absorbing new workers by creating new jobs.

Dustmann and Glitz continue to discuss in a simple and intuitive way the difficulties that arise when empirically assessing the labour market effects of immigration and the various ways these are addressed. They provide an extensive review of the existing empirical literature. This summary discusses the latest developments that have been made in this field of research and explains the challenges researchers face when conducting this type of empirical analysis. They discuss the advantages of different methodological approaches, and also the problems associated with each of them, and assess the findings to date. They conclude that although the academic literature has come a long way in understanding labour market effects of immigration much controversy remains and there is a need for further empirical analysis of the various aspects, in particular for European countries. The Report provides an analysis of factual knowledge of host country residents, and the perceptions of the possible effects of immigration on wages and jobs. The authors find that domestic residents in various European countries vastly overestimate the true size of the number of immigrants and the foreign-born population. This suggests that factual knowledge about immigration is low among the general population in Europe. The Report therefore argues that it is important to bring detailed information relating to immigration to the attention of the electorate. It is likely that residents' perception of immigration is more important for policy than evidence that has been established by social scientists. As a consequence policy-makers may react to beliefs that are based on ill-informed evidence and may therefore create inappropriate regulations and legislation.

Further analysis of perceptions on the way immigration affects wages or employment suggests large differences in responses according to educational background - with the better educated being consistently more optimistic about the effects of immigration. There are also large differences in responses across European countries, some of which are associated with differences in the number of resident immigrants, unemployment, GDP, and the number of past asylum applications. The main conclusions the authors draw are that only a factual and well-researched knowledge base can lead to immigration policies that respond optimally to the needs of the respective country. Furthermore, policy is likely to react to voters' subjective perceptions which this Report shows may be based on low levels of factual knowledge. Therefore, there is an urgent need in Europe for more sensible quantitative research on immigration related issues and provision of factual information to the public.

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Notes for Editors:
CEPR is a network of 600 Research Fellows based throughout Europe, who collaborate through the Centre in research and its dissemination. CEPR helps its Research Fellows to develop projects, obtain their funding, administer them and disseminate their results. The Centre's research ranges from open economy macroeconomics to trade policy, from the economic transformation of Central and Eastern Europe to regionalism in the world economy.

CReAM is an independent and interdisciplinary research centre located in the Department of Economics at University College London. CReAM's research focuses on the causes, patterns, and consequences of international population mobility and movements affecting the UK and Europe and on associated global processes. CReAM aims at informing the public debate on migration in the UK and in Europe by providing new insights, helping to steer the current policy debate in a

This report has been financed by the Economic and Social Research Council (ESRC) through the EvidenceNetwork project. The Anglo-German Foundation, the ESRC and the Nuffield Foundation also provided support for the research upon which this report is based.