Friday 14 August 2015 9:23 am

Immigration is good news for highly-skilled workers

I write about energy and industrials for City A.M. I'm particularly interested in geopolitics, energy policy and, of course, the ever lively oil markets.

I write about energy and industrials for City A.M. I'm particularly interested in geopolitics, energy policy and, of course, the ever lively oil markets.

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Immigration is one of the most major policy concerns in the UK.

It dominated the agendas of political parties in the run up to the General Election, while the debate about the cap for visas of non-EU skilled immigrants continues to rage on. And according to the July Economist/Ipsos Mori index, 42 per cent of the British public think immigration is the most important issue this country now faces.

In recent years, the UK has seen a marked increase in the proportion of immigrants in the workforce. While only eight per cent of people working in the UK were immigrants in 1995, the figure had jumped to 17 per cent by 2014.

But immigrants tend to be both better educated and younger than UK natives. People from the EU15 are twice as likely to be graduates than the UK ­born population. Also, immigrants are mostly found in either professional or elementary occupations.

Research suggests immigration puts downward pressure on the wages of low skilled workers, while increasing those for high skilled ones.

At the same time, other studies suggest that the negative effect on wages of low skilled workers is borne by immigrants already residing in the UK. This is because new migrants bring skills that are already available in the labour market, and are therefore substitutes to the existing migrant labour stock. Essentially, immigrants are competing among each other, rather than with natives.

When it comes to the impact of immigration on employment, this will depend on the time period analysed, and whether the focus is on the short term of long­-term effect. Another factor is which end of the labour market workers are competing in.

One authoritative study by Dustmann, Fabri and Preston in 2005, concludes that immigration affects high and low skilled workers differently. In particular, it shows that immigration has a negative impact on employment of UK ­born workers with O­-level (GCSE) and equivalent education, and a positive effect on employment of UK ­born workers with A-­level or university degree.

Turning to the effect of migration on the welfare system and contrary to popular belief, research shows that migrants do contribute their fair share.

Research by Christian Dustmann and Tomasso Frattini concludes that immigrants from Europe pay more in taxes than they receive in benefits from the government, while the opposite is true for immigrants from non­European countries.

According to the authors this effect can be explained by the fact that migrants from EU are younger and are more likely to return to their home country at the end of their careers (or sometimes sooner) so they are less likely to be a burden to the welfare system when they are older and the cost of their care is higher.

In short, recent research suggests immigration doesn’t have an overall negative impact on jobs, wages and the welfare system, although the effect of immigration on the labour market depends on the time and characteristics of the workers and economy.

So fears about immigration are generally unfounded, and it actually has a positive effect on the economy.