THE IMPACT OF IMMIGRATION ON THE STRUCTURE OF WAGES: THEORY AND EVIDENCE FROM BRITAIN

TLDR

Immigration to the UK, especially among educated workers, has risen over the past 30 years, increasing labor supply, yet studies have found no significant effect on native‑born wages—a puzzling result given that changes in the supply of educated natives have affected their wages. The study aims to resolve the puzzle that immigration appears to have no effect on native wages by proposing that natives and foreign‑born workers are imperfect substitutes. The authors use a pooled time‑series of British cross‑sectional micro data on male wages and employment from the mid‑1970s to the mid‑2000s. Immigration has primarily reduced the wages of immigrants—especially university‑educated immigrants—while having little discernible effect on native‑born wages.

Abstract

Immigration to the UK, particularly among more educated workers, has risen appreciably over the past 30 years and as such has raised labor supply. However studies of the impact of immigration have failed to find any significant effect on the wages of native-born workers in the UK. This is potentially puzzling since there is evidence that changes in the supply of educated natives have had significant effects on their wages. Using a pooled time series of British cross-sectional micro data on male wages and employment from the mid-1970s to the mid-2000s, this paper offers one possible resolution to this puzzle, namely that in the UK natives and foreign born workers are imperfect substitutes. We show that immigration has primarily reduced the wages of immigrants—and in particular of university educated immigrants—with little discernable effect on the wages of the native-born.