King's College London

Immigration can produce a small economic gain for the native-born population overall while causinglarger shifts in wages between different groups of workers, according to new research co-authored by King’s Business School.

The model predicts that wages fall in lower-paid occupations, where migrant workers are over-represented, and rise elsewhere. The findings suggest that headline averages can conceal important differences across the labour market.

In the paper, The Immigration Surplus Revisited, researchers revisit the “immigration surplus”, the idea that immigration can benefit the native-born population overall. First proposed by economist George Borjas in 1995, the theory suggests that immigration delivers an aggregate economic gain for previous residents, even though that gain may not be shared equally.

The paper shows that this result holds under a much wider range of economic conditions than previously established. This includes different mixes of workers and capital, different relationships between them, and situations in which immigration changes the prices of goods as well as wages.

Using US data, the researchers estimated that increasing total employment by 1% through immigration would create an overall gain for the native-born population equal to around 0.01% of earnings. Although the overall benefit is small, the effects on wages in different occupations can belarger.

How those effects are distributed depends on the skills that migrants bring. If migrant and native-born workers have the same mix of skills, the model predicts no overall surplus and no redistribution between native-born workers. As the differences between the two groups increase, so does the overall gain, but the effects on relative wages also become greater.

Because governments often influence the skill mix of immigration, the findings suggest that policy choices help determine both the overall economic effect and how wage gains and pressures are distributed across the labour market.

The paper also cautions against using wages alone to judge whether workers have benefited. Immigration can move native-born workers into better-paid jobs, but the additional pay may compensate for extra training or less attractive work. A higher wage does not therefore necessarily mean that someone is better off overall.

The paper, The Immigration Surplus Revisited, is authored by Dr Michael Amior, Reader in Economics at King’s Business School, and Professor Alan Manning, Professor of Economics at the London School of Economics.