The consequences of migration on the labor market
A consequence of labor mobility is the convergence of wages as it enables individuals from countries with a low wage level to immigrate to nations where a high wage level prevails. This has as well a beneficial effect on the country of origin as migrants transfer remittances to their home countries. Furthermore, migration has the ability to diminish imbalances between supply and demand in European labor markets when we take into account increasing globalization and rapid technical progress. The immigration within EU nations results in a more efficient distribution of resources, increasing productivity level of the economy.
The consequences of migration on the labor market is significantly affected by the skill set of migrants and the abilities of existing laborers as well as the characteristics of the host nation’s economy. Supply of workers rises in specific economic sectors and simultaneously immigration increases the demand for further labor. The latter development arises by means of expanding consumer demand of migrants for specific goods and services. This would lead to new creation of jobs and employers can raise production capacities in those sectors where migrants are able to work (e.g. agriculture or healthcare sector). The aggregate demand level surges with the additional demand of migrants. The rise in consumption leads to higher tax revenues for the government which constitutes a further favorable impact of migration on the economy. The welfare state can utilize increasing tax revenues for transfer payments, health care services, and maintaining infrastructure (e.g., roads, schools, railways, airports) of the nation. However, it is true that immigration can increase competition levels for certain sectors. Changes in the level of wages and employment are solely few of numerous economic reactions to migratory flows. Further adjustment mechanisms do exist. Amongst other aspects, the mix of goods and services which are produced can be changed due to migration. This causes farther modifications in terms of the occupational and industrial structure of the labor market. For instance, immigration of low-skilled laborers can extend production capacity of specific products where low-skilled labor is extensively utilized. Broadening of such a sector can lead to a rise in demand and boost the wage level. On the other hand, skilled migrant laborers can drive innovation and adaptation of technologies requiring a more advanced set of skills affecting overall labor demand (The Migration Observatory, 2020). A high composition of solely low-skilled workers or high-skilled workers may lead to a diminishing middle class of an economy and furthermore intensifies the wage gap (The CORE Team, 2017).
It is often criticized that immigration has an adverse effect on domestic workers’ employment and unemployment rates. Nevertheless, studies have revealed that immigration has insignificant or even no effect on average employment or unemployment of workers. Furthermore, observed changes in average employment or unemployment tendentially vary across specific groups. For example, laborers with low-education are adversely affected whereas individuals with high-education experience a positive effect on the employment level. Additionally, magnitude of the reaction is dependent on economic cycle as some studies provide evidence that during recessions employment or unemployment rates are negatively affected. Regarding the UK, there was no overall effect of migratory flows on employment results of UK-born workers. In this regard, one has to note that negative effects on employment of UK-born laborers with intermediate education were observed. In contrast, workers who possess university entrance qualification or university degrees have experienced favorable impacts from immigration (The Migration Observatory, 2020).
Wages are not substantially influenced by immigration in the UK. Empirical research concludes that small effects on average wages are observed due to immigration, adversely affecting low-paid workers and positively impacting high-paid laborers. There are numerous studies conducted with respect to changes in wages through higher number of migrants in a host economy. There are studies providing findings which include small negative effect on average wages (Nickell and Saleheen, 2015) as well as positive average effects (Dustmann et al, 2013). Adverse effects are more likely to be experienced by resident laborers who are migrants. In this matter, skill set of already employed migrants are most likely close to the new migrants and are considered as substitutes. The major proportion of negative consequences by new migrants is felt by old migrants in the UK based on the data from 1975-2005 and not by native- borns (The Migration Observatory, 2020).