Labour market adjustments to immigration in the United Kingdom

: 2008-2019

Abstract

In recent years, immigration has come to the forefront of the political landscape in the United Kingdom, driven by a rapid rise in net migrationat a time when wages have stagnated. Yet while this has fuelled concerns that the two phenomena are linked, economic theory does not offer a clear-cut explanation as to how labour markets accommodate supply shocks. This thesis seeks to ascertain the degree to which immigration to the United Kingdom in the decade following the financial crisis has induced a range of labour market adjustments, utilising the spatial correlation approach to answer this question.The first empirical chapterexamines how the labour market impact of immigration differs for natives depending upon their skills. Itfinds that the wages and employment rates of those with low skills decline in response to labour supply shocks, while intermediate-skill wages increase and high-skill natives are unaffected. However, these effects are largely reversed within two years as low-skill natives reduce their labour supply and intermediate-skill natives move into morecomplex occupations which are complementary for immigrants.Whether any adverse impactson native outcomes areattenuated because firms adjust their production technology to reflect the mix of skills available in the local areais the subject of the second empirical chapter. The results presented show that firms alter the degree to which they acquire capitalfor the purpose of innovation, indicating that unskilled labour is substitutable for capital in production and supporting the theory of directed technical change, whereby an increase in the relative supply of labour with a given level of skills induces firms todevelop production technologies which complement the now-abundant factor.The final empirical chapter considers the relationship between immigration and firms’ location decisionsfor the production of services.It extendsOttaviano, Peri and Wright’s (2018) exploration of how immigration affects offshoring by utilising the empirical approach from Olney and Pozzoli’s (2019) study of the Danish labour marketin the context of the UK. In turn, it identifies whether the contrasting conclusions between the twostudies are driven by methodological or economic differences. The findings indicate that multilateral immigration enables the production of services which do not require a high degree of country-specific knowledge to be relocated in the UK, but simultaneously increases the offshoring of services which do require this knowledge and thus cannot be produced domestically. In support of this notion, a subsequent bilateral analysis finds that immigration from a given region leads to a fall in the value of offshoring from that region, which occurs because only those immigrants hold the country-specific knowledge required to perform that service.

Date of Award	Jul 2022
Original language	English
Awarding Institution	University of Brighton
Supervisor	Rob Hayward (Supervisor), Stefan Speckesser (Supervisor) & Jonathan Wadsworth (Supervisor)