Immigration, Demand, Supply and Sectoral Heterogeneity in the UK Labor Market: A Time Series Approach

Mountford, Andrew and Wadsworth, Jonathan (2024): Immigration, Demand, Supply and Sectoral Heterogeneity in the UK Labor Market: A Time Series Approach.

Abstract

Should immigration be regarded as an exogenous shock? If so, what is its effect on native wages? Might any effect differ across different sectors of the economy? In this paper we answer these questions by applying macroeconomic time series methods to a time series of UK labor market variables from 2001-2019 for 35 different sectors. The paper uses a VAR approach to model, for the first time, immigration, native wages and hours worked, as responding to demand, supply and immigration shocks at both aggregate and sectoral levels. The labor market is thereby modeled as being subject to multiple shocks at any one time, with individual shocks reinforcing and offsetting each other. We find that the share of migrant labor is `Granger caused' by other labor market variables which suggests that immigration is, in part, endogenously determined by aggregate demand and supply. However it also retains a component which has a negative association between immigration and native wages. This component, which may be thought of as a `migration shock', accounts for most of the change in migration share over the sample period and plays a significant negative role in the determination of native wage growth, particularly in unskilled sectors such as retail and hospitality. However other contemporaneous shocks have offsetting positive associations between immigration and native wages, whose effects differ substantially across sectors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Immigration, Demand, Supply, VAR, Sectoral Heterogeneity
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F6 - Economic Impacts of Globalization; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor

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