The Labour Market Integration of Immigrants in OECD Countries

1. The Labour Market Integration of Immigrants in OECD Countries on-going work for OECD's Working Party 1, EPCpresented by Sébastien Jean (OECD) Workshop on the Economic Integration of Immigrants OECD, 29 May 2006

2. Motivation • Integration is a widely shared priority… • But poor labour market outcomes of immigrants, compared to natives

3. Unemployment is higher among immigrants than among natives…. Uimmig = 2 x Unatives Uimmig = Unatives

4. … even when computed for low skilled males only Uimmig = 2 x Unatives Uimmig = Unatives

5. Motivation (2) • Immigrants often fare worse than natives (in employment and/or wages), for comparable characteristics: imperfect labour market integration • How does labour market integration compare across countries? • Are immigrants absorbed into employment? Higher risk of inactivity and/or unemployment? “Wage rebate“? • How is integration linked to policy settings on product and labour markets? • How do structural policies interact with integration?

6. Key points • Sizeable cross-country differences in the degree and nature of labour market integration of immigrants • Lesser wage gap tends to be associated with higher employment gap • Employment gap more persistent (?) • Integration can be related to product and labour market policies: • Some policy effects seem to be magnified for immigrants • Immigrants tend to suffer disproportionately from labour market dualism

7. Outline • The approach • Data and implementation • Results by country and across-countries • Preliminary conclusions

8. What can be learned from the literature? • Mainly focused on wages in the US (Chiswick, 1978, Borjas, 1985, 1995), but also some evidence on employment in Europe (Zimmermann Constant eds., 2004, ongoing work in OECD-ELS, 2004-05) • Is there a difference between immigrants and natives, once controlled for observable characteristics? • Main findings: • Immigrants earn less than natives in the US (wage diff ~ 20% on average), but they catch up over time • In European countries, immigrants display higher risk of being unemployed • Explanations: language, unobserved skills (self-selection), social capital, legal obstacles, imperfect skills transferability, discrimination

9. Our approach • Analyse differences across comparable immigrants and natives in activity rates / employment rates / wage rates • Control for human capital and socioeconomic characteristics at the individual level • Step 1- Carry out similar analysis, country by country • Step 2- Jointly study all countries, and relate immigrants-natives differences to policies on the product and labour market

10. Estimation Framework • Step 1 (country by country): • separately for males and females • X: experience, squared experience, marital status, educational attainment • Immig: dummies for migration background (+ EU/nonEU if appl.), +/- 10 years since migration) • Step 2 (across countries, with policy variables) • Pol: product and labour market policies

11. The Data • Individual data (longitudinal household surveys) comparable across countries • EU15 Countries: ECHP data • standardised annual longitudinal survey, European Union, common questionnaire • 7 waves (from 1994 to 2001). • US: PSID, longitudinal household data (1997-2001) • Australia: HILDA, longitudinal household data (2001-2003) • Canada: SLID, longitudinal household data (1996-2001, not in this presentation)

12. Implementation • Immigrants defined by country of birth • In EU countries, treat separately EU15/ non-EU 15 • In Australia, treat separately anglo-saxon countries • Use nationality for Germany • Duration of stay in the country = key variable • But data limitations do not allow much inference about assimilation • Separate +/- 10 years since migration • Not possible in the US data • Correct for non-random sample selection into activity and into employment based on observables and unobservables (Heckman, 1979)

13. Limitations • Conceptual • Impossible to control for all factors of cross-country differences: integration policies, immigration motive, immigrants unobserved skills (linked to migration policy, country income and inequality, geography, history!)… • Return-migration bias • Statistical • Limited sample if immigrants: weak representativeness, clustered on a short period, cohort effects (although longitudinal), nb obs insufficient to use language and endogamy variables • Attrition bias + under-representation of recently-arrived immigrants

14. Estimates by country: Employment gap versus wage gap among “recently arrived”, active immigrants

15. Employment gap vs. wage gap at least 10 years after migration

16. Cross-country integration differences and (product and) labour market policies • Not the only explanation (integration policies etc.) • But product and labour market policies may help explain how immigrants fare because • Different distribution of individual productivity • Different behaviour (reservation wage, location choices) • Less social capital • Discriminated against

17. Cross-country differences and policies

18. Illustrative evidence: precariousness and immigrants • Holds in a regression context: higher risk of precarious contract among recently arrived immigrants (conditional on being employed, when individual observable characteristics are controlled for)

19. Preliminary conclusions • Work still in progress • Immigrants = “fragile” population: need to limit perverse effects • Think of integration in a dynamic setting: differences, but also rhythm of assimilation • Role of integration policies, targeted policies