The Economic Impact of Migration – Productivity Analysis for Spain and the UK

1. The Economic Impact of Migration – Productivity Analysis for Spain and the UK M. KANGASNIEMI (NIESR); M. MAS (IVIE & U. VALENCIA); C. ROBINSON (NIESR) L. SERRANO (IVIE & U. VALENCIA) Washington DC, May 14th 2008 This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, “Policy Support and Anticipating Scientific and Technological Needs”

2. Objectives • To analyze the impact of migration on productivity growth • And compare two different experiences: • Spain: with a very recent presence of migrants • UK: traditional recipient of immigration flows • We take three perspectives: • Impact on GDP through demography • Analysis through growth accounting • Analysis via econometric estimates • Data • EUKLEMS data – augmented with • UK Labour Force Survey (ONS) data provided by the UK Data Archive • Encuesta de Poblacion Activa (INE)

3. Percentage of migrants in total employment. Spain & UK

4. GDP PER CAPITA DECOMPOSITION Y = Real GDP N = Total Population WAP = Working Age Population AP = Active Population L = Employment Compare contributions in the actual economy with those in a virtual one where demographics are as for natives. Assuming Labour Productivity remains unchanged.

5. Results • GDP per capita growth in Spain has been fuelled by demographic changes, less so in the UK • The impact of migrants through demographics minimal in the UK, significant in Spain • Migrants increase GDP in Spain mainly through higher activity rates and to a smaller extent through age structure

6. Difference between actual and virtual

7. GROWTH ACCOUNTING Contribution of migrants to VA, H total hours, H* native hours split into quality and quantity effects: • Quantity contribution • Quality contribution Contribution of migrants to labour productivity • Quantity effect: less capital per head • Quality effect as in VA growth accounting

8. Growth accounting and labour productivity results • Positive but small effect of migrants on overall productivity in the UK, mainly quantity contribution • More significant effect in Spain, especially 2000-2005, negative quality contribution • Significant variation across industries • The impact of migrants on LP growth in the UK negligible, in Spain more sizable (and negative)

9. Growth accounting, migrant contributions 1996-2005

10. Labour productivity, migrant contributions 1996-2005

11. Econometric estimates of production functions 1) Cobb Douglas with migrant share as an additional regressor: OLS, FE, FD and GMM for a dynamic specification 2) Translog with migrant labour input as a separate input • Calculate output elasticity and Allen Elasticity of Substitution from the estimates The translog estimation allows for a more flexible production function, however it is more difficult to reliably interpret coefficients

12. Results • Higher migrant share related to lower productivity in Spain, for the UK no significant relationship • Negative effects for Spain more significant in OLS and fixed effects specifications: changes in migrant share not strongly linked to negative changes in productivity • GMM estimates for the dynamic specification do not improve the results and establishing causality is difficult • Elasticities of substitution from Translog specification indicate small absolute values of elasticity, and complementarity in many industries

13. Estimation results

14. Distributions of elasticities of substitution (fixed effects)

15. Conclusions • During the period studied, migration has had a profound impact on the Spanish economy through demographics, less so for the UK • Migration has had minor impact on the UK productivity performance and labour productivity whereas in Spain it has fostered GVA growth but reduced labour productivity • Econometric results indicate that in Spain use of migrant labour is linked to low productivity levels, but this is not the case in the UK.