“When Minority Labor Migrants Meet the Welfare State” Bernt Bratsberg Oddbjørn Raaum Knut Røed QMSS workshop, Oslo Oc

1. Lifecycle employment of labor migrants: Early LDC immigrants in Norway “When Minority Labor Migrants Meet the Welfare State” Bernt Bratsberg Oddbjørn Raaum Knut Røed QMSS workshop, Oslo Oct 24, 2008

2. Lifecycle employment of LDC labor migrants • Aging population • ”Demographic deficit” • Fiscal imbalances, rising dependency ratios • Policy response: Ease up on restrictive immigration policy and admit more labor migrants (from LDCs) • Immigration can remedy fiscal problems • Storesletten (2000; 2003) • By definition, labor immigrant employed initially • But, effect also depends on long-term employment

3. Motivation (II) • Know little about lifecycle employment of labor migrants from LDCs • In general, low labor market activity rates among immigrants from LDCs in Europe (OECD, 2001) • Reflect admission status, that they entered as refugees not labor migrants? • Role of welfare state?

4. Background: Norway • ”Immigration freeze,” moratorium on labor migration 1975 • Immigration from LDCs since mid-1970s dominated by family reunification and refugees/political asylum seekers • Specialist requirement from outside Nordic countries • Back to pre-1975 to find ’labor migrants’ • If migration motive is important ( as determinant of employability), the experience of this group is potentially useful as basis for predictions of what would happen if restrictions were lifted today • External validity? • Screening, self-selection, economic environment changed since the 1970s?

5. Data (I); Immigrant sample • Male immigrants • Pakistan, Turkey, India and Marocco ( > 80% of non-western immigrants in relevant age-arrival cohorts) • Arrived 1971-1975, born 1936-1955 • Typically aged 21-28 at arrival • Resident in year 2000 (median age of sample=51) • Sample; 2 553

6. Data (II), Descriptives

7. Data (III); Selective immigration? E.g., high-school completion • Men born 1949-53: • Pakistan* 21% • Punjab* 23% • Pakistanis in sample 37% • Natives (general) 51% *Source:Pakistan Federal Bureau of Statistics (2004), Labor Force Survey 2003–2004: Twenty fourth issue, Islamabad: Federal Bureau of Statistics.

8. Data (IV); Outcomes • Register/administrative data (Statistics Norway) • Employment 1971-2000 (up to 30 years) • Based on earned pension points in Norwegian public pension system • Employed in year t iff annual earnings > base amount used by social insurance • (currently NOK 70,246 or $11,700) • Additional information on disability pension, unemployment insurance, etc for 1992 to 2000

9. Data (V); Individual and family characteristics • Educational attainment, marital status, # children, county of residence • Local labor market conditions (municipality level) • 1980 Census. Info on occupation, industry.

10. Data (VI); Comparison group of natives Stratified sample: • Same birth cohorts • Same educational attainment (years of schooling) • Limited portability of foreign education? Also comparision using natives with compulsory schooling only

11. Employment 1975-2000

12. Data quirk?

13. Re data quirk (I): in Norway in 2000?

14. Re data quirk (II): Return migration

15. The challenge: What lies behind the immigrant employment decline? • Two-folded strategy: Part 1. A model of employment dynamics 1975-2000 - Inflows vs. outflows - Duration dependence - Effects of business cycles (immigrants last in, first out?) - Returns to education Part 2. Employment probabilities in year 2000 How much of the immigrant-native differential can be ’explained’ by differences in characteristics tied to • ’structural/technological/organisational change’ and • ’welfare state work disincentives ’ ?

16. Employment dynamics, the statistical model

17. Unobserved heterogeneity NPMLE: Optimize wrt Q. Turns out that Q is chosen to be 8 (support points)

18. Sample restrictions employment dynamics • All employed three consequtive years (to avoid intial conditions problem and duration dependence bias) • Only 0.2 percent of the immigrants are excluded, and 0.5 percent of natives • Age 23 - 64

19. Simulations • Parametric bootstrap • Based on repeated draws from the (multivariate normal) distribution of 226 parameter estimates used in the simulation exercises • 100 replications • 90 percent confidence intervals: 5 % in each end of the ”age”-specific distributions are excluded • YSM and age profiles • Exit from vs. re-entry to employment • Business cycles

20. Age and YSM-profiles

28. Analysis part 2: Mechanisms

29. Mechanisms:1. Health?

30. Mechanisms: 2. Culture? • Labor force participation, males

31. Mechanisms: 3. Skill-(immigrant) biased technological and organisational change? • Reduced demand for low-skilled manual labor and workers performing ’routine tasks’ (example: computer technologies, Autor et al. 2003) • Organisational change => culture-/country-specific human capital (communication skills, host-country language proficiency) more important (Rosholm et al, 2006)

32. First cut (i); within broad occupation groups

33. First cut (ii); within broad education groups

34. Employment probabilities year 2000 • Among employed workers in 1980 • Occupation (69), industry (41), region (19), and pay in 1980 • How much of the 0.4 native-immigrant differential can be ”explained”?

36. Welfare (I)

37. Welfare and work incentives (II) • Disability pension • Certification by a GP • Medical criteria, but some diagnoses are hard to verify • Employment opportunities and willingness to work important? • Economic incentives matter! (Dahl et al., 2000) • Pension benefit structure • Related to prior earnings, but min/max levels • Supplements for minor child (NOK 28K) and dependent spouse (35K) • Replacement ratios generally high for low wage earners => Disincentives particularly strong for immigrants

39. Replacement ratios, conditional on family characteristics are similar for immigrants and natives, but • Family characteristics that increase the replacement ratio (e.g. # children < 18 and non-working spouse) are much more widespread among immigrants => Weak employment incentives for many immigrants who (potentially) qualify for disability pension

40. Employment and Diability by #Children • Note: Married men

41. Employment and Diability by Spouse Work Status • Note: Married men

42. Spouses’ employment 1975-2000, by immigrant status

44. Conclusions • Employment of early 1970s immigrants from developing countries drop from nearly 100% to 50% after 25+ years, compared to 88 % among natives • => Employment at the time of entry no guarantee for ”lifetime employment” • Why do many immigrants drop out? Not one single explanation. Mechanisms include: • Economic downturns hit immigrants hard, rapid deterioration of re-employment prospects

45. Technological/organisational change likely to increase demand for skills that are scarce among this immigrant group and reduce demand for routine tasks • Work incentives are weak due to high social insurance replacement ratios, which again is explained by low wages and supplementary benefits for individuals with family characteristics that are more common among immigrants. • Shortcomings of the analysis? • Health and working hours information missing • Working conditions unobserved • Informal sector work

46. Policy implications? • Revision of the disability pension structure to reduce adverse effects om work incentives • Immigration policy? • ”Today, more selective admission policy” • Portability of education? • Self-selection other characteristics • Family reunification • ”Today, different economic environment” • Cyclical fluctuations • Structural change