Do immigrants’ wages catch up with natives’?

About a quarter of the UK population is made up of immigrants, making their social and economic integration a perennially topical policy issue. There is a lot of research looking at immigrants’ position and experience in the labour market compared to those of natives – but I wanted to look at an aspect which hasn’t been covered very much: differences in human capital.

Human capital is people’s skills, knowledge, and experience in terms of their economic value, and I wanted to explore whether differences in wages between native and immigrant workers could be explained by differences between foreign and UK human capital. Are UK qualifications and work experience better than their foreign counterparts, or does foreign human capital not blend well into the UK labour market? Or do employers value overseas qualifications differently?

I also wanted to look at the role of discrimination, and to see whether there was progress between first- and second-generation immigrants – and to consider people arriving from a range of places across the world: India, Pakistan, Bangladesh, Africa, the Caribbean, Europe, and Eastern Europe.

Immigration and wages

Before 1960, most immigration to the UK was from Ireland and Europe. However, in the wake of the 1948 British Nationality Act, people from newly independent Commonwealth countries arrived, and in the 1960s and 70s the UK saw a rise in numbers from India, East Africa, the Caribbean, and Pakistan. In the 1980s, the flow of Indians and East Africans declined, while numbers of Irish and Europeans increased.

The free movement of people within the EU allowed citizens from Greece in 1981 and Portugal and Spain in 1986 to come to the UK, and the largest wave of European immigrants came after the 2004 enlargement of the EU.

The UK therefore has a diverse group of immigrants, and many factors could account for differences between their wages and those of native Britons. These might well include racial and/or religious discrimination, but could also be down to the international transferability of human capital.

We know, for example, that knowing the host country’s language is good for immigrants’ wages, obviously, but other factors are important, too. Overseas qualifications may not be recognised, or may cover different subject areas to their UK equivalents, making them incompatible. This may lead to occupational downgrading, where someone’s first job in a new country is at a lower level than where they were in their home country – but this may also be due to discriminatory barriers to some occupations.

Using the data

I used the first ten waves of Understanding Society, covering 2009-19, and looked only at native and immigrant men of working age (16-64) who worked full- or part-time, and were employed, rather than self-employed. I calculated gross hourly wages using people’s answers about monthly salary, and used the following definitions for their immigration/native status:

• natives: UK-born individuals with both mother and father born in the UK
• first-generation immigrants: foreign-born, irrespective of where their parents were born
• second-generation immigrants: born in the UK with at least one foreign-born parent

However, I also looked at the ‘1.5 generation’ – that is, people who arrive in the country when under 18, and therefore could be said to belong in the first-generation category, but who might have more UK human capital in the form of qualifications and work experience.

I created two models:

• simple: taking into account the highest educational qualification, work experience, the year in which the Understanding Society wave started, and which one of 12 regions the participant lived in
• rich: which also took into account the source of their human capital (UK or foreign), the local authority they lived in, their language skills, the industry they worked in, and whether they were Muslim.

The last point was because Muslims form a sizeable portion of some immigrant groups – such as Pakistanis, Bangladeshis, and Indians – and because research has shown a Muslim differential in education, employment, and earnings. I wanted to explore:

• the possibility that some Christians might be prejudiced against Muslims
• whether, in a secularised society, some employers might associate an open religious affiliation with backward conservatism, a lack of motivation, or greater loyalty to their country of origin than to the host country
• if potential employers might think Muslims might be less productive because they may pray during the workday, or fast during Ramadan.

Findings

Previous research has shown significant wage differences between immigrants and native workers, and progress between generations – in other words, a narrowing of the wage gap for the second generation. My results were different.

In my simple model, the wages for immigrants and natives were different, but Europeans didn’t earn significantly less than natives. In my rich model, which took human capital and other factors into account, the differences became statistically insignificant. In other words, a first-generation immigrant with UK human capital and good English language skills in a given occupation fares much better in terms of wages than an immigrant without these characteristics. Also younger immigrants (the 1.5 generation) did not earn less than natives – but there were some disadvantages for second-generation immigrants from Caribbean, Pakistani and African backgrounds.

Some first-generation immigrants may still earn less because they lack domestic human capital, and this factor outweighs discrimination – but doesn’t discount it altogether. Discrimination still exists, and Muslims are probably the most vulnerable. It is also possible that first-generation immigrants face discriminatory barriers into some occupations.

My results also suggest that UK employers price domestic work experience differently from foreign work experience, but that this does not hold true for domestic versus foreign qualifications for most first-generation immigrant groups.

Implications

The UK’s history as a colonial power, and the points-based immigration system, mean that the country will continue to attract people with varied backgrounds into the labour market. Their integration into mainstream society and economic success is always going to be a central policy issue.

My conclusion is that government policy should aim to get immigrants into the labour market quickly, so they can acquire the language skills and work experience that employers value. It might not be productive to invest public and private money in more years of schooling.

The evidence of wage differentials for some second-generation groups, though, is cause for concern. They grew up in the UK, so they will have acquired UK human capital, often good English language skills, and absorbed the British way of life. There might be many possible factors – including discrimination, differences in the quality of education they’ve had, or differences in hard-to-measure personal characteristics – but there is no easy explanation.

Read the original research

Authors

EmploymentEthnicity and immigration