Mind the gap: A detailed picture of the immigrant-native earnings gap in the UK using longitudinal data between 1978 and 2006

Sara Lemos

doi:10.1016/j.regsciurbeco.2016.11.001

Abstract

Using the underexplored, sizeable and long Lifetime Labour Market Database (LLMDB), we estimated the immigrant-native earnings gap across the entire earnings distribution, across continents of nationality, across cohorts of arrival, across years and across regions in the UK between 1978 and 2006. We exploited the longitudinal nature of our data to separate the effect of observed and unobserved individual characteristics on earnings. In keeping with the limited existing UK literature, we found a clear and wide dividing line between whites and non-whites in simple comparable models. However, in our more complete models, when we accounted for unobservable individual characteristics – an important contribution of this paper – we found a much narrower and subtler dividing line. This suggests that the labour market primarily rewards individual characteristics other than immigration status. This, in turn, facilitates the assimilation of immigrants into the UK labour market. We also found that the lowest paid immigrants, whom are disproportionately non-white, suffer an earnings penalty in the labour market, whereas higher paid immigrants, whom are disproportionately white, do not. Finally, we found less favourable earning gaps for cohorts that witnessed proportionately larger non-white and lower paid white immigration.

Highlights

In our preferred model, where we control for observable and unobservable individual characteristics, the gap for non-whites is 0%, whereas it is between 2.9% and 10.7% for whites. This suggests a much narrower and subtler dividing line, confirming the importance of accounting for observable as well as unobservable individual characteristics, which is an important contribution of this paper. It suggests that the labour market primarily rewards individual characteristics other than immigration status
When we estimated the gap across the earnings distribution, we found that it was between -7.4% and 0.7% below the median, where non-white immigrants are overrepresented, and between 2.4% and 8.7% above the median, where white immigrants are overrepresented
When we estimated the earnings gap using more complete models, where we control for observable, as it is common in the literature, and for unobservable individual characteristics, we found a much narrower and subtler dividing line than that in the existing UK literature

Summary

Introduction

The immigration debate is more heated in countries where economic immigrants are perceived as a threat to natives' job opportunities. This is the case, for instance, if immigrants are unskilled and work for comparatively lower wages. In countries where economic immigrants are perceived as filling up vacancies where there is labour shortage, they are seen as contributing to the economy. In this case, their skills might be favourably rewarded and they might work for comparatively higher wages

Results

Discussion

Conclusion