Impact of immigration on wages of Irish workers

In September 2009, researchers from Ireland’s Economic and Social Research Institute (ESRI) published a study examining the impact of immigration on the wages of Irish natives. The ESRI researchers estimate the impact by applying a research methodology whereby the labour market is divided into a number of skill cells. The contradictory findings in the study suggest that care should be exercised, as inaccurate impressions of the impact of immigration on wages may arise.

On 30 September 2009, Ireland’s Economic and Social Research Institute (ESRI) published a new study entitled Estimating the impact of immigration on wages in Ireland (420Kb PDF). During the period of Ireland’s remarkable economic boom, one of the notable features of the economic transformation was a rapid increase in inward migration. Another important dimension was the decision by the Irish government to allow full access to the Irish labour market when the EU expanded to 25 Member States on 1 May 2004. The ESRI paper examines whether the influx of migrants tends to increase or reduce the average wages of native workers, noting that the issue of immigration impacts is an enormously controversial issue.

Study methodology

The ESRI researchers adopted the methodology that was proposed and applied by Borjas in 2003. In essence, the researchers divided the labour market into a set of ‘skill cells’, where cells are defined by groups with similar levels of experience and education, or experience and occupation. The first skill cell is based on educational attainment and work experience, while the second cell uses occupation combined with work experience to categorise workers into different skill groups. For their education analysis, the researchers defined five distinct education categories. They also categorised five experience groupings – using five different age classifications.

The ESRI researchers then explored whether the wages of natives within those cells are related to the share of migrants in the cells, using data for the period 1999–2007. The dependent variable used by the researchers was the average of log hourly earnings of native employees in each skills cell and was constructed using earnings data from the 1999, 2000 and 2001 Living in Ireland Surveys and from the 2004, 2005, 2006 and 2007 Survey of Income and Living Conditions (SILC). The migrant share variable was derived using immigration data from the Quarterly National Household Survey (QNHS) for the years 1999 to 2001 and 2004 to 2007. An migrant is defined as an individual who was not born in Ireland and who has been living in the country for between one and 10 years.

Main findings

While Borjas found a negative relationship between migrants and the wages of natives, in contrast, the ESRI results actually show both a positive and a negative impact of migrants on natives’ wages – depending on whether skill cells are defined in terms of education or occupation.

The ESRI study concludes that application of the Borjas approach in measuring the impact of migrant workers on the wages of native workers in Ireland, where the comparators have similar experience, has reproduced the Borjas finding of negative wage impacts – but only when skill cells are based on education and experience. When they repeated the analysis using occupation and experience as the basis for the skill cells, they found evidence of a positive impact of immigration on wages.

Need for caution

The ESRI researchers conclude that a possible lesson of the paper is that the application of this method ‘could have led us to assert mistakenly that there was evidence of wages being reduced (increased) by migration in Ireland if we had restricted our analysis to education (occupation)’. Therefore, the researchers highlight that care needs to be taken when applying this method, or when interpreting results, to ensure that robust results are present.

Policy implications

In terms of practical implications of the study, it is important for policymakers, social partners and so forth to have a proper understanding of whether migrants tend to increase or reduce the average wages of native workers. The ESRI study shows that immigration tends to have a somewhat contradictory – that is positive and negative – impact on native wage levels, depending on the labour market dimension being measured (education or occupation).

References

Borjas, G.J., ‘The labor demand curve is downward sloping: Re-examining the impact of immigration on the labor market’, Quarterly Journal of Economics, Vol. 118, No. 4, 2003, pp. 1335–1374.

Barrett, A., Bergin, A. and Kelly, E., ‘Estimating the impact of immigration on wages in Ireland’, Working Paper No. 318, ESRI, September 2009.

Tony Dobbins, NUI Galway

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