Impact of immigration on wage levels of Cypriot workers

Stavrou, Polina

Overview

Article

Impact of immigration on wage levels of Cypriot workers

Published: 15 April 2007

Polina Stavrou

Pay and income

In October 2006, the Economics Research Centre (Κέντρο Οικονομικών Ερευνών, KOE [1]) of the University of Cyprus published a study entitled /The effect of immigration on the wages of Cypriot workers/. Based on scientific methodology and statistical data, the study aimed to investigate whether the presence of foreign workers in Cyprus in the 1991–2003 period affected the wages of Cypriot workers and, if so, to what degree. The study therefore provides an initial assessment of the impact of foreign workers – along with other factors such as level of education, qualifications and sector of employment – on the pay of Cypriot workers, using an econometric analysis.[1] http://www.erc.ucy.ac.cy/

In 2006, the Economics Research Centre of the University of Cyprus carried out research which investigated the impact of immigration on the wages of Cypriot workers. It found that the employment of foreign workers affected the wages of national workers depending on the latter workers’ level of education: the more skilled and educated Cypriot workers were, the more they benefited financially from the presence of foreign workers. Conversely, the less skilled and educated the national workers were, the more negative the financial impact of immigration.

In October 2006, the Economics Research Centre (Κέντρο Οικονομικών Ερευνών, KOE) of the University of Cyprus published a study entitled The effect of immigration on the wages of Cypriot workers. Based on scientific methodology and statistical data, the study aimed to investigate whether the presence of foreign workers in Cyprus in the 1991–2003 period affected the wages of Cypriot workers and, if so, to what degree. The study therefore provides an initial assessment of the impact of foreign workers – along with other factors such as level of education, qualifications and sector of employment – on the pay of Cypriot workers, using an econometric analysis.

Education and skills

The analysis estimates that the effects on the wages of all Cypriot workers were only slightly negative during the 1991–2003 period. More specifically, the increase in the foreign workforce slowed down the rate of increase of real wages by 3.16% annually.

However, the effects varied for different categories of workers. Thus, the losses for some categories were great, while for others significant benefits accrued. The study examined education and skills as useful indicators for a more representative picture of the effects of the employment of foreign workers on national workers’ weekly pay. According to the study findings, the rate of increase of real wages in the 1991–2003 period declined most among unskilled workers with little or no basic education, and showed the greatest increase among skilled workers with higher education.

According to Labour Statistics 2001–2004 of the Statistical Service of Cyprus (Στατιστική Υπηρεσία της Κυπριακής Δημοκρατίας, CYSTAT), the number of foreign workers in the 1991–2003 period increased in every sector of economic activity. However, the greatest increase of foreign workers was experienced in sectors that do not require high qualifications and skills, such as household services, hotels and restaurants, agriculture, manufacturing and construction. This is the main reason why workers with higher education and skills have benefited most from the increase of foreign labour in low-skilled occupations. Table 1 outlines the number and the percentage of foreign workers in the total labour force by economic activity in Cyprus.

**Table 1: Number of foreign workers employed, by sector**
Number of foreign workers employed, by sector
Economic activity	Average number	Percentage of total
Agriculture/animal production, forestry, hunting	4,069	8.80
Fisheries	39	0.08
Mining and quarrying	49	0.10
Manufacturing	3,654	7.91
Water supply, electricity, liquefied petroleum gas	14	0.03
Construction	4,085	8.84
Wholesale and retail trade, repairs	4,623	10.00
Hotels	2,305	4.99
Restaurants	5,623	12.16
Transport and communications, warehouses	684	1.48
Intermediary financial services	229	0.49
Other business services	1,389	3.00
Public administration	842	1.82
Education	529	1.14
Health and social work	785	1.70
Other social activities	1,029	2.22
Household services	16,326	35.09
Extra-territorial organisations	61	0.13
TOTAL	46,904	100.00

Source: Ministry of Labour and Social Insurance, Department of Social Insurance Services, Statistics section.

Among skilled workers with higher and university-level education, weekly pay increased by €53.40 and €146.70 respectively due to the increase of foreign workers in the labour force. In these categories of workers, wages would have decreased by 4.37% and 14.89% respectively if the number of foreign workers had not increased.

Conversely, the rate of increase of real weekly wages of unskilled workers with secondary-level education was on average 7.58% lower in the 1991–2003 period. This means that the pay for this category of workers would have been €17.08 higher on average if there had been no increase in foreign workers. At the same time, the rate of increase of real weekly wages for skilled workers with secondary-level education was 6.34% higher in the same period, corresponding to €19.47 a week.

The estimates are based on the econometric analysis of a model with the method of least squares (OLS), where all the factors that affect the level of salaries are taken into account. Following this, in order to estimate the effect of foreign workers in individual categories of workers by their qualifications, education and skills levels, the authors used the initial model as a starting point.

In summary, according to the analysis, it appears that the increase in foreign workers had a negative impact on unskilled Cypriot workers with less than secondary-level education. This is a category likely to include occupations such as sales clerks or delivery staff. Skilled workers with secondary education, such as plumbers, carpenters and electricians, benefited marginally from the increase in foreign workers. Meanwhile, skilled workers with higher or university education who are employed in sectors like education and health, public administration, business administration and finance, benefited most from the increase of foreign workers.

Private sector

The study also examined the effect of foreign workers on the wages of workers employed in the private sector, by educational and skills levels. According to the findings of the econometric analysis, the effect of foreign workers on the total pay of workers in the private sector does not appear to be much different from their effect on the wages of workers in the public and private sectors combined. Table 2 shows the effects on the wages of workers by sector during the 1991–2003 period.

**Table 2: Effects on wages of workers, by sector, after a 1% increase in the number of foreign workers**
Effects on wages of workers, by sector, after a 1% increase in the number of foreign workers
Educational and skills level	Private sector	Private and public sector
Unskilled workers with no education	Decrease of €6.26	Decrease of €12.11
Skilled workers with no education	Decrease of €2.78	Decrease of €6.74
Skilled workers with higher education	Increase of €5.26	Increase of €7.1
Skilled workers with university-level education	Increase of €16.24	Increase of €21.53

Source: Effect of immigration on the wages of Cypriot workers 2006, KOE

Commentary

In conclusion, the effect of employment of foreign workers on the wages of Cypriot workers during the period between 1991 and 2003 is inversely proportional to Cypriot workers’ level of education. The effect was most negative on workers with no education, somewhat negative on workers with elementary education, marginal on workers with secondary education, positive on workers with higher education and most positive on workers with university-level education.

Polina Stavrou, Cyprus Institute of Labour (INEK/PEO)

Eurofound recommends citing this publication in the following way.

Eurofound (2007), Impact of immigration on wage levels of Cypriot workers, article.