I have just completed an investigation into the effects of the influx of Eastern European workers into the UK labour market since 2004, finding that short-term effects exist although are minor and concentrated given the relatively small level of the influx.
Using Labour Force Survey data from 2003-2007 I set up a Mincerian equation predicted wages by levels of human capital indicators including education, experience, squared experience gender, nationality and interaction terms thereof based on the data for the UK excluding the Midlands. I then used this equation to predict wages for all employed individuals in the Midlands area (an area that received relatively high immigration) based on the observation that economic performance in the two areas was similar over the five-year period to 2004. I split the labour force into quartiles based on predicted wage and measured deviations in the predicted wage from actual wages earned, holding these deviations to be the effect of the larger immigration rates experienced by the Midlands. What I found shows that for each year to 2007 there is a negative wage effect on workers most similar to A8 workers in characteristics and predicted and actual wages (the second lowest earning quartile) and that there is an equivalent impact on the lowest earning quartile, a result not specifically predicted by the model. There were also small positive wage effects on the highest earning quartile although these were largely insignificant.
It is important to note that the circumstances surrounding this set of immigration did not constitute a natural experiment - the immigration decision is naturally a function of expected income, however the investigation was based on local immigration rates and measured relative to other areas of the UK, therefore one is held by the slightly less restrictive assumption that movement of Eastern European immigrants within the UK isn't governed by expected income, rather by the attraction of established communities or idiosyncratic preferences etc. There is some empirical evidence to refute this assumption, although it is intuitively more realistic than on a national scale.
Whilst most other investigations seek to discover the long or medium term effects of immigration, ignoring for the most part the initial shocks, this paper hypothesises that the short-term effects experienced in the short-term are likely to be felt over the medium-to long term in periods such as the current recession (due to lack of investment facilitating a change in the output mix of the economy) and therefore hold policy relevance for the UK now.
The endogeneity of the immigration decision becomes an issue here, as one would naturally expect immigration to be increasing in relative GDP and as a result for there to be a decrease in immigration following increases in unemployment. The size of this effect is undetermined from the study, particularly over just five years of data it is hard to establish the exact nature of the relationship.
Further insight into the current literature in the field would be welcomed, some of the methodology and assumptions of this paper are likely to be not fully sound or as informative as is possible given the remit of the assignment and the level at which it was completed. What do people think of the idea that observed short-term effects are likely to extend over a longer period in times of low investment and whether this is a problem that is likely to be encountered in the face of falling immigration rates and GDP?