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Economic Causes of Immigration

ECONOMIC THEORY REVIEW

Introduction

What drives people’s attitudes towards immigration? Do economic concerns impact, shape, form or influence attitudes towards immigrants and immigration?  Do individuals feel economically threatened by the mere presence of immigrants in the labour force?  Or do they perceive that immigrants reduce the wages of natives due to labour market competition.   Or are anxieties more about the sociotropic factors such as the effect that immigration has on GDP or the welfare system, and therefore hold anti-immigrant attitudes?   These real and perceived threats will be addressed in this chapter, along with other debatable hypotheses related to the economic theory of attitudes towards immigrants and immigration.

A proliferation of recent studies have failed to generate any form of consensus in this area.  Some holding that individual factors are more central to this argument whilst others claim that national-level threats are more pertinent.  Taking another stance, many studies argue that there is a nexus between economic and cultural factors and that they must be considered in unison for accurate results (Ben-Nun Bloom, Arikan, & Lahav, 2015; Burns & Gimpel, 2000; Mayda, 2006; Sides & Citrin, 2007). These studies suggest that attitudes are formed on the basis of ethnocentrism and sociotropic concerns, and that individual economic circumstances provide inconclusive results.  Whilst others will argue that solely economic concerns – namely labour market competition – are central to anti-immigrant attitudes, therefore they must be studied in isolation for accurate results (Dustmann & Preston, 2004).   This chapter will follow this line of thought to interrogate the economic factors that influence attitudes towards immigrants and immigration.

What is not contested, is that immigration has an economic effect on any given individual, region or country.  The economic effect is primarily due to the impact that immigration has on the size and composition of the labour force of the receiving country (Longhi, Nijkamp, & Poot, 2010).  For centuries, the role of economic factors influencing, shaping and forming attitudes towards immigrants and immigration have been hotly debated in public and private domains.  This, and the fact that there appears to be no consensus to date makes it a salient subject in need of attention.  Whilst this paper does not intend to provide any definitive answers, it will attempt to provide an overview of the common theory and discourse surrounding the economic perspective.

LABOUR MARKET COMPETITION – WAGES SKILL, LEVEL AND GDP

Any attempt to arrive at a consensus within scholarly opinion requires an isolation of the significant paradigms of labour market competition theory.  This chapter will do so by segregating the three key constructs of wages, skill level and GDP in order to achieve some clear insights, and correlations with what has been found in previous studies.  To provide further clarity and comparison with previous literature, this theory has been further categorised into the micro and macro level factors to mirror the individual (personal) and situational (social) determinants of attitude formation.

Micro level analysis.

Much of the literature ascertains that labour market competition is powerful source of anti-immigration sentiment, particularly for those who are low-waged/low-skilled workers who fear the competition imposed for job with low-skilled immigrants willing to work for much lower wages.  This theory asserts that attitudes are formed around the premise that natives are in direct competition with immigrants for scarce material resources (Borjas, 1999; Facchini & Mayda, 2008; Mayda, 2006).  When exploring the economic context this relates to employment, wages and the skill levels of both natives and immigrants – thus providing a micro-level analysis. Barcelo (2016) suggests that the more natives are exposed immigrants in the labour market, and to the economic threat that this poses, the stronger their attitudes may be.  The following sections break down labour market competition theory into useful components for micro-level analysis.

Supply and demand/Labour and Wages.

In economic terms, it can be said that there is a limited demand for labour.  The demand for labour is determined by the number of jobs that are available in the current labour market.  Thus, if a country is receiving more immigrants then what is currently required to fill labour shortages, there could be an oversupply of labour, resulting in unemployment of natives.

Much of the public opinion takes the view that immigrants take jobs from natives and suppress their wages (Card, Dustmann, & Preston, 2005; Citrin, Green, Muste, & Wong, 1997), yet many economists disagree.  Although it may seem logical due to the law of supply and demand that increased levels of immigrants (whom we will assume will be entering the labour market) will affect the supply of labour, therefore there may be an oversupply of labour increasing unemployment rates for natives – there are alternative views to this argument.  One being that the economy responds to immigration by increasing the demand for labour by means of increased demand for goods and services consumed by immigrants (Dustmann & Preston, 2004).  On an individual level, public perception of this impact can be very polarising  and can be seen as a result of current (and increasing) levels of international immigration, and a perceived economic threat as a result of these levels.  Those who argue that immigration has negative consequences, for example that immigrants provide competition for a given number of jobs, stand opposite to those who argue that immigration has positive labour market consequences – that immigration creates jobs.  This contention has been extensively explored in the literature (Dustmann & Preston, 2004; Longhi et al., 2010; Mayda, 2006) and will be explored in this chapter.

In addition, the law of supply and demand asserts that increasing the supply of labour in any given economy will reduce wages of workers (Citrin et al., 1997; Longhi et al., 2010).  This too, has been contested by economists and other scholars, who interrogate attitudes towards immigrants and immigration from an economic perspective.  It is widely noted in the literature that the effect of immigration on the wages of natives varies widely between studies, and at times within studies (Longhi et al., 2010; Scheve & Slaughter, 2001). Borjas (1999) found that the consequences of immigration have an adverse effect on wages and unemployment, whilst many others conclude that the impacts are very negligible or inconclusive (Hainmueller, Hiscox, & Margalit, 2015).  According to Poot and Cochrane (2005), the fears that immigration may lower the wages are overestimated, and the reality is that while small, effects are actually cluster around zero which is supported by Card et al. (2005) and Hainmueller and Hiscox (2010).   Opposing this argument, Scheve and Slaughter (2001) suggest that due to methodological modelling differences, there is theoretical uncertainty around the  wages-mediated link between wages and attitudes towards immigrants and immigration.

Skills.

Some academics have argued that the effect of labour market competition on wages will in fact depend on the skill composition of both natives and immigrants.  One could assume that competition for employment and consequently a higher wage will depend on individual skill level as opposed to employment status or occupation in general.  In any case, it appears reasonable to assume that lower-skilled workers would oppose immigration based on the assumption that more immigrants  would lower their opportunity for higher wages (Card et al., 2005).  This is echoed by Facchini and Mayda (2008) who claim that “Analysing the size and skill composition of the migrant population is crucial to explaining the preferences of natives towards immigration” (p.6).

When operationalising labour market competition theory, it could be assumed that when immigrants and natives are perfect complements (or substitutes) for each other in the labour market, then the perceived threat can be less than if they were competing for the same jobs, that this will provide a platform to shape, influence or form pro-immigrant (or anti-immigrant) attitudes.  If on average, immigrants are less skilled than native’s, then there will be no competition for labour, however conversely, should the skill levels of immigrants be higher than that of natives, then there will be a perceived threat in the mind of the native.  The former is confirmed by Ben-Nun Bloom et al. (2015) who assert that; “Those who are materially threatened prefer immigrants who are different from themselves who can be expected not to compete for the same resources” (p.1760), and supported by (Malhotra, Margalit, & Mo, 2013) who found that natives will be most opposed to immigrants with skills levels similar to their own.  While, with regard to the latter scenario, according to (Facchini & Mayda, 2008) this is the perfect environment for negative attitudes to manifest.  In stark contrast to both of these arguments, Dustmann and Preston (2004) find no evidence that labour market competition amongst low-skilled workers leads to opposition to immigration.

Mayda (2006) proposes that labour market competition plays a key and robust role in studying attitudes towards immigrants and immigration.  The key finding in Mayda’s 2006 paper is that natives will be more favourable to immigrants who have a skill-set dissimilar to their own, whilst the inverse applies– natives who have similar skill-sets to immigrants will present less favourable attitudes towards immigrants and immigration.   O’Rourke and Sinnot (2006) take this argument one-step further claiming that high-skilled natives are less opposed to immigrants and immigration than low-skilled natives, and that the effect is greater in richer countries than poorer countries.

Hainmueller and Hiscox (2010) and have made the distinction between attitudes towards immigrants and immigration, towards both high-skilled and low-skilled immigrants across all sectors studied.  Hainmueller and Hilcox argued that this has been a critical omission in this labour market competition debate.  These authors challenge the widely held view that natives will mostly be opposed to immigrants with a skill-set similar to their own.  In contrast, they found that both highly skilled and low-skilled natives prefer highly skilled over low-skilled immigrants.  These authors also highlighted that these responses do not dissipate by skill level or employment status.

In opposition to this argument, Scheve and Slaughter (2001) find no evidence of a strong relationship between anti-immigrant attitudes and skill-set in receiving countries.  Thus said, they found that less skilled natives are significantly more likely to hold anti-immigration attitudes.

Skill-sets are further broken down by Dancygier and Donnelly (2013) and Malhotra et al., (2013) who claim that the skill-set of either group is less important, and that a more comprehensive analysis of skills would be to the include in the investigation a focus on particular industries or sectors rather than a general sweep of skills.  These studies found that when analysis was further broken down into industry or sectors, rather than a blanket observation of any type of job, that the results are quite different.  Such that if the sector in which the respondent belongs to is a growing sector (IT is a good example of this), then attitudes towards immigrants and immigration  will be more favourable, whilst if the respondent is employed in a shrinking sector, then fear of labour market competition is heightened and attitudes will be less favourable.

Macro-level analysis.

The theories presented above represent attitudes towards immigrants and immigration from a micro-level analysis or self-interest perspective.  However, the national level or sociotropic effects of attitudes towards immigrants and immigration are equally important and generate a similar level of contention in the findings.

GDP/NATIONAL ECONOMY

It is still unclear whether immigration affects the GDP of a country positively, negatively, or if it has no impact at all (OECD/ILO, 2018).  Despite this, several authors make connections with the level of GDP in the country under investigation and attitudes towards immigrants and immigration (Barcelo, 2016; Burns & Gimpel, 2000; Mayda, 2006).  These authors comment that the current economic conditions of the country in question will play a pivotal role in determining attitudes towards immigrants and immigration.  The connections being that if GDP is high, then attitudes towards immigrants and immigration will be more positive than if GDP is low.  This illuminates the individual vs sociotropic debate.  In this instance, the research suggests that individuals hold more concern for the macro-level economic status of a country rather than an individual micro-level concern.

Moreover, Dancygier and Donnelly (2013) and (OECD, 2010) claim that the national economic context matters immensely.  They claim that large exogenous financial shocks such as the 2008 financial crisis have an effect on attitudes towards immigrants and immigration at the macro-level.  They demonstrate through their analysis that at the sector-level, inflows of immigrants have little effect on attitudes towards immigrants and immigration when economies are expanding, but that changes rather rapidly when economic conditions deteriorate, and confidence in the economy wanes.  This is partly supported by (Burns & Gimpel, 2000), who agree that anti-immigrant attitudes are expressed less intensely during times of national economic prosperity, yet claim that cultural motivations are more important than economic motivations in explaining attitudes towards immigrants and immigration which will be explored in chapter xxxx.

TAXES WELFARE AND SOCIAL SERVICES – SOCIAL COSTS – FISCAL BURDEN ON PUBLIC SERVICES

Of critical concern when exploring labour market competition theory and its relationship with attitudes towards immigrants and immigration, is the debate about immigrants’ contribution to tax revenue (Hainmueller & Hiscox, 2010; Sides & Citrin, 2007) and use of public services (such as education, health or welfare assistance).

It has been argued that immigrants place a burden on the tax system (Hainmueller & Hiscox, 2010). This argument lies on the basis that immigrants consume many of the social service provisions made available to the public, yet have not contributed equally for the provision of such service by means of paying taxes.  For example, if we consider a 45-year-old native who has been paying income tax for 30 years.  This person may hold anti-immigrant sentiments when they observe newly arrived immigrants consuming these services – which essentially have been paid for by the native.  One example of this is in Sides and Citrin (2007), where they look at the results from the 2002-03 European Social Survey and in particular the perceived consequences of immigration.  The question asked was ‘Most people who come to live here work and pay taxes. They also use health and welfare services. On balance, do you think people who come here take out more than they put in or put in more than they take out?’  The results showed that 47% of respondents believed that immigrants took out more (social services) than were put into (taxes).  There is a pejorative element to this question and consequent result, which may induce negative attitudes towards those whom are perceived to ‘draw out’ more than is ‘put into’ the system.  This adds another salient message to the current debate of perceived versus real threat.

Evidence from Hainmueller & Hopkins, (2010) and Schlueter, Meuleman, and Davidov (2013) dispute this, and claim that there is no evidence that immigration poses a taxes-based fiscal threat to the economy. They prefer the view that natives should be more concerned about an immigration-induced erosion of spending.  This tax debate has been summarised by OECD (2010) who claim:

“On the one hand, the impact of low-skilled immigration on the funding of social protection will be felt more by high earners, who are most likely to be paying higher income taxes. On the other hand, if the level of funding remains the same, low-skilled immigration is liable to result in reduced benefits for native-born workers with low incomes” p. 124.

Card et al. (2005) argue that such a self-interest argument suggests that native residents could be expected to oppose inflows of immigrant groups who pay less in taxes than they receive in benefits, and support immigration by groups who will pay more in taxes than they will receive in benefits. On the other hand, natives may resent the claims made on health and education services by immigrants who are not seen to have contributed adequately to their funding, fuelling anti-immigrant sentiment.

In this context (OECD, 2010) comment that:

“Preferences about immigrants’ right to benefit from a social protection system can generally be put down to individual characteristics. Table III.5 [not illustrated] first of all shows, quite logically, that people who think that immigrants are net beneficiaries of the social protection system are more hostile to the idea of them receiving social benefits, whether as a matter of course or even after they have worked and paid taxes for a year.”p.134.

Similarly, Mayda (2005) agrees that an important economic factor shaping people’s stance on immigration is the perceived impact on the welfare state. In some receiving countries, immigrants are likely to be at the bottom of the income distribution, which makes them probable beneficiaries of costly welfare programs and small contributors to taxes. This in turn will affect natives’ individual contributions to and benefits from the welfare state and, therefore, their attitudes toward immigrants.

In the event that immigrants are highly skilled, then attitudes of natives who also have a high income will be more positive as they will end up paying less in taxes.  The inverse impact can be said for immigrants who are low-skilled.  In these two cases, there are redistributive impacts, which depend on the relative skill composition of immigrants (Facchini & Mayda, 2008).

Many studies cast doubt over labour market competition theory through doubt of the interpretation of the evidence, or can only seem to find a weak relationship between attitudes towards immigrants and immigration and labour market competition (Ceobanu & Escandell, 2010; Hainmueller et al., 2015).  Only a handful of studied selected for this paper offer greater support for economic reasons for attitudes towards immigrants and immigration than any other theoretical stance.

 

METHODOLIGICAL IMPERFECTIONS – Maybe I should take this out??and put in methodological ambiguity chapter???

Data collection and analysis.

To overcome some of these limitations for utilising country-level empirical barriers, (Hainmueller et al., 2015)

One explanation for the inconclusive evidence surrounding economic theory can be attributed to the data collection and analysis methods.   Studies which examine the economic concerns about attitudes towards immigrants and immigration typically use pre-existing, non-specific to the issue, and often outdated data.  Whilst the use of pre-existing data is not uncommon or discreditable, I argue, that it does afford questionability and the application of its use.  Should pre-existing data which has been generated for a multitude of purposes, be suitable to examine such a complex hypothesis’?  For example, of the xxxxxx sources of information used in this paper, only one designed their survey specifically for purpose.  When asking respondents very general questions such as “Do you think the levels of immigration in your country are; Too high, too low, or about right” this is not eliciting crucial information regarding certain variables to be included in the analysis such as “Which industry/sector do you work in? A more direct test of responses would be to ask such directed questions which would allow for these and other variables related to labour market competition to be explored. With only three exceptions (Card et al., 2005; Hainmueller & Hiscox, 2010; Hainmueller et al., 2015) all of the literature used in this paper have used data that asks questions about attitudes towards immigrants and immigration in very generic terms.  These authors developed independent surveys which directly targeted the hypothesis that they were investigating which add to the reliability, validity and replicability of their studies.

Cross-nation/country level analysis does not come without its flaws (Card et al., 2005; Ceobanu & Escandell, 2010).  Citing that the aggregation of individual items may produce ambiguous results when conducting cross-national variations in attitudes towards immigrants and immigration. The determinants of individual characteristics may not be uniform across the representative samples.

Variables.

Of the studies cited in the paper, several employ a differing set of variables in order to best test their hypothesis’.  The multitude of variables ill-suited to testing the theoretical findings sought by researchers add to the imperfect results discussed above.  Likely to be the most contested variable is that of the demographic kind, either of the native or the immigrant being researched.  The demographic features capturing the attention and credence of most of the authors are concentrated on the age and education of the respondent, yet others investigate other factors such as income, gender, and geographical location (exposure to immigrants – this will be explored further in Chapter xxxx).

Perceived versus actual threat is a commonly cited variable in the literature (Ben-Nun Bloom et al., 2015; Card et al., 2005; Schlueter et al., 2013; Sides & Citrin, 2007; Ward & Masgoret, 2006) which illicit misinterpreted responses.  Many respondents in the studies perceive that there is an economic threat present, when in fact, the perception is very wrong; therefore, the threat is unaccounted for.   A common misconception is that people constantly over-estimate the proportion of immigrants in their country.  Many respondents perceive the volume to be higher than it actually is, and will often change their response when they are shown the actual numbers of immigrants in their country (Grigorieff, Roth, & Ubfal, 2017).  The same can be said for perceived labour market competition threat.  Natives commonly report immigrants as a potential competitors as they compete for scarce resources, but the actual threat depends on many variables such as skill-levels and sector in which they are employed (Ben-Nun Bloom et al., 2015).

 

 

WHAT HAVE WE LEARNT?/Conclusion

Economic threat is turbulent due to the prevailing/changing nature/effects of the national economy (Ben-Nun Bloom et al., 2015; Burns & Gimpel, 2000).

Attitudes are more positive in the economic sense when the immigrants are dissimilar from natives are they will be seen to not be competing for the same resources than of those who hold similar economic attributes

Attitudes are more positive when the state of the national economy is good.

Individuals form functional beliefs: if directly harmed by immigrants, they will hold anti-immigration attitudes; if positively affected by immigrants, then they will hold pro-immigration attitudes Mayda 2006.

Many studies have examined the strong evidence and pervasive cultural concerns as a prominent source of attitudes towards immigrants and immigration, evidence apropos labour market competition are highly contested.  Against those studies who find support for labour market competition theory (Mayda, 2006; Scheve & Slaughter, 2001), other studies refute this theory claiming that labour market competition casts only a weak (or non-existent) relationship between attitudes towards immigrants and immigration and economic concerns (Burns & Gimpel, 2000; Ceobanu & Escandell, 2010; Dustmann & Preston, 2004; Hainmueller & Hiscox, 2007; Hainmueller et al., 2015; Sides & Citrin, 2007).

http://www.economicsonline.co.uk/How%20markets%20work%20graphs/Wage-fall-supply.png

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