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MIGRATION AND PRODUCTIVITY BASIC FACTS

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					      MIGRATION AND PRODUCTIVITY. LESSONS FROM THE
                  UK-SPAIN EXPERIENCES

                               M. KANGASNIEMI (NIESR)
                              M.MAS (IVIE & U. VALENCIA)
                                 K. ROBINSON (NIESR)
                           L. SERRANO (IVIE & U. VALENCIA)




                                Brussels, March 16th 2007


       This project is funded by the European Commission, Research Directorate General
       as part of the 6th Framework Programme, Priority 8, “Policy Support and
       Anticipating Scientific and Technological Needs”



[1]
                                                                                            Objectives

      • To analyze the impact of migration on productivity growth,

      • Comparing two complementary experiences:
           • Spain: with a very recent presence of migrants
           • UK: traditional recipient of migration flows *


      • From three perspectives:
           • Impact on GDP per capita. Alternative Scenarios
           • Growth Accounting
           • Econometric estimates

* The UK data on migrants are based on the Labour Force Survey micro data, access was provided by the UK Data
    Archive whose assistance is gratefully acknowledged.




[2]
 MIGRATION AND PRODUCTIVITY




               BASIC FACTS




[3]
 MIGRATION AND PRODUCTIVITY. BASIC FACTS
               Graph 1. Percentage of migrants in total
                      employment. Spain & UK
 14%

 12%

 10%

  8%

  6%

  4%

  2%

  0%
       1987
              1988
                     1989
                            1990
                                   1991
                                          1992
                                                 1993
                                                        1994
                                                               1995
                                                                      1996
                                                                             1997
                                                                                     1998
                                                                                            1999
                                                                                                   2000
                                                                                                          2001
                                                                                                                 2002
                                                                                                                        2003
                                                                                                                               2004
                                                                                                                                      2005
                                                                                                                                             2006
                                                                  UK                Spain
[4]
  MIGRATION AND PRODUCTIVITY. BASIC FACTS


         Graph 2a. Working Age Population/Total            Table 2b. Working Age Population/Total. UK
                         SPAIN
                                                  95,00%
95.00%
                                                  90,00%
90.00%
                                                  85,00%
85.00%

80.00%                                            80,00%

75.00%                                            75,00%

70.00%                                            70,00%




                                                         92
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       92
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       06




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                        Nationals   Migrants                                Nationals   Migrants




[5]
   MIGRATION AND PRODUCTIVITY. BASIC FACTS


                   Graph 3a. Activity Rates. Spain                                                   Graph 3b. Activity Rates. UK

80,00                                                                             80,00
75,00                                                                             75,00
70,00                                                                             70,00
65,00                                                                             65,00
60,00                                                                             60,00
55,00                                                                             55,00
50,00                                                                             50,00
45,00                                                                             45,00
40,00                                                                             40,00




                                                                                      92
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                                  Nationals        Migrants                                                         Nationals        Migrants




[6]
   MIGRATION AND PRODUCTIVITY. BASIC FACTS


              Graph 4a. Unemployment rates (%). Spain                                            Graph 4b. Unemployment Rates (%). UK

 30,00                                                                             30,00

 25,00                                                                             25,00

 20,00                                                                             20,00

 15,00                                                                             15,00

 10,00                                                                             10,00

  5,00                                                                              5,00

  0,00                                                                              0,00




                                                                                       92
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                                   Nationals        Migrants                                                         Nationals        Migrants




[7]
  MIGRATION AND PRODUCTIVITY. BASIC FACTS


         Graph 5a. Share of HIGH skill workers on total.                   Graph 5b. Share of HIGH skill workers on total.
                             SPAIN                                                              UK

40.00%                                                            40,00%
35.00%                                                            35,00%
30.00%                                                            30,00%
25.00%                                                            25,00%
20.00%                                                            20,00%
15.00%                                                            15,00%
10.00%                                                            10,00%
 5.00%                                                            5,00%
 0.00%                                                            0,00%
         1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006            1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

                            Nationals    Migrants                                             Nationals   Migrants




[8]
 MIGRATION AND PRODUCTIVITY




GDP PER CAPITA DECOMPOSITION:
ALTERNATIVE SCENARIOS




[9]
   GDP PER CAPITA DECOMPOSITION

   Equation (1)

         Y   WAP AP   L                        Y
                     
         N    N WAP AP                         L
     GDPpc   age   activity   employment   productivity

                   demography




 Y = Real GDP
 N = Total Population
 WAP = Working Age Population
 AP = Active Population
 L = Employement


[ 10 ]
   GDP PER CAPITA DECOMPOSITION
                     Graph 6a. Contributions to GDP per capita
                             growth. ACTUAL SPAIN

         6,00%

         4,00%

         2,00%

         0,00%
                   1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
         -2,00%

         -4,00%

         -6,00%

                           Age    Activity Rate   Employment   Productivity



                  Graph 6b. Contributions to GDP per capita growth
                                    ACTUAL UK

          6,00%

          4,00%

          2,00%

          0,00%
                   1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
         -2,00%

         -4,00%

         -6,00%

                            Age   Activity Rate   Employment   Productivity

[ 11 ]
   GDP PER CAPITA DECOMPOSITION


• SPAIN, THREE SCENARIOS ACCORDING TO DEMOGRAPHY
  (INCLUDING LABOR MARKET) VARIABLES:


    1. ACTUAL

    2. VIRTUAL I: NO MIGRANTS (Substitute in (1) all the
      demography variables by the ones corresponding to Spanish
      nationals)

    3. VIRTUAL II: UKneization (Substitute in (1) all the demography
      variables by the ones corresponding to UK aggregate
      (migrant+nationals) population)

[ 12 ]
   SCENARIOS 1 & 2. ACTUAL AND VIRTUAL I (NO
   MIGRANTS)


            Graph 7a. Contributions to GDP per capita                                Graph 7b. ACTUAL-VIRTUAL I SPAIN
            growth. VIRTUAL SPAIN I. NO MIGRANTS
                                                                        0,80%
 6,00%
                                                                        0,60%
 4,00%
                                                                        0,40%
 2,00%
                                                                        0,20%
 0,00%
          1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004   0,00%
 -2,00%
                                                                                 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
 -4,00%                                                                 -0,20%

 -6,00%                                                                 -0,40%

                         Age Activity Rate Employment                                           Age Activity Rate Employment




[ 13 ]
   SCENARIOS 1 & 3. ACTUAL AND VIRTUAL II (UKneization)




            Graph 8a. Contributions to GDP per capita                                Graph 8b. ACTUAL - VIRTUAL II SPAIN
             growth. VIRTUAL SPAIN II. UKneization
                                                                        6,00%
 2,00%
                                                                        4,00%
 1,50%
                                                                        2,00%
 1,00%
                                                                        0,00%
 0,50%
                                                                        -2,00% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
 0,00%
          1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004   -4,00%
 -0,50%
                                                                        -6,00%
 -1,00%

                         Age Activity Rate Employment                                         Age Activity Rate Employment




[ 14 ]
   GDP pc (demography induced)
   UNDER 3 SCENARIOS

         Graph 9. GDP pc growth (demography induced) under
                         3 Scenarios. SPAIN

  140
  130
  120
  110
  100
    90
    80

              Actual   Virtual I (No Migrants)   Virtual II (Ukneization)


[ 15 ]
   MIGRANTS AND PRODUCTIVITY




            GROWTH ACCOUNTING




[ 16 ]
   GROWTH ACCOUNTING


           ln  HEMP    ln  HEMPNAT          Quantity effect
                     TOT                  


      WMIG   WMIG  
                   
     
                              ln  HEMPMIG  
        WTOT t  WTOT t 1 
                                             
                2                    HEMP 
                                          TOT

      WNAT   WNAT  
                   
     
                             ln  HEMPNAT 
        WTOT t  WTOT t 1 
                                                  Quality effect
                 2                   HEMP 
                                          TOT

    WMIG  wMIG  HEMPMIG
    WNAT  wNAT  HEMPNAT
     ___________________
    WTOT  WMIG  WNAT
[ 17 ]
   GROWTH ACCOUNTING
   Table 1a.'GROWTH ACCOUNTING. TOTAL ECONOMY
   SPAIN
                                                1996-2000    2000-2004    1996-2004

   GVA growth                                        4.286        2.888        3.587
   VAConH                                            2.498        1.547        2.023
   VAConKIT                                          0.554        0.286        0.420
   VAConKNIT                                         1.407        1.447        1.427
   VAConLC                                           0.304        0.382        0.343
   TFP Euklems                                      -0.478       -0.774       -0.626

   VAConHmigrants                                    0.278        1.056        0.667
   VAConLCmigrants                                  -0.048       -0.177       -0.113
   NEW TFP                                          -0.708       -1.653       -1.180
   Total Migrant Contribution to GVA growth          0.230        0.879        0.554

   Labour productivity growth                        0.370        0.433        0.401
   Migrants contribution (Quantity effect)          -0.157       -0.623       -0.390
   Migrants contribution (Quality effect)           -0.048       -0.177       -0.113
   Migrants total contribution to LP growth         -0.205       -0.800       -0.503




[ 18 ]
   GROWTH ACCOUNTING
    Table 1b.'GROWTH ACCOUNTING. TOTAL ECONOMY
    UK
                                             1987-1996     1996-2000    2000-2004    1996-2004

    GVA growth                                    2.482         2.775        2.302        2.519
    VAConH                                        0.140         0.664        0.659        0.636
    VAConKIT                                      0.570         0.981        0.679        0.804
    VAConKNIT                                     0.708         0.800        0.582        0.696
    VAConLC                                       0.142         0.439        0.460        0.449
    TFP Euklems                                   0.922        -0.108       -0.078       -0.065

    VAConHmigrants                                0.013         0.157        0.289        0.222
    VAConLCmigrants                               0.002         0.021        0.040        0.030
    NEW TFP                                       0.907        -0.286       -0.407       -0.318
    Total Migrant Contribution to GVA growth      0.015         0.178        0.329        0.252

    Labour productivity growth                     2.157        1.814        1.373        1.611
    Migrants contribution (Quantity effect)       -0.005       -0.070       -0.118       -0.094
    Migrants contribution (Quality effect)         0.002        0.021        0.040        0.030
    Migrants total contribution to LP growth      -0.004       -0.049       -0.078       -0.063




[ 19 ]
GROWTH ACCOUNTING:
SECTORAL DISAGGREGATION




[ 20 ]
   Sectoral Disaggregation
   Table 2. Share of migrants in total employment by sectors. 2004
   (%)
                                                                   UK      SPAIN

   Total                                                          9,84%     9,23%
   1 Agriculture                                                  3,35%    13,54%
   2 Forestry                                                     3,24%    13,48%
   B FISHING                                                                3,75%
   10 Mining of coal and lignite; extraction of peat                        3,44%
   11 Extraction of crude petroleum and natural gas and service   8,52%    13,21%
   12 Mining of uranium and thorium ores

   13 Mining of metal ores                                        17,72%
   14 Other mining and quarrying                                   3,33%   8,50%
   15 Food products and beverages                                 11,69%   7,89%
   16 Tobacco products                                             9,43%
   17 Textiles                                                     9,59%    7,93%
   18 Wearing Apparel, Dressing And Dying Of Fur                  21,06%    8,53%
   19 Leather, leather products and footwear                      11,83%    8,42%
   20 WOOD AND PRODUCTS OF WOOD AND CORK                           2,86%   11,56%
   21 Pulp, paper and paper products                               7,78%    6,73%
   22 Printing, publishing and reproduction                                 7,26%
   221 Publishing                                                 10,68%
   22x Printing and reproduction                                   4,09%
   23 Coke, refined petroleum products and nuclear fuel            6,70%   2,08%
   24.Chemicals and chemical                                       0,00%   3,06%
   244 Pharmaceuticals                                            10,39%
   24x Chemicals excluding pharmaceuticals                         9,00%
   25 Rubber and plastics products                                 5,57%   6,04%
   26 OTHER NON-METALLIC MINERAL PRODUCTS                          6,11%   9,87%
   27 Basic metals                                                 3,23%   2,59%
   28 Fabricated metal products                                    5,71%   8,41%
   29 MACHINERY, NEC                                               7,86%   3,05%
   30 Office, accounting and computing machinery                  10,29%   2,02%
   31. Electrical machinery and apparatus, nec                             3,46%
   313 Insulated wire                                             4,23%
   31x Other electrical machinery and apparatus nec               6,89%
   32 Radio, television and communication equipment                        4,94%
   321 Electronic valves and tubes                                12,85%
   322 Telecommunication equipment                                10,47%
   323 Radio and television receivers                             11,81%
   33 Medical, precision and optical instruments                           1,62%
   331t3 Scientific instruments                                   4,58%
   334t5 Other instruments                                        7,80%
   34 Motor vehicles, trailers and semi-trailers                  7,39%    2,75%
   35 Other transport equipment                                            6,19%
   351 Building and repairing of ships and boats                  4,44%
   353 Aircraft and spacecraft                                    5,00%
   35x Railroad equipment and transport equipment nec             8,60%
   36 Manufacturing nec                                           6,52%     7,56%
   37 Recycling                                                   1,68%    13,19%

[ 21 ]
   Sectoral Disaggregation
   Table 2 (Cont.) Share of migrants in total employment by sectors. 2004
   (%)
                                                                       UK           SPAIN

   E ELECTRICITY, GAS AND WATER SUPPLY
                                                                                    1,79%
   40x Electricity supply                                        3,20%
   402 Gas supply                                                6,09%
   41 WATER SUPPLY                                               4,99%              0,37%
   F CONSTRUCTION                                                5,93%             15,89%
   50 Sale, maintenance and repair of motor vehicles and motorc  5,51%              4,44%
   51 Wholesale trade and commission trade, except of motor veh  9,81%              7,56%
   52 Retail trade, except of motor vehicles and motorcycles; r  8,40%              5,17%
   H HOTELS AND RESTAURANTS                                     18,32%             18,18%
   60 Inland transport                                          12,59%              4,85%
   61 Water transport                                            9,11%              1,35%
   62 Air transport                                             17,60%              7,91%
   63 Supporting and auxiliary transport activities; activities 10,43%              7,94%
   64 POST AND TELECOMMUNICATIONS                                9,23%              7,20%
   65 Financial intermediation, except insurance and pension fu 12,08%              2,12%
   66 Insurance and pension funding, except compulsory social s  8,87%              0,93%
   67 Activities related to financial intermediation             8,27%              9,75%
   70x Other real estate activities                              9,36%              9,13%
   71 Renting of machinery and equipment                         6,30%              8,24%
   72 Computer and related activities                           14,69%              6,78%
   73 Research and development                                  14,53%              5,00%
   74 Other business activities                                                     8,08%
   741t4 Legal, technical and advertising                       10,98%
   745t8 Other business activities, nec                         14,86%
   L PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY        7,12%              0,46%
   M EDUCATION                                                   9,08%              4,00%
   N HEALTH AND SOCIAL WORK                                     11,88%              3,44%
   90 Sewage and refuse disposal, sanitation and similar activi  3,52%              4,71%
   91 Activities of membership organizations nec                10,89%              6,01%
   92 Recreational, cultural and sporting activities                                9,48%
   921t2 Media activities                                       13,01%
   923t7 Other recreational activites                            8,27%
   93 Other service activities                                   8,01%              7,82%
   P PRIVATE HOUSEHOLDS WITH EMPLOYED PERSONS                   18,35%             42,83%
   Q EXTRA-TERRITORIAL ORGANIZATIONS AND BODIES                 69,15%             54,66%

   Note: Marked with colors when shares are higher than 10%. Spain: yellow; UK: pink; both: green

[ 22 ]
   GROWTH ACCOUNTING. SECTORAL DISAGGREGATION
         Table 3. Growth Accounting by selected sectors. 1996-2004
         Contribution to Output growth

                                                         SPAIN        UK

         Agriculture
         Output growth                                    0.116      0.248
          'Migrants contribution (Quantity effect)        0.748      0.024
          'Migrants contribution (Quality effect)        -0.123      0.005
         Migrants total contribution to output growth     0.625      0.028

         Manufacturing
         Output growth                                    2.450      0.324
          'Migrants contribution (Quantity effect)        0.470      0.158
          'Migrants contribution (Quality effect)        -0.080      0.022
         Migrants total contribution to output growth     0.391      0.180

         Construction
         Output growth                                    6.004      2.410
          'Migrants contribution (Quantity effect)        1.490      0.190
          'Migrants contribution (Quality effect)        -0.237      0.026
         Migrants total contribution to output growth     1.253      0.215

         Trade
         Output growth                                    3.169      3.593
           'Migrants contribution (Quantity effect)       0.404      0.191
           'Migrants contribution (Quality effect)       -0.069      0.025
         Migrants total contribution to output growth     0.335      0.216

         Hotels and restaurants
         Output growth                                    3.032      3.442
          'Migrants contribution (Quantity effect)        1.484      0.467
          'Migrants contribution (Quality effect)        -0.237      0.060
         Migrants total contribution to output growth     1.247      0.527

[ 23 ]
   GROWTH ACCOUNTING. SECTORAL DISAGGREGATION
         Table 3 (Cont.). Growth Accounting by selected sectors. 1996-2004
         Contribution to Output growth

                                                                 SPAIN     UK

         Transport and storage and communication
         Output growth                                            4.938   5.930
           'Migrants contribution (Quantity effect)               0.341   0.369
           'Migrants contribution (Quality effect)               -0.058   0.047
         Migrants total contribution to output growth             0.283   0.416

         Finance, insurance, real estate and business services
         Output growth                                            4.478   3.583
           'Migrants contribution (Quantity effect)               0.340   0.269
           'Migrants contribution (Quality effect)               -0.058   0.038
         Migrants total contribution to output growth             0.282   0.306

         Community, social and personal services
         Output growth                                            3.395   1.708
          'Migrants contribution (Quantity effect)                0.778   0.214
          'Migrants contribution (Quality effect)                -0.132   0.028
         Migrants total contribution to output growth             0.646   0.242

         Private households with employed persons
         Output growth                                            2.845    _
          'Migrants contribution (Quantity effect)                6.099    _
          'Migrants contribution (Quality effect)                -0.826    _
         Migrants total contribution to output growth             5.273    _




[ 24 ]
   GROWTH ACCOUNTING. SECTORAL DISAGGREGATION
          Table 4. Growth Accounting by selected sectors. 1996-2004
          Contribution to Labour Productivity growth

                                                         SPAIN         UK

          Agriculture
          Labour productivity growth                      0.677        3.806
            'Migrants contribution (Quantity effect)     -0.900       -0.012
            'Migrants contribution (Quality effect)      -0.123        0.005
          Migrants total contribution to LP growth       -1.022       -0.007

          Manufacturing
          Labour productivity growth                      0.999        2.841
            'Migrants contribution (Quantity effect)     -0.254       -0.037
            'Migrants contribution (Quality effect)      -0.080        0.022
          Migrants total contribution to LP growth       -0.334       -0.015

          Construction
          Labour productivity growth                     -2.195       1.466
            'Migrants contribution (Quantity effect)     -0.529       0.007
            'Migrants contribution (Quality effect)      -0.237       0.026
          Migrants total contribution to LP growth       -0.766       0.033

          Trade
          Labour productivity growth                     -0.014        3.033
            'Migrants contribution (Quantity effect)     -0.195       -0.080
            'Migrants contribution (Quality effect)      -0.069        0.025
          Migrants total contribution to LP growth       -0.264       -0.055

          Hotels and restaurants
          Labour productivity growth                     -1.635        1.148
            'Migrants contribution (Quantity effect)     -0.525       -0.136
            'Migrants contribution (Quality effect)      -0.237        0.060
          Migrants total contribution to LP growth       -0.762       -0.076


[ 25 ]
   GROWTH ACCOUNTING. SECTORAL DISAGGREGATION
          Table 4 (Cont.). Growth Accounting by selected sectors. 1996-2004
          Contribution to Labour Productivity growth

                                                                  SPAIN     UK

          Transport and storage and communication
          Labour productivity growth                               2.013    5.140
            'Migrants contribution (Quantity effect)              -0.331   -0.107
            'Migrants contribution (Quality effect)               -0.058    0.047
          Migrants total contribution to LP growth                -0.389   -0.059

          Finance, insurance, real estate and business services
          Labour productivity growth                              -0.019    0.518
            'Migrants contribution (Quantity effect)              -0.434   -0.263
            'Migrants contribution (Quality effect)               -0.058    0.038
          Migrants total contribution to LP growth                -0.491   -0.226

          Community, social and personal services
          Labour productivity growth                               0.884   -0.140
            'Migrants contribution (Quantity effect)              -0.180   -0.028
            'Migrants contribution (Quality effect)               -0.132    0.028
          Migrants total contribution to LP growth                -0.312   -0.001

          Private households with employed persons
          Labour productivity growth                              -0.598     _
            'Migrants contribution (Quantity effect)               0.000     _
            'Migrants contribution (Quality effect)               -0.826     _
          Migrants total contribution to LP growth                -0.826     _



[ 26 ]
Preliminary econometric analysis




[ 27 ]
Preliminary econometric analysis
• Standard Cobb-Douglas production fct
• First difference and fixed effects estimations with year dummies (no
  levels available for all variables)
• Different specifications for migrant/native labour input: 1) number of
  hours (share*total hours), 2) quality adjusted by the overall labour
  quality 3) quality adjusted by separate indices for migrants and non-
  migrants (for UK only) 4) migrant share as a separate regressor in
  standard prod fct
• Data on migrant shares by industry and characteristics available for
  UK 1993 onwards and Spain 2000 onwards
• Estimations for all observations and three industry groups (1) non-
  services, (2) retail, transport and communication and (3) other
  services
• Separately: regressions of tfp growth on changes in migrant share
  and migrant labour input




[ 28 ]
 Some results
• Migrant share alone generally not significant as an explanatory
  variable in production function but migrants as a separate input are
  usually significant
• Migrants may be a selected group but using a separate quality
  adjustment for them makes minimal difference for coefficient
  estimates: but panel is short and differences between industries
  don’t count
• Are migrants more productive than natives in the UK and less
  productive than natives in Spain?
• There are considerable differences between industries: how to
  control this without splitting the sample?
• Changes in migrant share do not explain contemporaneous tfp
  growth




[ 29 ]
         Results




[ 30 ]
Extensions to the econometric work

• Using levels rather than indices to capture variation across
  industries
• Better control of heterogeneity across industries and dynamic error
  structures
• Experimenting with different ways of taking into account the
  characteristics of migrants/non-migrants: different skill indices,
  ethnic diversity, “old” vs. “new” migrants
• Testing for interaction effects: are migrants complements or
  substitutes for capital and skilled/unskilled native labour
• Studying endogeneity of migrant share: do industries with declining
  or improving productivity hire migrants, is production technology
  adopted related to migrant share?




[ 31 ]
Conclusions

•    The characteristics of the migrant population, as well as
     its evolution over time and sectoral distribution are
     different between the two countries.
•    GDP per capita growth has been driven by productivity
     growth in UK while for Spain the engine of growth has
     been demography.
•    In both countries total migrant contribution to GDP
     growth has been positive, while the effect on labor
     productivity has been negative.
•    In both countries, migrants quantity effect has been
     positive on output growth and negative on labor
     productivity.
•    In Spain, migrants quality effect has been negative, both
     on output growth and on labor productivity, while for the
     UK it has been positive.

[ 32 ]
•        Total migrants contribution to output growth is higher in
         Spain than in the UK with the exception of Transport &
         Storage & Communication and Finance & Insurance
•        On the contrary, total migrant contribution to productivity
         growth is negative in almost all sectors and always
         higher in Spain than in the UK.
•        Preliminary econometric results seem to support the
         suggestion that in the UK migrants are more productive
         than natives and in Spain vice versa. More work is
         needed to refine the econometric estimates.




[ 33 ]

				
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