The Impact of Immigration on the Structure of Male Wages: Theory and Evidence from Britain

Immigration to the UK has risen in the past 10 years and has had a measurable effect on the supply of different types of labour. But, existing studies of the impact of immigration on the wages of native-born workers in the UK (e.g. Dustmann, Fabbri and Preston, 2005) have failed to find any significant effect. This is something of a puzzle since Card and Lemieux, (2001) have shown that changes in the relative supply of educated natives do seem to have measurable effects on the wage structure. This paper offers a resolution of this puzzle – natives and immigrants are imperfect substitutes, so that an increase in immigration reduces the wages of immigrants relative to natives. We show this using a pooled time series of British cross-sectional micro data of observations on male wages and employment from the mid-1970s to the mid-2000s. This lack of substitution also means that there is little discernable effect of increased immigration on the wages of native-born workers. Acknowledgements We are grateful to Steve Machin, John Van Reenen and seminar participants at the LSE and the UCL-Cream Conference on "Immigration: Impacts, Integration and Intergenerational Issues" London, March 2006, for comments and suggestions. Marco Manacorda is a Research Associate at the Centre for Economic Performance and STICERD, LSE and a Reader in Economics at Queen Mary, University of London. Alan Manning is Director of the Labour Markets Programme at the Centre for Economic Performance and Professor of Economics at the LSE. Jonathan Wadsworth is a Senior Research Fellow at the Centre for Economic Performance, LSE and a Reader in Economics at Royal Holloway, University of London. JEL: J6