SALUD AMBIENTAL

A salient point to emerge from the review in the foregoing sections is that recent Irish economic growth has become more dependent on the growth of the labour input and that this, in turn, has been sustained by the growing contribution of net immigration to the work force. It is important, therefore, to discuss the implications of immigration for living standards and economic well-being.

Ireland is still relatively new to the experience of large-scale immigration and much of the information that will be required for an evaluation of its impact on the economy is as yet unavailable. The following commentary is based on the limited research that has been undertaken on the recent Irish experience and on some research from other countries, notably the United States.

Studies of the inflow to Ireland in the 1990s indicate that the immigrants have relatively high educational levels and the possibility that their qualifications are not fully utilised in Ireland.24 _{The upsurge in}

immigration form the new EU accession states after 2003 has yet to be analysed in any detail. However, the evidence to date shows that immigrants do not seem to displace the incumbent labour force, resulting in higher unemployment. A study based on data for 2004 and 2005 concluded:

“In relation to Ireland, the evidence suggests that displacement of Irish workers by lower paid immigrants is not a source of disturbance in the labour market. To the extent that there has been displacement in some sectors it could be accounted for, at least in part, by the normal dynamics of the labour market in which Irish workers move to better-paid jobs and are replaced by lower-paid immigrants.”25 Assessing the longer-term effects of large-scale immigration on the wage rates and living standards of the Irish labour force will only be possible as more information becomes available and is analysed. We can gain some insights from a priori economic reasoning, such as the logic that demand curves – including that for labour – slope downwards. A substantial increase in supply – due for example to the opening up of our labour market to nationals of countries like Poland – implies, other things equal, a fall or a slow-down in the rate of increase in wage rates among native-born workers competing with the immigrants.26 _{But is also obvious that in the absence of immigration the Irish economy could not} have achieved the high rates of output growth documented earlier in this paper. As we saw, half the new jobs created in the economy in 2005 were filled by non-Irish nations. Without immigration several sectors (the “hospitality industry” and construction in particular) that are highly dependent on immigrant workers would have been constrained by labour shortages and wage rates would have been bid up faster than was the case. The output of these sectors would have grown more slowly and become more 24 Alan Barrett, Adele Bergin and David Duffy “The Labour Market Characteristics And Labour Market Impacts Of

Immigrants In Ireland” The Economic And Social Review, Vol. 37, No. 1, Spring, 2006, pp. 1-26

25 Doyle, N, Hughes, G, Wadensjo, E, Freedom of Movement for Workers from Central and Eastern Europe: Experiences in Ireland and Sweden, Swedish Institute for European Policy Studies (Sieps), Stockholm, May 2006 Report No. 5 26 The strongest proponent of this view of recent US immigration is George Borjas, who concludes that “that

immigration lowers the wage of competing workers: a 10 per cent increase in supply reduces wages by 3 to 4 per cent” see George J. Borjas, “The Labor Demand Curve is Downward Sloping: Re-examining the Impact of Immigration on the Labor Market,”Quarterly Journal of Economics, November 2003, pp. 1335-1374.

expensive, to the benefit of Irish people employed there but at the expense of Irish consumers of their output. And other things are not equal. Immigration on the scale we are now experiencing it raises demand as well as increasingly supply and the higher rate of growth offsets the depressing effect of the increased supply of labour on wage rates.

A recent review of the long-run impact of large-scale immigration of low-skilled workers from Mexico on the US economy argued that, although in the long-run large-scale immigration had little impact on wages levels as the capital stock expended to match the increased supply of labour, the new immigrants have been slow to acquire qualifications and education. In the transition period they have lowered the earnings of comparable native-born groups:

“Although the earnings of non-Mexican immigrants converge to those of their native-born counterparts as the immigrants accumulate work experience in the U.S. labor market, this type of wage convergence has been much weaker on average for Mexican immigrants than for other immigrant groups. . . . The large Mexican influx in recent decades widened the U.S. wage structure by adversely affecting the earnings of less-educated native workers and improving the earnings of college graduates. These wage effects have, in turn, lowered the prices of non-traded goods and services that are low-skill labor intensive.”27

However, these negative impacts of Mexican immigration have been disputed;

“At the aggregate level, the wage gap between dropouts and high school graduates has remained nearly constant since 1980, despite supply pressure from immigration and the rise of other education-related wage gaps. Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant. . . On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least educated immigrant origin groups have closed most of the education gap with the children of natives.”28

Other studies also present a more favourable view of the impact of immigration on the native population. “Making the crucial assumption that U.S. and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of U.S. workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of U.S.-born workers.”29

27 The Evolution Of The Mexican-Born Workforce In The United States, George J. Borjas and Lawrence F. Katz National Bureau of Economic Research, Working Paper 11281, April 2005, Http://Www.Nber.Org/Papers/W11281.

28 David Card “Is the New Immigration Really So Bad?” National Bureau of Economic Research Working Paper 11547, August 2005., Http://Www.Nber.Org/Papers/W11547

29 Gianmarco Ottaviano and Giovanni Peri: “Rethinking the Gains from Immigration: Theory and Evidence from the U.S.” National Bureau of Economic Research Working Paper 11672, October 2005.

Closer to home, a recent study of the effect of immigration on the Spanish economy concluded that Spain’s output per capita might have fallen slightly over the past 10 years instead of growing by an average of 2.6 per cent a year, had it not been for the influx of more than three million immigrants.30 The relevance of this discussion of the effects of large-scale Mexican immigration on the earnings of the US population to the present influx of Polish and other immigrant workers to Ireland may be disputed. It may be that our immigrants have higher levels of human capital and will move up the earnings distribution faster than is the happening among immigrants to the US from Latin America. However, it is worth quoting these recent reviews of the US experience because they illustrate the point that despite a long tradition of research on the topic, there are still areas of substantial disagreement among US economists about how immigration on the scale now being experienced in Ireland affects the US economy.

Immigration also has implications for the housing market. We saw that immigrants now account for about half the Irish rate of population growth and thus are an important component of the demand for entry-level housing. A recent study of the impact of immigration on rental markets in the US concluded: Immigration pushes up rents and housing values in US destination cities. The positive association of rent growth and immigrant inflows is pervasive in time series for all metropolitan areas. . . . An immigration inflow equal to 1 per cent of a city’s population is associated with increases in average rents and housing values of about 1 per cent. The results suggest an economic impact that is an order of magnitude bigger than that found in labor markets.31

Given the scale of immigration to Ireland, a similar effect would be very significant in terms of our housing market. Counterbalancing this effect, however, is the fact that the construction industry is a large employer of immigrants, who thus increase the supply of, as well as the demand for, housing. However, given the other constraints on the supply of housing – such as the availability of sites and planning permissions – the demand-side effect is likely to considerably outweigh the supply side one. It should also be noted that the rate of increase in home ownership among immigrants is important to their eventual integration into the host society. The severe social problems among large immigrants populations in several European countries may be exacerbated by the tendency to segregate them into low rent accommodation in economically and socially isolated ghettoes.

A broader consideration is the issue of how large and rapidly growing a population we wish to see in Ireland. The undesirable side effects of growth on pollution, housing prices, and congestion have to weighed against the benefits from a broader tax base, better age structure, and increased capacity to fund social security pensions.

The balance between the costs and benefits of large-scale immigration of the type that has fuelled our recent growth depends heavily on the answers to these questions.

30 “Spanish study points to benefits of immigration”, Victoria Burnett, Financial Times, August 30 2006 31 Albert Saiz, “Immigration and Housing Rents in American Cities” IZA Discussion Paper No. 2189, 2006.