ChainWhat it assumes · how to break it
Start
Net migration into the UK rises, for example after eight central and eastern European countries joined the EU in 2004, or when the points-based system introduced in 2021 brought in many health and care workers from outside the EU.
1
As a result, the supply of labour shifts to the right in the occupations migrants enter.
supply of labour · migration
supply of labour · migration
Assumes: Migrants join the labour force.
But: Students and dependants may not work, or only part time, so labour supply rises by less than the population.
2
This means at the old wage there is an excess supply of labour, so wages are pushed down towards a new, lower equilibrium.
wage determination · equilibrium wage
wage determination · equilibrium wage
Best link to attack
Assumes: Migrant workers are substitutes for existing workers.
Assumes: Migrant workers are substitutes for existing workers.
But: Migrants often fill shortages or do different jobs from existing workers, so they act as complements, raising the MRP of existing workers and their wages.
3
Consequently, wage growth slows most in low-skilled occupations where migrants compete directly with existing workers, such as food processing and construction.
substitute labour
substitute labour
Assumes: Wages are flexible downwards.
But: The minimum wage and collective agreements stop pay falling at the bottom, so the adjustment comes through fewer vacancies instead of lower pay.
End
Wages fall, or grow more slowly, in occupations where migrants substitute for existing workers.
Evaluation chain
- E1However, the effect on wages depends on whether migrants are substitutes for, or complements to, existing workers.
- E2When migrants fill skills shortages, such as overseas-trained NHS doctors and nurses, other staff and equipment can be used more fully.
- E3As a result, the MRP of existing workers rises and the demand for their labour shifts right.
- E4So wages fall only where migrants compete directly with existing workers, and may rise where migrants complement them.
Another way to attack it: Migrants also spend their wages, raising the derived demand for labour, so the demand curve for labour shifts right as well. UK studies have generally found small effects on average wages, with any negative effect concentrated among the lowest paid.
Can you say this chain from memory?
Members can hide the links, test themselves and track which chains they have mastered.
Practise this chainMembers can hide the links, test themselves and track which chains they have mastered.
Questions this answers
- Using a diagram, explain how an increase in immigration may affect wages in a labour market.
- Assess the impact of higher net migration on the wages of low-skilled workers.
- Discuss whether immigration benefits workers in the UK.
Diagram
Labour market supply and demand: supply of labour shifts right from S1 to S2, the wage falls from W1 to W2 and employment rises from Q1 to Q2. If migrants are complements, also shift demand (MRP) right, which limits or reverses the fall in the wage.
Reverse and related
Fall in net migration → labour supply shifts left, creating shortages and pushing up wages in sectors such as care and hospitality.