Immigrant workers undermine wage growth
Immigrant workers, mainly from other Nordic countries, have a negative effect on the pay checks of Norwegian employees. Workers with minimal skills and little experience are the most vulnerable.
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Immigrant labour tends to curb inflation in Norway’s booming economy. But somebody has to pay the price.
A recent study by economists Bernt Bratsberg and Oddbjørn Raaum at the Ragnar Frisch Centre for Economic Research shows that a rise in immigration has had a measurable effect on Norwegian wage levels.
Immigrants from Sweden and the other Nordic countries have the greatest impact on Norwegian wages.
Roar Flåthen, who retired last weekend as head of the Norwegian Federation of Trade Unions (LO), slammed Sweden for what he called a failure to take care of its own unemployed young people, instead opting to export them to Norway.
The new figures from the Frisch Centre, an independent institution founded by the University of Oslo, appear to suggest that some of LO’s rank and file have had weaker wage growth in recent years because of the large influx of foreign labour.
The study looked at work immigration from a number of countries in all age groups.
The researchers divided the Norwegian work force into 32 different niches and studied the ways that increased immigrant labour affects the different groups.
Weaker wage development
Senior Researcher Bernt Bratsberg says that the weakest wage increases have been in jobs that have been most affected by big influxes of immigrants coming to work in those jobs.
According to the new study, the impact on wages is most substantial for workers with little formal education and little experience.
The results will be published in the Scandinavian Journal of Economics and have been reported in the latest issue of the journal Samfunnsøkonomen.
The significance of Swedes
It might come as a surprise that immigration from poor countries outside Europe has had relatively little effect on Norwegian wages.
Instead, the biggest jolt has come from Sweden and other Nordic countries.
“In simple terms, the Swedes are putting the most pressure on Norwegian wages,” says Bratsberg.
The study suggests that Nordic immigrants are more apt to be competing for the same jobs as Norwegian citizens.
At the same time, the flood of job-hungry Swedes helps stabilize wages. Swedes generally come to Norway looking for employment when the Norwegian economy is buoyant and go home again when the economic picture starts to worsen. This has a buffering effect.
Bratsberg says that the combined effects on wages levels are not all that dramatic.
On average, a one percent increase of immigrants in a work sector yields a 0.5 percent decline in wages in this sector.
Increased work immigration from developing countries has little effect on wage levels of Norwegian employees who are born in Norway. But it does have a negative effect on the wage levels of immigrants who came to Norway before them.
The study is based on the period 1992-2006, but the researchers think they would find the same results if their investigation continued right up to today.
Although not an EU member, Norway is affiliated with the EU through the European Economic Area and it absorbed a wave of immigrants looking for jobs following the EU expansion in 2004. The study only caught the beginning of this growth.
The same economists focused on the Norwegian construction industry in an earlier study, published last year. That study reached the same results.
A lot of immigrants poured into certain trades in the construction industry, such as carpentry and painting. Members of these trades have enjoyed much less wage growth than plumbers and electricians, who have faced far less immigrant competition.
Professor Øivind Anti Nilsen of the Norwegian School of Economics has not been involved in the study, and states that it is often hard to differentiate between cause and effect when it comes to work immigration.
However, the main impression that increased immigration curbs wage growth is confirmed by international research and is in keeping with what is predicted by economic theory.
“This wholly conforms with the teachings in the economic textbooks,” he says.
Nilsen is glad that the effects are tangible and quantifiable.
Nilsen asserts that these results are the outcome of Norway’s open economy. He says the immigration has a positive effect overall because cheaper labour costs can result in lower prices for consumers.
In addition, lower wages may encourage employers to hire more people, which results in economic growth.
Despite the fact that some Norwegian workers bear the brunt of increased work-based immigration, Bratsberg of the Frisch Centre agrees that the development is beneficial on a macroeconomic scale.
“This is reminiscent of the debate about the Norwegian textile industry,” says Bratsberg.
Many people lost their jobs when foreign competition undermined the Norwegian textile industry in the 1970s, but Norwegian consumers benefited from cheaper clothing prices.
B. Bratsberg, O. Raaum, M. Røed og P. Schøne: ”Immigration Wage Impacts by Origin,” Scandinavian Journal of Economics. (Forthcoming)
Read the Norwegian version of this article at forskning.no
Translated by: Glenn Ostling