‘Getting to know UK migrants better’
Descriptive evidence from the Wealth and Assets Survey, 2006-2012 [1]
This article aims at shedding light on some of the discussions around immigration in the UK. The debate about the costs and benefits of migration has gained further momentum during the Brexit debate, accompanied by the stereotype of the benefit-claiming migrants. The evidence however, paints an entirely different picture. Only UK migrants from 'Developed non-EU' countries are richer than UK natives, although the crisis reduced the gap between EU migrants and natives. The main reasons behind are falling house prices (most prevalent asset amongst UK natives) and the increase in the house ownership rate amongst EU migrants. Indeed, there is a sharp increase in benefit claims amongst UK natives in 2010-12, which is twice the increase amongst EU migrants over the same period.
We examine household wealth in the UK between 2006 and 2012, a period that comprises the eve, advent and lingering of the 2007 financial crisis. Although the UK economy is still recovering from the deepest recession since the great depression, the uncertain result of the ‘Brexit referendum’ justifies the exercise.
Much of the ongoing debate has been fuelled by fears stemming from the effect of the crisis and of immigration on the UK labour market. But not much has been said about the ability of UK households to sustain their standards of living through the crisis, and on their relative standing with respect to migrants. Let’s have a look at the evolution of the differences in the distribution of wealth among UK natives and UK migrants, by subgroups of their countries of origin: ‘EU’ [2], ‘Developed non-EU’ [3] and ‘Developing non-EU’ representing 2.4%, 1.3% and 5.9% of the UK population respectively.
Surprisingly, the wealth (excl. pensions) of the average person in the UK increases throughout the crisis, only to stop growing in the 2010-12 period. When we decompose it by UK population subgroups, we find that during the crisis the ranking of wealth remains the same as before the crisis: the most affluent are ‘Developed non-EU’, followed by UK natives, EU migrants, and finally ‘Developing non-EU’. However, the gap between UK natives and the less affluent migrant subgroups closes as the crisis unfolds, with the richest 25% of EU migrants catching up with the richest 25% of UK natives in 2010-12.[4] See Fig. 1.
A closer look at the main components of wealth (excl. pensions) by country of origin reveals that the increased property/housing ownership rate amongst migrants during and after the crisis, as well as the drop in the real value of housing (see Fig. 2), lie behind the convergence towards UK natives’ wealth levels. Is this increased property/home ownership rate due to differences in real incomes or to different patterns of wealth accumulation (saving rates [5] ) across population subgroups?
One striking finding about recessions is that national savings rates increase, while consumption drops [6]. The UK average savings rate during the recession was 0.6% dropping to 0.45% between 2010 and 2012. When decomposing it by UK population subgroups, the saving rates of UK natives are the highest during the recession, but are also those which drop the most immediately after the recession. However, once we account for differences in the composition of each subgroup by demographics, income, education and housing tenure, there are no statistically significant differences between UK natives and migrants’ saving rates. What about differences in real incomes then?
Through the 2008-10 crisis period, the income including benefits of an average person in all population subgroups’ dropped. Comparing across population subgroups, those who earn the most are ‘Developed non-EU’, followed by EU migrants, UK natives, and finally ‘Developing non-EU’. But excluding benefits conveys a different picture: although before the crisis the ranking is the same, by 2012 UK natives and Developing non-EU migrants overtake migrants from the EU. The disparity comes from the increase in the proportion of benefit claimants across subgroups: In the aftermath of the recession, the proportion of UK natives who claimed benefits increased by 126% (up in 2010-12 to 59% from only 26% in 2008-10), whilst amongst migrants, the proportion of the EU, ‘Developed non-EU’, and ‘Developing non-EU’ increased by 61%, 82% and 31% only.
Overall, the picture conveys that only migrants from ‘Developed non-EU’ countries are richer than UK natives, although the crisis has reduced the distance between natives and migrants from the EU and, to a lesser extent, from ‘Developing non-EU’ countries. The main reasons behind are (i) the drop in house prices together with migrants’ increased property/home ownership rates, and (ii) migrants faring better in real income terms through the crisis due to their higher skill-content and less reliance on income from benefits.
H. Calvo-Pardo, D. Papoutsaki and J. Wahba
This article is a colloborative piece between colleagues from the University of Southampon's Economics Department and the Centre for Population Change (CPC) hosted University of Southampton. The results reported here are from a joint work in progress piece of research.
[1] The Wealth and Assets Survey is a bi-annual longitudinal survey of the UK population that oversamples the top wealth decile of the wealth distribution and started in 2006, replacing the British Household Panel Survey (BHPS) for household level wealth measures. For a similar work to the one conducted here but comparing the BHPS and the Expenditure and Food Survey (EFS) in the eve of the great recession, see Crossley and O’Dea (2010).
[2] The EU comprises EU15, EU8 and EU2. The EU15 (excluding the United Kingdom) comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, the Irish Republic, Italy (including The Vatican), Luxembourg, Netherlands, Portugal, Spain and Sweden. The EU8 comprises Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. The EU2 comprises Romania and Bulgaria.
[3] The list of ‘Developed non-EU’ countries includes the US, Canada, Australia, New Zealand, Hong Kong, Israel, Korea or Japan, amongst others.
[4] Table 1 at the end of the document summarises the distribution of non-pension wealth (column 4) for the UK population between 2006 and 2012, which is obtained by adding the components under the first three columns. The identified apparent differences in wealth levels across UK population subgroups reported there remain true once we account for differences in the composition by demographics, income, education, and housing tenure.
[5] The saving rate is measured as the annualised change in the stock of real non-pension wealth between two time periods, divided by annual household real income in the initial time period. It therefore measures both active (yearly income net of yearly expenditures) and passive savings (ex. the change in the value of the main residence net of outstanding mortgage debt).
[6] Alan, Crossley and Low (2012) document that the UK savings rate has increased from a 0.5% to an 8.5% during the 2008-09 recession. Since the WAS started in 2006, we cannot compute it before the crisis. Savings rates may increase during a recession because of a drop in current income, which if temporary, could have been avoided by access to credit. They may also increase because (i) actual or anticipated credit constraints become tighter, (ii) a permanent drop in future income or (iii) an increase in future income uncertainty.
Bibliography
Alan, S., T. F. Crossley and H. Low (2012), ‘Saving for a rainy day, borrowing for a rainy day,’ Institute for Fiscal Studies Working Paper W12/11.
Crossley, T. F. and C. O’Dea (2010), ‘The wealth and saving of UK families on the eve of the crisis,’ Institute for Fiscal Studies.
