Exam question

The British economy is predicted to experience a prolonged period of contraction following

Brexit, during which income inequality is also expected to increase. Discuss the likely effects
of these economic conditions on the size of immigration inflows to the UK and on the nature
of immigrant selection. Furthermore, discuss the effect of such economic conditions on the
decision to stay or leave of immigrants already present in the UK.

 we expect low skilled workers wages would be lower on average. That would mean
that there would be reduction in wages no matter where they come from
 high skilled workers- uncertain effect
 increase in inequality coupled with the contraction with the economy
 Roy model- increase in inequality
 Social aspect- less welcomed associated with the cost of moving and falling wages
 Push and pull factors – people who have already been leaving in the UK will move
abroad based on the relative value of pounds
 Legal restrictions to remaining in the UK is heightened because people would be
more incentivised to leave
 If loads of low skilled workers are leaving then the demand in the low skill sector
would decrease and could have a secondary effect of increasing wages

Suggestion

 Start an introduction with an introduction to the cost benefit analysis of

migration –
o If you are sitting in the UK – then deciding to leave is a push factor.
o Migration costs- BREXIT will change socioeconomic factors which would
affect wage and relocation costs

What socioeconomic factors would change in response to the economic contraction

 The pound would drop/recession

Decision to migrate into the UK

 Size of flows in terms of pull and push factors and cost of migration
 Will high-income people be affected differently to low income people?
 How will migration for studying be affected in relative terms in a recession
(decision to deploy human capital vs accumulate human capital)

Contraction vs. inequality

 Relative demand for skills- based on what country you are deciding to migrate to.
The relative payoff for skills across countries determine the skill composition of
the immigrant flow.
o Wages will rotate and shift downwards- if this happens a lot then for
every level of skill you get less money than Sweden
o Rotate only when inequality increases

If you have a country – with even more inequality

 - High skills in south Africa have more bargaining power for example, that’s why they
wouldn’t want to come to the UK before BREXIT. However, after BREXIT, the UK
curve will rotate and shift down. Before BREXIT only low skilled workers would come
– they would still come after BREXIT but fewer would come. After BREXIT only top
skilled migrants from equal countries and even more low skilled workers from low
skilled countries.
- Overall flows will go down, but depending on which country you are coming from,
you will have different concentrations.

Decision to stay or leave

- If the cost of moving is really high –

If BREXIT happens
- You would expect house prices to fall- the impact this would have on migration
increase
- Nobody wants to sell their houses if prices are falling
- Real wage would increase – wage minus the housing cost would not be going
down not so much
- General equilibrium – less incentive to build houses
- If house prices fall than that detracts from home ownership- few people owning
a house because it is less profitable (you choose to rent in this case). Ig you have
ownership in the first place, and house prices tend to fall you get stuck in the
location.
- With negative equity, you tend to migrate more.
- Negative equity means that the price of the houses is less than what you bought
it for – or the mortgage that you have is more now than what you bought it for –
owe more money to the bank then what you get for the house
- You now have a house for what you bought it for.
- Housing as a type of investment therefore lower ownership of housing –
therefore the people who own the house, would be less likely to move

Role of housing ownership status on your migration status

 Models the likelihood to migrate in terms of job availability and house prices
(negative equity, housing status, renting or owning)
 Owning a house vs renting a house
o You’re less likely to migrate if you’re owning a house
o If you own a house with a mortgage you are less likely to move. Mortgage
holders have less mobility.
 More attached to their house –behavioural attachment associated
with the house
 Harder for them to borrow money from the bank (larger transaction
costs)- they already have high leverage. Difficult to switch between
mortgages.
 When you tend to move house- people tend to upsize – conditional
willingness to up size.
o Renters are more mobile – lower time and costs to lease
o Council houses prefer to stay – because it’s difficult to obtain it. Queue
system – you lose your space in the queue. If you queue’d up and lose your
space
o Behavioural and physical costs of moving if you own a council house
o Skilled vs unskilled- depends on the type of the skills that you acquire- e.g.
steel work – only move to steel town. In general for the average person it
tends to specific skills – depends on the level of training
o If you have a choice of different wages everywhere- doctors are more
generalist (different selection of jobs and expect a higher payoff for moving)

To conclude- looks at all possible factors which affect your migration

decision. The main factor that deterred it- is whether you own a house, and if
you own it with a mortgage (they are more stuck)
Migration relates to the housing status and employment status

Criticism of Margaret Thatcher – Spatial mis match theory