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Population Growth, Immigration, and Labour Market Dynamics

Population Growth, Immigration, and Labour Market Dynamics

By Michael Elsby, Jennifer C. Smith and Jonathan Wadsworth

Abstract

The UK working age population has grown by 0.5%, on average, over the last 40 years, driven first by rising birth rates in the UK and then by immigration. We expand the existing dynamic flows modelling framework to a) allow for the contribution of population changes in explaining variation in unemployment, employment and inactivity rates over time and b) extend the model to facilitate estimation of sub-groups, specifically the individual contributions of immigrant and native-born workers. We present decompositions of changes in the actual and steady-state rates into parts accounted for by changes in rates of job loss, job finding and net labour force entry, distinguished by immigration status. Using individual micro data we show that after allowing for population change, the majority of cyclical variation in unemployment is still accounted for by both rises in the unemployment inflow rate and falls in the outflow rate, but that population flows are more important in explaining changes in employment and inactivity rates over time. Population inflows are also more important for explaining labour market dynamics of immigrants compared to native-born workers.

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