Weak Labour Markets Hurt New Immigrants

Immigrants’ first experiences of the labour market can affect their employment and pay for many years afterwards, according to new research by Olof Åslund and Dan-Olof Rooth. Their study of 47,000 immigrants to Sweden, published in the March 2007 issue of the Economic Journal, finds that refugees experience long-term earnings losses from facing poor labour market conditions after arrival.

As European governments debate how many refugees to let in (and how to integrate those who are allowed entry), these new results show that initial labour market conditions – in both national and local labour markets – may be an important factor in the labour market assimilation of immigrants.

The study is based on 47,000 individuals who received residence permits as refugees during the period 1987-91. These people are followed from the time of immigration up to 1998, that is, for at least seven years and at most for 11 years after immigration. The investigation first makes use of the fact that Sweden was hit by a severe recession
in the beginning of the 1990s. Hence, the analysis compares refugee cohorts who arrived before and during the recession.

Second, it makes use of a refugee settlement scheme, the so-called ”whole of Sweden strategy”, where individuals were located in different regions. Hence, the analysis compares people who arrived in the same year but faced different regional conditions.

The study finds that:

  • Refugees who arrived in Sweden when there were good labour market opportunities in the country as a whole have higher employment rates and higher earnings in a longer-term perspective compared with those who came to the country in worse times.
  • The same pattern is present at the local level. Those who settled in high unemployment regions performed worse in a 10-year perspective compared with those who settled in regions with more favourable conditions.

The results demonstrate that there are sizable effects of the initial conditions in the labour market that persist even when the business cycle has moved into a different phase. The effects are substantial and persistent.

Groups of people who settled in a region where the local unemployment rate was one percentage point higher compared with an alternative region can be expected to have four percentage points lower employment rates eight years after arrival. The effect on earnings among those who do work is also large. The same comparison as above
indicates more than 10% lower annual earnings.

One conclusion from the study is that effective labour market policies for refugees are even more essential in economic recessions. Governments that attempt to direct the inflow of new immigrants should focus on regions with favourable labour market prospects. The report shows that the first chances that individuals have to establish
themselves in the labour market may affect their position for many years to come.

”Do When and Where Matter? Initial Labour Market Conditions and Immigrant Earnings” by Olof Åslund and Dan-Olof Rooth is published in the March 2007 issue of the Economic Journal.

Olof Åslund

Institute for Labour Market Policy Evaluation, Uppsala | olof.aslund@ifau.uu.se

Dan-Olof Rooth

Kalmar University College