by Fernanda L. Lopez de Leon, School of Economics and Markus Bindemann, School of Psychology, University of Kent. Discussion paper KDPE 1905, April 2019.

Non-technical summary:

The UK is scheduled to leave the EU this year. The current plans include the end of free movement. According to the Prime Minister, May, this is crucial in delivering the Brexit for which people voted in 2016. In fact, the Brexit results were widely perceived as a statement against immigration, voiced by 17 million in the country.

Did the Brexit-vote change citizens’ attitudes towards immigrants living in the UK?

The information – inferred by the Referenda results – on the population’s views about immigration could have triggered a change. Individuals could have adapted their attitudes accordingly, with an empowerment of anti-social attitudes – in line with the view that the Brexit result unearthed racism – or by refraining pre-existent views and attitudes in a way to conform to the vote of the majority.

We conducted a field-experiment among 342 individuals in the South East of England in 2017-18, to test whether the Brexit vote had triggered anti-social attitudes towards immigrants.

Using a computerized quiz, we provided truthful information on how the local majority voted, but on selected constituencies. These were selected in a seemingly random way by the computer. We made use of the fact that although most people might know that 52% voted to Leave, less is known the local support for Brexit, so we were providing novel information.

For one group, the ‘Remain’, individuals were informed about referenda results for nearby constituencies whose majority voted to remain in the EU. The ‘Leave’ group, were informed about nearby constituencies where the majority voted to leave the EU, and for the control group, we informed about constituencies’ demographic composition. Individuals generalised the information we gave – that the local majority voted in favour or against the UK to leave the EU – to other places in the country. Overall, individuals assigned to the ‘Leave’ condition guessed that the percentage of votes to leave the EU was 18 percentage points higher, on average, than individuals assigned to the ‘Remain’ condition.

We use this experiment to investigate how the perception of a larger local support for Brexit affects individuals’ extrinsic and intrinsic attitudes towards immigrants in the UK. We find no impacts on individuals’ intrinsic prejudice, measured by Implicit Association Tests – a test used in social psychology, that measures views at an unconscious level. However, we did detect effects of the information about how the majority voted – on some extrinsic attitudes towards immigrants. These are visible in self-reported views on policies and in real money allocations among participants.

Some of our main findings are:

We find no impact of the Brexit-vote on the demand for more restricted immigration policies. No effects were noticed on the demand for quotas for settlement for Europeans, quotas for settlement for non-Europeans or establishment of targets to reduce immigration. We also find no impact of the Brexit vote on the support for immigrants to live on own and separate neighbourhoods.

However, the information that the majority is supporting ‘Leave’ than ‘Remain’ affected views on other policies. Participants in the ‘Leave’ condition were less likely to agree that “the NHS should be free to use for all” (‘Leave’ 35.2% versus ‘Remain’ 46.3%). Also participants in the ‘Leave’ condition were more likely to agree with the UKIP proposed policy that ‘Britain should end multi-lingual formatting of official documents’ (‘Leave’ 25% versus ‘Remain’ 14.7%).

During the survey, participants were asked to split a bonus of £10 between themselves and another participant. We varied the name of the recipient to be: Henry (UK name), Hans (German name) and Pawel (Polish name), and investigate whether group-biases (confirmed in case of larger donations to Henry and lower donations to Pawel or Hans) were more accentuated in the ‘Leave’ condition. Our results do not fully corroborate that. The information that the majority voted to ‘Leave’ led to lower donations in general – both to Henry and to Hans (but not to Pawel). This is more in line with the explanation that people might feel poorer and hence less generous under the thought that the majority support ‘Leave’.

Overall, our findings suggest that the population infers information from referenda results that manifests as changes in attitudes. In the Brexit case, we find some evidence that immigrants are viewed in a more negative light. For example, participants in the ‘Leave’ condition were more likely to agree that “foreign people in the UK who receive state support could get along without it if they tried harder” (‘Leave’ 39.4% vs ‘Remain’ 27.3%).

You can read the complete paper here.

by Isaure Delaporte, University of Kent. Discussion paper KDPE 1904, May 2019.

Non-technical summary:

Although ethnic identity is potentially an important determinant of the immigrants’ labour market outcomes, the effect remains unclear. On one hand, immigrants who are not committed to the host country culture might suffer from a lack of host country specific human capital. They are also likely to interact mostly with co-ethnics and to experience labour market discrimination. Besides, a strong attachment to the origin country culture is often associated with traditional gender norms. All these effects would in turn lead to lower labour market outcomes.

On the other hand, ethnic identity can be seen as an additional input that increases the cultural capital and the social capital of the migrant. Employers might also want to diversify the set of individual skills in the workplace to allow for complementarities in production. In this sense, immigrants who are attached to both the culture of their country of origin and the culture of the host country can have better employment outcomes.

The objective of this paper is twofold: first, to determine the immigrants’ ethnic identity, i.e. the degree of identification to the culture and society of the country of origin and the host country and second, to investigate the impact of ethnic identity on the immigrants’ employment outcomes. To answer these questions, this study uses a rich French survey named Trajectoires et Origines (TeO). The extensive information provided by the data allows the construction of two richer measures of ethnic identity than the ones used in the literature, namely: i) the degree of commitment to the origin country culture and ii) the extent to which the individual holds multiple identities.

The results show that having multiple identities increases the probability of being employed for both the first- and the second-generation immigrants while having a minority identity does not affect the migrants’ probability of being employed. The results obtained contribute to help design effective post-immigration policies. They have important implications for improving the economic outcomes of the migrants and in turn enriching receiving countries.

You can download the complete paper here.

by Marcelo Piancastelli, IPEA, and A.P. Thirlwall, University of Kent. Discussion paper KDPE 1903, April 2019.

Non-technical summary:

Tax Revenue is necessary for the provision of public goods and to pay for social expenditures. Developing countries are in particular need of both, where tax revenue is often less than 20 percent of GDP. This paper attempts to assess the tax effort of a selection of both developing and developed countries over the period 1995 to 2015 by estimating an international tax function, which makes the tax revenue of countries a function of the level of per capita income; the share of trade in GDP; the monetisation of an economy, and the productive structure of countries, and then comparing actual tax revenue with that predicted from the estimated model. Tax effort is measured by the ratio of the actual tax/GDP ratio to the predicted ratio. Seventeen of the thirty-four developing countries taken are estimated to have a weak tax effort with a ratio less than unity. Policy recommendations include widening the tax base; tacking avoidance and evasion, and linking international aid to tax effort.

You can download the complete paper here.

by Prof Michael J. Böhm, University of Bonn and Dr Christian Siegel, University of Kent. Discussion paper KDPE 1902, March 2019.

Non-technical summary:

Many developed economies have experienced a rapid aging of their workforces and are projected to age further. This demographic change has substantial effects on the labor market by changing relative supplies of older and younger (or experienced and inexperienced) workers, and thereby on their relative wages as argued by previous literature. In this paper we establish that the overall effects of demographic change on the labor market are much more far reaching as also employment rates are impacted.

From an empirical point of view, it is quite difficult to study the effects of demographic change in aggregate data, as important other variables (including technology, policy, and society) change at the same time. We therefore devise a novel identification strategy in this context, based on the differential aging of local labor markets. In particular, we construct an instrumental variable for local experience, which exploits the largely predetermined age structure and which allows us to estimate the causal effects of experience supply.

Specifically, we study both the effect of demographic change on relative wages as well as on relative employment rates of experienced workers. We find that increased experience supply, induced by the ageing of the workforce, not only reduces experienced workers’ relative wages, but also the relative fraction of experienced individuals in employment compared to inexperienced individuals, in line with the predictions of our theoretical model. We further investigate this novel effect in more detail and find that it is fully driven by experienced workers’ labor force participation, rather than unemployment. We also demonstrate that a substantial part of the effect is through claiming social security income.

These results are potentially very important for policy design, especially of old-age benefits systems, as they highlight that (experienced) workers’ participation rates should not be viewed as constants nor as following secular trends alone. Instead our findings imply that a more abundant group has a lower employment rate, which raises flags that the overall pressure from the aging of the baby boom cohort on social security systems might be larger than what projections based on exogenous participation rates would predict. Another implication of our finding is that aging affects labor market inequality across generations, with larger cohorts facing relatively lower employment and wage rates than smaller cohorts, ceteris paribus. Nonetheless, our results also suggest that demand shifts at the aggregate level over the last decades have been biased in favor of experience.

This prevented the wage return to experience from falling, despite the overall pronounced increase in experience supply.

You can download the complete paper here.

A research paper by Miguel León-Ledesma (Professor of Economics) together with Dr Cristiano Cantore (Bank of England) and Dr Filippo Ferroni (Federal Reserve Bank of Chicago) has been featured in VoxEU and Bank Underground (the research blog of the Bank of England).

‘How do monetary policy shocks affect the distribution of income between workers and owners of capital? Do workers benefit relatively more when policy changes? Using evidence from five developed economies, we show that the share of output allocated to wages (the ‘labour share’) temporarily increases following a positive shock to the interest rate. This means that the slice of the pie enjoyed by those whose earnings are mostly made up of wages increases at the expense of profits and capital income. Strikingly, this redistribution channel that shows up in the data runs precisely in the opposite direction to the predictions of standard New Keynesian models commonly used to study the effects of monetary policy.

Despite its importance, there is no systematic empirical evidence on the effect of monetary policy shocks on the labour share. Yet, structural models widely used for monetary policy analysis (Galí 2015) rely on a transmission mechanism that has clear implications for the evolution of the labour share following a monetary policy shock.’

Read the full blog posts here:

VoxEU: https://voxeu.org/article/monetary-policy-and-labour-share

Bank Underground: https://bankunderground.co.uk/2019/03/27/the-missing-link-monetary-policy-and-the-labor-share/#more-4771