Sunday, September 20, 2020

1% Replacement Negroe Immigrants Made The Native 1% Elites EVEN MORE Medieval...,

voxeu |  It is a well-documented fact that top-income growth has been particularly stark in English-speaking countries, with incomes of the top 1% and 0.1% rising sharply over recent decades (Atkinson et al. 2011, Blanchet et al. 2019). Some scholars have argued that the shared economic and political institutions of these countries, such as lower top marginal tax rates and light touch regulation, have incentivised rent-seeking behaviour among their top earners (Piketty et al. 2011, Bivens and Mishel 2013). In addition, technical changes may have created ‘winner-takes-all’ markets where a few workers earn most of the returns. Recent technological innovations may thus have contributed to the rise of top incomes (Rosen 1981, Kaplan and Rauh 2013, Koenig 2020).

Another characteristic feature of Anglo-Saxon countries is their popularity as a destination for high-skilled migrants, particularly the cities that serve as global services hubs such as London and New York (Kerr et al. 2016, Kerr and Kerr 2018, Roarch et al. 2019). Anecdotal evidence suggests that the rich and famous are internationally mobile and favour these destinations, but this evidence is based on a few highly visible cases. So far, we know little about the magnitude of these effects and the extent to which migration-induced selection effects could drive different trends in income inequality across countries and periods.

In a new paper (Advani et al. 2020), we combine top-income records from UK tax records with new information about migrant status to analyse the link. Tax records have been instrumental in recent research on top incomes. These data provide improved coverage of the highest incomes (reviewed in Atkinson et al. 2011); however, the data include minimal information on demographic characteristics. As a result, it has been difficult for researchers to distinguish native workers from migrant workers at the top of the income distribution, or to assess the impact of migration between countries on income dynamics. We derive information on migrant status from the structure of Social Security numbers assigned to migrant workers on arrival.

Our findings suggest that migrants are highly represented at the top of the income distribution. The public debate primarily focuses on low-income migrants; however, migrants make up a higher proportion of earners at the very top of the income distribution. Among low-income groups, about one in six people are immigrants. In contrast, among the top percentile of the income distribution, one in four people are immigrants and at higher fractiles, every third person is an immigrant. A lack of data has created a perception that migration is mainly a low-income phenomenon, but these new data show that the economy relies most heavily on immigrants for extremely highly paid positions.

The inflow of high-income migrants can also help in understanding recent trends in top incomes. In the UK, an inflow of high-income finance workers can account for much of the observed rise in top-income shares over the past two decades. Immigrants make up more than a quarter of the top percentiles’ income share, up from 18% in 1997. Over these two decades, the importance of migrants thus increased by 50%, which accounts for about 85% of the rise in top income over this period (Figure 1a). 

The impact of migration is even starker at higher income levels. Among the top 0.1% and 0.01% top, migrants make up roughly a third of UK top incomes (Figure 1a). This pattern aligns closely with the observed expansion of the wage distribution at the top. Incomes in the very top fractiles of the income distribution have grown the fastest in recent decades, pulling away even from the rapidly growing incomes in the lower end of the top 1%. The data suggest that differential migration rates can rationalise this ‘fractal inequality’. The inflow of migrants into the top 0.01% was nearly twice as large as the comparable inflow into the top 1% over the past two decades. Hence, differential migration rates may have increased the gap between the incomes of the top 1% and the top 0.1% (Figure 1b).