Analyzing the Impact of Immigration on Unemployment in European Union Member States, Norway, and Iceland

This paper analyzes the impact immigration has on unemployment in European Union member states, excluding Bulgaria, and Norway and Iceland in both 2005/2006 and 2011/2012. Given the importance of the current Syrian refugee crisis and political debates, particularly those featuring Eurosceptic politicians in various European nation states and those featured in the 2016 US Presidential campaign, about the impact immigration has on a nation state, we decided that it is vital that immigration’s impact on unemployment is studied empirically. Our hypothesis was that immigration is positively correlated with unemployment in the short run (up to 3 years after immigration occurs). Our rationale for this was that a lot of adult immigrants are immediately added to the labour force, thereby increasing the labour force more quickly than if there was no immigration, while not all of these immigrants will be employed immediately upon arrival to a new country. This would increase the labour force by the number of adult immigrants, while the number of employed members in the labour force may not increase by the total number of adult immigrants, thereby increasing the unemployment rate. We ran a simple regression between immigration and unemployment and several multiple regressions that included other independent variables, including GDP growth, a binary variable for whether or not a country has a national minimum wage, and how much the countries spend on social welfare programs. All but one of these regressions suggest that increases in immigration in a country decrease unemployment in that country in the short run. After running a robustness test on a couple of our multiple regression models, including the only one that suggested that increases to immigration lead to increases in the unemployment rate, we determined that Model 2 was our best model. In this model log(immigration) is statistically significant at the 1% level and the coefficient on log(immigration) is negative. This suggests that our initial hypothesis was incorrect and that increased immigration in a nation state leads to a decrease in the unemployment rate in the short run