Integration policies and their effects on labour market outcomes and immigrant inflows

Working Paper N° 411

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Throughout Europe, the labour market integration of immigrants tends to lag behind that of natives. This paper empirically analyses the role played by integration policies in closing this gap in EU countries, not only directly, through the employment rate but also indirectly by influencing the intensity and the composition of immigration flows. Relying on the Migration Integration Policy Indicator (MIPEX), we find that countries with more developed integration policies do not necessarily have higher immigrant employment rates. This finding is due to the fact that different types of policies have opposite effects: policies favouring family reunion, tackling discrimination and allowing for political participation seem to increase the labour market integration of immigrants, while the latter is negatively associated with a higher labour market mobility, as well as easier access to permanent residence and nationality. Only the positive effect of anti-discrimination policies survives the inclusion of country fixed effects though. Effects are found to vary across immigrants coming from EU versus non-EU countries, suggesting that there is no one-fits-all integration policy. Moreover, our results confirm that immigrants’ labour market integration varies with the skill composition of the migrant population, a higher level of qualification favouring employment. The composition of the immigrant population within a country in terms of skill levels, however, could also be influenced by integration policies in potential destination countries, a premise which we also test. We show that integration policies indeed act as a pull factor for migration in a gravity model that controls also for the restrictiveness and skill selectivity of migration policies. Yet, it seems that more elaborate integration policies affect primarily the number of high-skilled immigrants entering the territory, but not the number of medium or low skilled, and this only for those from EU countries. Different factors hence seem to be at play for the low and medium skilled, but once moved, our results show that low-skilled migrants are the ones benefitting the most from integration policies in terms of employment rate.