ESTIMATING THE RELATIONSHIP BETWEEN IMMIGRANT AND NATIVE WORKERS IN AUSTRALIA: A PRODUCTION THEORY APPROACH

The impact of immigration on labour markets depends, among other factors, on the substitutability or complementarity between immigrants and natives. This relationship is examined by treating migrant and native labour, along with capital, as inputs in production process. Estimated price elasticities of substitution between immigrants and native labour suggest that in Australian context, an increase in the wage rate of one group of workers leads to an increased demand for the other. The estimated elasticities of substitution between immigrant and native workers and the complementary relationship between immigrants and capital provide an insight into the complex effects of immigration.     

Do Immigrants Affect Firm‐Specific Wages?*

We propose and test a novel effect of immigration on wages. Existing studies have focused on the wage effects that result from changes in the aggregate labour supply in a competitive labour market. We argue that if labour markets are not fully competitive, immigrants might also affect wage formation at the most disaggregate level – the workplace. Using linked employer?employee data, we find that an increased use of low‐skilled immigrant workers has a significantly negative effect on the wages of native workers at the workplace – also when controlling for potential endogeneity of the immigrant share using both fixed effects and instrumental variables.     

HIGH-SKILLED MIGRATION AND THE EXERTION OF EFFORT BY THE LOCAL POPULATION

The optimal design of immigration policy is a topical issue, both in the policy debate and the economic literature. In this paper, we present empirical evidence from a firm level dataset collected in 2000 on the demand for high-skilled workers, including foreign workers, in Europe and its determinants. Our major findings are that the fraction of high-skilled workers recruited from the international labour market is very small, and that foreign and domestic workers are very similar in terms of their formal education (measured by specialization subject) and their job characteristics. We suggest an efficiency wage model to explain why firms recruit foreign workers in small numbers, and why they are willing to pay immigrants the same wage as local workers, whilst at the same time also paying for their moving costs, despite the similar human capital profile of immigrants to domestic workers.     

Immigration policy and employment assimilation in the United States

We examine the impact of immigration policy on the employment propensity and assimilation of immigrants using a pooled cross-section of the 1994–2004 Current Population Surveys (CPS). The results are generally consistent with positive immigrant employment assimilation. A Blinder–Oaxaca style decomposition shows that the foreign-born obtain more employment primarily through human capital acquisition and changes in labour market conditions rather than higher returns to observable skills, as sometimes seen in wage studies. In addition, our analysis suggests that immigration policies may influence both labour demand and supply incentives and are associated with structural shifts in the labour market.     

Do foreigners replace native immigrants? A panel cointegration analysis of internal migration in Italy

This paper examines the impact of the immigration of foreigners on domestic labor mobility. Since David Card's seminal study on the regional labor market impact of the Mariel Boatlift it is controversial whether domestic labor mobility equilibrates economic conditions across regions. However, there is little or no evidence that natives leave destinations where migrants tend to cluster. In this paper we reconcile the existing evidence by taking another route: we analyze whether the immigration of foreigners replaces domestic mobility from poor to rich regions. We focus on Italy, which is characterized by large North-South wage and unemployment differentials, and apply panel cointegration methods. The main finding is that, conditional on unemployment and wage differentials, the presence of foreign workers in the labor force of the destination regions discourages internal labor mobility significantly. As a consequence, spatial correlation studies which use the variance of the foreigner share across regions for identifying the wage and employment effects of immigration, tend to understate the actual impact of foreign immigration.     

The dynamic impact of immigration on natives' labor market outcomes: Evidence from Israel

This paper studies the short and medium run impact of highly skilled immigrants from the Former Soviet Union to Israel on natives' wages and employment. If immigrants are relatively good substitutes for native workers, the impact of immigration will be largest immediately upon the immigrants' arrival, and may become smaller as the labor market adjusts to the supply shock. Conversely, if immigrants upon arrival are poor substitutes for natives, the initial effect of immigration is small, and increases over time as immigrants acquire local labor market skills and compete with native workers. We empirically examine these alternative hypotheses using data from Israel between 1989 and 1999.We find that wages of both men and women are negatively correlated with the fraction of immigrants with little local experience in a labor market segment. A 10 percent increase in the share of immigrants lowers natives' wages in the short run by 1–3 percent, but this effect dissolves after 4–7 years. This result is robust to a variety of different segmentations of the labor market, to the inclusion of cohort effects, and to different dynamic structures in the residual term of the wage equation. On the other hand, we do not find any effect of immigration on employment, neither in the short nor in the medium run.     

International immigration and economic welfare in an efficiency wage model: The co-existence case of both legal and illegal foreign workers

Abstract. In the developed countries some native workers are unemployed while there exist illegal unskilled (legal skilled) foreign workers who are complementary to (substitutable for) natives and their wages are usually lower than (equal to) that of natives. Reflecting this situation, we introduce two types of immigrant in an efficiency wage model. It is shown that domestic government should exclude illegal foreign workers but welcome legal ones if the total number of illegal immigrants is small enough and well controlled. On the other hand, legal immigration should be restricted if the flood of illegal immigration is out of control.     

Three million foreigners,three million unemployed? Immigration flows and the labour market in France

This paper investigates the effect of the flows of immigrant workers on the French labour market from the mid-1970s to the mid-1990s. Using a system of equations for unemployment, labour-force participation, the real wage and the immigration rate, it is shown that, in the long run, both legal and amnestied immigrant workers, and immigrant families lower the unemployment rate permanently. In the short-run, the arrival of immigrants increases unemployment slightly with an impact effect similar to that of an increase in domestic labour-force participation. The composition of immigration flows matters and the results indicate that the distribution between workers from the European Union and other regions of the world, also more skilled and less skilled workers, should remain balanced.     

Immigration Policy,Self‐selection,and the Quality of Immigrants*

This paper investigates the effects of immigration quotas on the average quality of immigrants by developing a human capital migration model where efficiency in migration depends on skills and emigration rates are higher among skilled workers. Studying the joint determination of the domestic level of wages and immigrants' self‐selection, we find a negative relationship between the wage level and the percentage of educated workers among immigrants, which results in a nonstandard downward‐sloping labor supply. In our framework, a higher quota increases the skill mix of immigrants through its negative effect on wages and raises aggregate national income.     

The impact of immigration on the human capital of natives

"Implications of the quantity (number) and quality (skill) of immigration on the destination economy are analyzed, including impacts on value added, wages, quasi rents, rates of return, and the skill distribution of the native labor force. Quantity-quality trade-offs are considered for both immigrant and native workers. Medium- and long-run labor-supply responses by natives to immigrant-induced changes in wage rates are shown to have second-order effects which subtantively affect the impacts of immigrants. The impact of immigration policy depends on the quality as well as quantity of immigrants, the time horizon, and the speed of factor market adjustment."     

The labor market impact of immigration in Western Germany in the 1990s

In this article we estimate the wage and employment effects of recent immigration in Western Germany. Using administrative data for the period 1987-2001 and a labor-market equilibrium model, we find that the substantial immigration of the 1990s had very little adverse effects on native wages and on their employment levels. Instead, it had a sizeable adverse employment effect on previous immigrants as well as a small adverse effect on their wages. These asymmetric results are partly driven by a higher degree of substitution between old and new immigrants in the labor market and in part by the rigidity of wages in less than flexible labor markets. In a simple counter-factual experiment we show that in a world of perfect wage flexibility and no unemployment insurance the wage-bill loss of old immigrants would be much smaller.     

An introduction to the economics of immigration in OECD countries

The share of the foreign-born population in member countries of the OECD is increasing, and this article summarizes economics research on the effects of immigration in those nations. Four broad topics are addressed: labour market issues, fiscal questions, the political economy of immigration, and productivity and international trade. Extreme concerns about deleterious labour market and fiscal impacts following from new immigrants are not found to be warranted. However, it is also clear that government policies and practices regarding the selection and integration of new migrants affect labour market, fiscal, social and cultural outcomes. Policies that are well informed, well crafted and well executed beneficially improve population welfare.     

Reinterpreting the performance of immigrant wages from panel data

Immigrants differ from the native born in terms of unobserved factors, such as motivation, and observed factors, including those related to the interruption of labour market activity and earning capacity, which may bias estimates of immigrant integration. Using panel data from the Survey of Labour and Income Dynamics, we show that using potential experience, rather than actual experience, exaggerates estimates of the disruption and recovery caused by immigration. More importantly, we find support for omitted variables bias, arising from unobserved fixed effects. Instrumental variable estimates for both pooled and separate samples of immigrant and native born men demonstrate a wage disadvantage for immigrants upon entry that persists through their lifetime. Standard estimates of a modest wage advantage for the children of immigrants also suffer from omitted variables bias arising from unobservables. Contrary to most of the literature to date, our instrumental variable estimates which allow for unobservable fixed effects suggest that immigrants never catch up to otherwise comparable native born workers, but their children do just as well. We would like to thank Statistics Canada for permitting access to the data and solving associated technical problems, the Prairier Centre for Research on Immigration and Integration for financial assistance, and Peter Schnabl for excellent research assistance. An earlier version of this paper was presented to the 10th International Conference on Panel Data in Berlin, July 5–6, 2002. The authors take sole responsibility for errors, omissions and interpretation of the data.     

Selective Immigration Policies and Wages Inequality

We quantify the overall impact of immigration on native wages in France from 1990 to 2010. Our short‐run simulations indicate that immigration has decreased native wages by 0.6%. We find on average no impact of immigration on wages in the long run. However, we show that the long‐run effects of immigration on wages are detrimental to high‐skilled native workers and benefits to low‐skilled native workers. Our structural estimation allows us to evaluate the impact of “selective” migration policies. In particular, we find that selective immigration policies toward highly educated workers reduce the wage dispersion of French native workers.     

Labour market implications of EU product market integration

European labour markets are in a state of flux due to the changing market situation induced by international integration. This process affects wage formation through more fierce product market competition and increased mobility of jobs. This development is by some observers taken to enforce labour market flexibility, while for others it signals an erosion of social standards and in turn possibly the welfare society. Since labour is not very mobile in Europe, the effects of international integration on labour markets are mostly indirect via product market integration. We review the channels through which product market integration affects labour markets and perform an empirical analysis of the convergence and interdependencies in wage formation among EU countries. We find that integration is changing labour market structures and inducing wage convergences as well as stronger wage interdependencies, but it is a gradual process. Moreover, the present study does not support the view that international integration will lead to a 'race to the bottom' and rapidly erode domestic labour markets standards, nor that it will relieve politicians of the need to consider labour market reforms to improve labour market performance.     

Glass ceiling and double disadvantage effects: women in the US labour market

Gender pay issues in the US labour market are examined using 1990 and 2000 US Census data for three groups: the native born, immigrants from English-speaking countries and immigrants from non-English-speaking countries. Quantile regression estimates reveal different patterns of wage effects across the wage distribution. Females have lower rates of pay across the entire wage scale. There is minimal evidence of glass ceiling effects. Immigrant women from non-English-speaking countries are argued to experience a double disadvantage effect.     

Economic migration and business cycles in a small open economy with matching frictions

With the free movement of labour in Europe, economic migration has become an important determinant of labour supply. Cyclical migration exceeds one percent of the population in many countries and affects (un)employment and wage setting. The main contribution of this paper is that it models migration as an endogenous decision in a search-and-matching framework, where labour market institutions play an important role. It shows that, contrary to typical beliefs, migration can amplify business cycles. After a positive shock to the economy, immigration increases the labour force and initially unemployment. The latter reduces a worker's outside option in wage negotiations, resulting in a lower wage increase than when there is no migration. With cheaper labour firms post more job vacancies, which increases the probability that unemployed workers find jobs and attracts new workers to immigrate. Attenuated response of wages and the stronger response of employment to shocks result in a flatter Phillips curve.     

Lost in translation? The relative wages of immigrants in the Portuguese labour market

This article examines the wage gaps between immigrant and Portuguese workers using matched employer–employee data for the 2002–2008 period. We found that most of the wage gap is not due to the worst endowments of the immigrants but to differences in the returns to those characteristics and to the immigrant status effect. In particular, immigrants’ education and foreign experience are significantly less valued in the Portuguese labour market. Overall, the wages of immigrants do not fully converge to those of comparable natives as domestic experience increases. The assimilation rates tend to be stronger in the first years after migration and for immigrants with higher levels of foreign experience. Total immigrants are a heterogeneous group of different nationalities, with immigrants from the EU15 and China starring as the two extreme cases.     

Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections

We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will dampen this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low.     

Inflation and Openness with Non‐Atomistic Wage Setters

This paper analyses the impact of trade openness on inflation in a strategic framework characterised by monopolistic production in the domestic sector and unionised labour markets. By stressing the interplay between internal and external sources of economic distortion, we show that the economy's inflationary bias reduces up to a critical level of trade openness. Beyond this threshold, wage setters may be induced to behave more aggressively in open economies, leading to higher equilibrium inflation. Based on a regression analysis that investigates the combined effect of labour market institutions and openness on inflation across nineteen OECD economies, we show that inflation is negatively related to openness when wage bargaining is decentralised, while there is virtually no link between openness and inflation at higher levels of wage centralisation.