Labor Market Effects of Immigration - Identification and Interpretation" with Christian Dustmann, Sebastian Otten and Uta Schönberg

Abstract:

The impact of immigration on the labor market outcomes of native workers is widely studied; yet, there is disagreement about the sign and magnitude of effects, and confusion about the underlying questions that estimated parameters address. We provide a unifying framework that links parameters typically estimated in the literature based on repeated cross-sectional data to parameters that can be identified based on longitudinal data that follow workers over time. We show that some fundamental parameters that describe immigration’s effect on wages and employment such as the wage elasticity of labor demand or the effect of immigration on employment of those employed before the immigration shock are identified only under implausibly strong assumptions when repeated cross-sectional data are used. In contrast, longitudinal data permit identification of key effects under only mild assumptions. Our findings highlight that while the employment and wage effects of immigration are small for the average employed native worker, they can be larger for specific groups of natives, such as older workers or natives not in employment at the time of the immigration shock.