Working Paper: CEPR ID: DP3158
Authors: Markus Frlich; Patrick A. Puhani
Abstract: This Paper presents a methodology to identify net demand shocks as well as wage rigidities in heterogeneous labour markets on the basis of nonparametric regression. We show how this approach can be used to make suggestions for immigration policy in economies with labour market rigidities. In an application to western Germany it is demonstrated that nonparametric regression is feasible in higher dimensions with only a few thousand observations. In sum, labour markets able to absorb immigrants are characterized by above average age and by professional occupations. On the other hand, labour markets for young workers in service occupations are identified to exhibit rising unemployment due to wage rigidities and are therefore not recommended for immigration.
Keywords: migration; nonparametric regression; rigidity; unemployment; wage
JEL Codes: C14; J31; J61; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing net demand and rising real wages (J23) | effective absorption of immigrants (K37) |
| rising unemployment and stagnant or falling wages (F66) | hindered absorption of immigrants (K37) |
| higher average age and professional occupations (J44) | suitability for immigration (K37) |
| lower average ages and predominance of service workers (J21) | unsuitability for immigration (K37) |