Working Paper: CEPR ID: DP3196
Authors: Joshua Angrist; Adriana Kugler
Abstract: We estimate the effect of immigrant flows on native employment in Western Europe, and then ask whether the employment consequences of immigration vary with institutions that affect labour market flexibility. Reduced flexibility may protect natives from immigrant competition in the near term, but our theoretical framework suggests that reduced flexibility is likely to increase the negative impact of immigration on equilibrium employment. In models without interactions, OLS estimates for a panel of European countries in the 1980s and 1990s show small, mostly negative immigration effects. To reduce bias from the possible endogeneity of immigration flows, we use the fact that many immigrants arriving after 1991 were refugees from the Balkan wars. An IV strategy based on variation in the number of immigrants from former Yugoslavia generates larger though mostly insignificant negative estimates. We then estimate models allowing interactions between the employment response to immigration and institutional characteristics including business entry costs. These results, limited to the sample of native men, generally suggest that reduced flexibility increases the negative impact of immigration. Many of the estimated interaction terms are significant, and imply a significant negative effect on employment in countries with restrictive institutions.
Keywords: Entry Costs; European Unemployment; Immigrant Absorption; Labour Market Flexibility
JEL Codes: J23; J61; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced labor market flexibility (J48) | native employment rates (J15) |
| reduced labor market flexibility (J48) | negative impacts of immigration on equilibrium employment (F66) |
| higher business entry costs (L11) | negative impact of immigration on native employment (F66) |
| stricter labor market regulations (J48) | negative impact of immigration on native employment (F66) |
| restrictive labor market institutions (J08) | greater negative impacts of immigration on employment over time (F66) |
| immigrant flows (F22) | native employment rates (J15) |