Working Paper: CEPR ID: DP5226
Authors: Gianmarco I.P. Ottaviano; Giovanni Peri
Abstract: Recent influential empirical work has emphasized the negative impact immigrants have on the wages of US-born workers, arguing that immigration harms less educated American workers in particular and all US-born workers in general. Because US and foreign born workers belong to different skill groups that are imperfectly substitutable, one needs to articulate a production function that aggregates different types of labour (and accounts for complementarity and substitution effects) in order to calculate the various effects of immigrant labour on US-born labour. We introduce such a production function, making the crucial assumption that US and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of US workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of US-born workers. We show evidence of this positive effect by estimating the impact of immigration on both average wages and housing values across US metropolitan areas (1970-2000). We also reproduce this positive effect by simulating the behaviour of average wages and housing prices in an open city-economy, with optimizing US-born agents who respond to an inflow of foreign-born workers of the size and composition comparable to the immigration of the 1990s.
Keywords: Foreign-born; Gains from migration; Skill complementarity; Wages
JEL Codes: F22; J31; J61; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflow of foreign-born workers (J69) | average wages of US-born workers (J39) |
| inflow of foreign-born workers (J69) | real wage of native workers without a high school degree (J39) |
| inflow of foreign-born workers (J69) | real wage of native workers with at least a high school degree (J39) |
| inflow of foreign-born workers (J69) | average productivity of US-born workers (J89) |
| elasticity of substitution between US-born and foreign-born workers (J69) | average wages of US-born workers (J39) |