Working Paper: NBER ID: w18310
Authors: Ethan G. Lewis
Abstract: Research on the labor market impact of immigration typically relies on a single-good model of production with separable capital. This article discusses theory and evidence that suggest that this standard model is too simple to capture the labor market impact of immigration. A reasonable level of capital-skill complementarity, for which there is considerable support outside research on immigration, alone reduces the relative wage impact of immigration by 40 percent compared to simulations with skill-neutral capital. Other models in which the production structure responds to skill mix changes, including models with endogenous choice of technique, directed technical change, or human capital spillovers, can also imply the impact of immigration is considerably different than in the standard model. This article discusses new research which tries to credibly evaluate such models using immigration-induced variation in skill mix, an approach with further potential, and evidence that immigration impacts innovation and firm formation.
Keywords: Immigration; Production Technology; Labor Market; Skill Mix; Innovation
JEL Codes: J23; J24; J61; O31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| immigration-induced changes in skill mix (J61) | wages (J31) |
| immigration-induced changes in skill mix (J61) | productivity (O49) |
| capital-skill complementarity (J24) | wage impact of immigration (F66) |
| immigration (F22) | innovation (O35) |
| immigration (F22) | firm formation (L26) |
| immigration-induced changes in skill mix (J61) | production technology (L23) |