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Protective or Counter-Productive? Labor Market Institutions and the Effect Immigration on EU Natives

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  • Angrist, Joshua

    ()
    (MIT)

  • Kugler, Adriana

    ()
    (Georgetown University)

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 labor 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.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 labor 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 433.

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Length: 53 pages
Date of creation: Feb 2002
Date of revision:
Publication status: published in: Economic Journal, 2003, 113 (488), F302-F331
Handle: RePEc:iza:izadps:dp433

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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
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Keywords: European unemployment; entry cost; Immigrant absorption; labor market flexibility;

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References

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  1. Bauer, Thomas K. & Zimmermann, Klaus F., 1999. "Report No. 3: Assessment of Possible Migration Pressure and its Labour Market Impact Following EU Enlargement to Central and Eastern Europe," IZA Research Reports 3, Institute for the Study of Labor (IZA).
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  3. Robert J. LaLonde & Robert H. Topel, 1991. "Labor Market Adjustments to Increased Immigration," NBER Chapters, in: Immigration, Trade and the Labor Market, pages 167-199 National Bureau of Economic Research, Inc.
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  8. Joseph G. Altonji & David Card, 1991. "The Effects of Immigration on the Labor Market Outcomes of Less-skilled Natives," NBER Chapters, in: Immigration, Trade and the Labor Market, pages 201-234 National Bureau of Economic Research, Inc.
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  19. repec:fth:inseep:2001-12 is not listed on IDEAS
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Cited by:
  1. Amin, Mohammad & Mattoo, Aaditya, 2005. "Does temporary migration have to be permanent?," Policy Research Working Paper Series 3582, The World Bank.

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