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Immigration and Inequality

  • David Card

Immigration is often viewed as a proximate cause of the rising wage gap between high- and low-skilled workers. Nevertheless, there is controversy over the appropriate theoretical and empirical framework for measuring the presumed effect, and over the precise magnitudes involved. This paper offers an overview and synthesis of existing knowledge on the relationship between immigration and inequality, focusing on evidence from cross-city comparisons in the U.S. While some researchers have claimed that a cross-city research design is inherently flawed, I argue that the evidence from cross-city comparisons is remarkably consistent with recent findings based on aggregate time series data. In particular, cross-city and aggregate time series comparisons provide support for three key conclusions: (1) workers with below high school education are perfect substitutes for those with a high school education; (2) "high school equivalent" and "college equivalent" workers are imperfect substitutes, with an elasticity of substitution on the order of 2; (3) within education groups, immigrants and natives are imperfect substitutes. Together these results imply that the average impacts of recent immigrant inflows on the relative wages of U.S. natives are small. The effects on overall wage inequality (including natives and immigrants) are larger, reflecting the concentration of immigrants in the tails of the skill distribution and higher residual inequality among immigrants than natives. Even so, immigration accounts for a small share (5%) of the increase in U.S. wage inequality between 1980 and 2000.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 2 (May)
Pages: 1-21

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:2:p:1-21
Note: DOI: 10.1257/aer.99.2.1
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  18. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  19. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  20. Peter Kuhn & Ian Wooton, 1991. "Immigration, International Trade, and the Wages of Native Workers," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 285-304 National Bureau of Economic Research, Inc.
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  26. Grossman, Jean Baldwin, 1982. "The Substitutability of Natives and Immigrants in Production," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 596-603, November.
  27. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
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