Labor market institutions and the effect of immigration on national employment

Integration processes in Europe resulted in intensification of migration flows. Immigrants account now for a large share of population in many European countries. A point of view that immigrants take jobs form natives is quite widespread. The European Monitoring Centre on Racism and Xenophobia published a special analysis of the attitudes towards minorities in EU countries Eurobarometer 2000. They found that one in two EU citizens worry about competing with immigrants for the same vacancies and afraid of losing their jobs because of presence of foreign workers. Different measures and institutions which protect native workers have nevertheless an ambiguous effect. On the one hand labor protective institutions such as minimal wage, replacement rate or firing restrictions will protect existing workers and reduce a firing rate. On the other hand, firms will take into consideration these additional costs of firing and will be less likely to employ new workers. At the same time, it is argued that immigrants are probably less likely to be covered by these institutions. These facts imply that protective institutions cover mostly natives and therefore make immigration labor force comparatively less costly. Labor market protection may therefore amplify a negative effect of immigrants on native employment if it exists. This paper attempts to evaluate the effect of immigration in flow on employment level of natives and reveal whether this effect changes in different institutional environments using EU-countries data. In addition to static specification it uses a dynamic specification to draw conclusions about long-term and short-term effects separately. The results show no long-run effect of immigration inflow. Short-term effect of is found to be positive. Protective labor market institutions fulfill their function of protecting existing workers. The results are also different for men and women.