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Monopsony and the wage effects of migration

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  • Michael Amior
  • Alan Manning

Abstract

In a competitive labor market, immigration affects native wages only through its impact on marginal products. Under the sole assumption of constant returns, we show that a larger supply of migrants (keeping their skill mix constant) must increase the marginal products of native-owned factors on average (an extension of the familiar "immigration surplus" result); and in the long run (if capital is supplied elastically), this surplus passes entirely to native labor. However, in a monopsonistic labor market, wages will also depend on any mark-downs applied by firms; and immigration may affect native wages through these mark-downs. We present a model of monopsony which generates testable restrictions on the null hypothesis of perfect competition, which we reject using US census data commonly studied in the literature. Our estimates suggest that the (negative) mark-down effect dominates the (by construction, positive) effect on marginal products for the average native. These findings shed new light on the interpretation of previous empirical estimates and the so-called "structural approach" to predicting wage effects.

Suggested Citation

  • Michael Amior & Alan Manning, 2020. "Monopsony and the wage effects of migration," CEP Discussion Papers dp1690, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1690
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    File URL: http://cep.lse.ac.uk/pubs/download/dp1690.pdf
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    References listed on IDEAS

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    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
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    5. Alpaslan Akay & Olivier Bargain & Klaus F. Zimmermann, 2017. "Home Sweet Home?: Macroeconomic Conditions in Home Countries and the Well-Being of Migrants," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 351-373.
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    Cited by:

    1. Manning, Alan, 2020. "Monopsony in labor markets: a review," LSE Research Online Documents on Economics 103482, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    migration; wages; monopsony;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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