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The Fallacy of Crowding-Out: A Note on "Native Internal Migration and the Labor Market Impact of Immigration"

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Abstract

In "Native Internal Migration and the Labor Market Impact of Immigration," George Borjas (2006) identifies a strong negative correlation between immigration and native-born employment in the US using local area data. This relationship is particularly strong at the metropolitan area level, weaker but still significant at the state level, and weakest at the Census region level. In this note, we show that Borjas’s negative correlation arises due to the construction of the dependent and explanatory variables rather than from any true negative association between the employment growth of immigrants and natives. Borjas regresses log native employment, ln(Nt), on the share of foreign-born employment, pt = Mt/(Mt + Nt), across skill-state-year cells. The specification therefore includes native employment in the numerator of the dependent variable and in the denominator of the explanatory variable. This builds a negative correlation into the model that is particularly strong if the variance of Nt relative to Mt is large. To illustrate, we first show that state and city level regressions of the standardized native employment change, (Nt+10−Nt)/(Mt+Nt), on standardized immigration, (Mt+10 −Mt)/(Mt+Nt), always find a positive and mostly significant correlation between the two. Second, we randomly simulate changes in the native and foreign-born workforce with a data generating process that has zero or positive correlation between the shocks ΔMt and ΔNt (i.e., so that immigration is associated with either no change or an increase in native employment). Borjas specifications employing this simulated data estimate large and significantly negative coefficients as long as the variance of ΔNt is larger than the variance of ΔMt, which is true in observed state-level and city-level data.

Suggested Citation

  • Peri, Giovanni & Sparber, Chad, 2008. "The Fallacy of Crowding-Out: A Note on "Native Internal Migration and the Labor Market Impact of Immigration"," Working Papers 2008-01, Department of Economics, Colgate University.
  • Handle: RePEc:cgt:wpaper:2008-01
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    1. George J. Borjas, 2021. "Native Internal Migration and the Labor Market Impact of Immigration," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 10, pages 275-312, World Scientific Publishing Co. Pte. Ltd..
    2. George J. Borjas, 2021. "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 9, pages 235-274, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Giovanni Peri, 2009. "Rethinking the Area Approach: Immigrants and the Labor Market in California, 1960-2005," Working Papers 57, University of California, Davis, Department of Economics.
    2. Giovanni Peri & Chad Sparber, 2016. "Task Specialization, Immigration, and Wages," World Scientific Book Chapters, in: The Economics of International Migration, chapter 3, pages 81-115, World Scientific Publishing Co. Pte. Ltd..
    3. Lemos Sara & Portes Jonathan, 2013. "New Labour? The Effects of Migration from Central and Eastern Europe on Unemployment and Wages in the UK," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(1), pages 299-338, December.
    4. Sara Lemos & Jonathan Portes, 2008. "New Labour? The Impact of Migration from Central and Eastern European Countries on the UK Labour Market," Discussion Papers in Economics 08/29, Division of Economics, School of Business, University of Leicester.

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    More about this item

    Keywords

    Immigrants; Crowding Out; Employment Effects;
    All these keywords.

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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