Immigration and the Earnings of Young Native Workers

One of the most controversial aspects of immigration policy is the impact of foreigners on labour market outcomes of natives. Simple labour supply analysis demonstrates that these effects depend upon whether immigrants and natives act as substitutes or complements. In the first part of the study we attempt to replicate existing studies with Austrian data. In the second part we offer a further argument for a potential detrimental effect of immigration: if wages are negotiated at the firm level and migrant workers are less strike-prone, the bargaining power of workers will be lower the higher the share of foreign workers in the firm. Employing many immigrants in the firm, on the other hand, may also have an increasing effect on the wage rates of natives: within a two-tier wage system more outsiders create additional rents which can be shared among native insiders and their employers. The results show no negative impact of foreign labour on young natives' earnings levels either in a regional or sectoral respect and at the firm level. The results for earnings growth in the period 1988--91 are mixed. For job changers a rise in the share of foreign workers tends to be positive, whereas for workers staying with the same firm we find significant negative effects.