Linking Empirical Evidence to Theory: A Framework for Understanding Immigrations Labor Market Effects

This chapter offers a novel approach to analyzing the effects of immigration on labor markets by structuring the discussion around a conceptual framework that links empirical estimates to fundamental structural parameters. This framework facilitates a clear interpretation and comparison of the parameters estimated by different empirical methods and clarifies the specific questions each method addresses. Section II introduces the canonical labor market model as a foundation for categorizing empirical approaches. Section III details the empirical approaches. Section IV differentiates between immigration’s impacts on regions and workers, proposing a framework to connect these perspectives. Recognizing the limitations of the basic canonical model, Section V explores extensions that incorporate critical adjustment mechanisms to immigration shocks, such as endogenous technology adoption, innovation, and product price adjustments. Section VI broadens the analysis by examining monopsonistic labor markets and search frictions, moving beyond the assumption of perfect competition. Finally, Section VII concludes with a discussion of unexplored research questions that are pivotal for advancing the understanding of immigration’s labor market effects and shaping future research agendas.