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Protective or Counter-Productive? Labor Market Institutions and the Effect Immigration on EU Natives

  • Angrist, Joshua

    ()

    (MIT)

  • Kugler, Adriana

    ()

    (Georgetown University)

We estimate the effect of immigrant flows on native employment in Western Europe, and then ask whether the employment consequences of immigration vary with institutions that affect labor market flexibility. Reduced flexibility may protect natives from immigrant competition in the near term, but our theoretical framework suggests that reduced flexibility is likely to increase the negative impact of immigration on equilibrium employment. In models without interactions, OLS estimates for a panel of European countries in the 1980s and 1990s show small, mostly negative immigration effects. To reduce bias from the possible endogeneity of immigration flows, we use the fact that many immigrants arriving after 1991 were refugees from the Balkan wars. An IV strategy based on variation in the number of immigrants from former Yugoslavia generates larger though mostly insignificant negative estimates. We then estimate models allowing interactions between the employment response to immigration and institutional characteristics including business entry costs. These results, limited to the sample of native men, generally suggest that reduced flexibility increases the negative impact of immigration. Many of the estimated interaction terms are significant, and imply a significant negative effect on employment in countries with restrictive institutions.We estimate the effect of immigrant flows on native employment in Western Europe, and then ask whether the employment consequences of immigration vary with institutions that affect labor market flexibility. Reduced flexibility may protect natives from immigrant competition in the near term, but our theoretical framework suggests that reduced flexibility is likely to increase the negative impact of immigration on equilibrium employment. In models without interactions, OLS estimates for a panel of European countries in the 1980s and 1990s show small, mostly negative immigration effects. To reduce bias from the possible endogeneity of immigration flows, we use the fact that many immigrants arriving after 1991 were refugees from the Balkan wars. An IV strategy based on variation in the number of immigrants from former Yugoslavia generates larger though mostly insignificant negative estimates. We then estimate models allowing interactions between the employment response to immigration and institutional characteristics including business entry costs. These results, limited to the sample of native men, generally suggest that reduced flexibility increases the negative impact of immigration. Many of the estimated interaction terms are significant, and imply a significant negative effect on employment in countries with restrictive institutions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 433.

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Length: 53 pages
Date of creation: Feb 2002
Date of revision:
Publication status: published in: Economic Journal, 2003, 113 (488), F302-F331
Handle: RePEc:iza:izadps:dp433
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  1. Bauer, Thomas K. & Zimmermann, Klaus F., 1999. "Report No. 3: Assessment of Possible Migration Pressure and its Labour Market Impact Following EU Enlargement to Central and Eastern Europe," IZA Research Reports 3, Institute for the Study of Labor (IZA).
  2. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  3. Bertrand, Marianne & Kramarz, Francis, 2002. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," IZA Discussion Papers 415, Institute for the Study of Labor (IZA).
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu & Joshua Angrist, 1998. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Working papers 98-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Robert J. LaLonde & Robert H. Topel, 1989. "Labor Market Adjustments to Increased Immigration," University of Chicago - George G. Stigler Center for Study of Economy and State 55, Chicago - Center for Study of Economy and State.
  7. Dolado, Juan J. & Duce, Rosa & Jimeno, Juan F, 1996. "The Effects of Migration on the Relative Demand of Skilled versus Unskilled Labour: Evidence from Spain," CEPR Discussion Papers 1476, C.E.P.R. Discussion Papers.
  8. David Card, 1990. "The impact of the Mariel boatlift on the Miami labor market," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(2), pages 245-257, January.
  9. Joseph Altonji & David Card, 1989. "The Effects of Immigration on the Labor Market Outcome of Less-Skilled Natives," Working Papers 636, Princeton University, Department of Economics, Industrial Relations Section..
  10. Schmidt, Christoph M. & Stilz, Anette & Zimmermann, Klaus F., 1994. "Mass migration, unions, and government intervention," Journal of Public Economics, Elsevier, vol. 55(2), pages 185-201, October.
  11. Assaf Razin & Efraim Sadka, 1996. "Suppressing resistance to low-skill migration," International Tax and Public Finance, Springer, vol. 3(3), pages 413-424, July.
  12. Joseph G. Altonji & David Card, 1989. "The Effects of Immigration on the Labor Market Outcomes of Natives," NBER Working Papers 3123, National Bureau of Economic Research, Inc.
  13. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  14. repec:fda:fdaddt:9620 is not listed on IDEAS
  15. repec:fth:inseep:2001-12 is not listed on IDEAS
  16. George E. Johnson, 1980. "The labor market effects of immigration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(3), pages 331-341, April.
  17. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  18. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, October.
  19. Zweimuller, Joseph & Winter-Ebmer, Rudolf, 1995. "Immigration, Trade and Austrian Unemployment," Institute for Research on Labor and Employment, Working Paper Series qt8cp8c6hf, Institute of Industrial Relations, UC Berkeley.
  20. Jörn-Steffen Pischke & Johannes Velling, 1997. "Employment Effects Of Immigration To Germany: An Analysis Based On Local Labor Markets," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 594-604, November.
  21. Schwartz, Aba, 1973. "Interpreting the Effect of Distance on Migration," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1153-69, Sept.-Oct.
  22. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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