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Immigration and National Wages: Clarifying the Theory and the Empirics

  • Gianmarco I.P. Ottaviano
  • Giovanni Peri

This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14188.

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Date of creation: Jul 2008
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Handle: RePEc:nbr:nberwo:14188
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  1. D'Amuri, Francesco & Ottaviano, Gianmarco & Peri, Giovanni, 2008. "The labour market impact of immigration in Western Germany in the 1990's," ISER Working Paper Series 2008-17, Institute for Social and Economic Research.
  2. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  3. John DiNardo & David Card, 2000. "Do Immigrant Inflows Lead to Native Outflows?," American Economic Review, American Economic Association, vol. 90(2), pages 360-367, May.
  4. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  5. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  6. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "The economic value of cultural diversity: evidence from US cities," Journal of Economic Geography, Oxford University Press, vol. 6(1), pages 9-44, January.
  7. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  8. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring.
  9. Rachel M. Friedberg & J. Hunt, 1995. "The Impact of Immigrants on Host Country Wages, Employment and Growth," Working Papers 95-5, Brown University, Department of Economics.
  10. Angrist, Joshua D, 1995. "The Economic Returns to Schooling in the West Bank and Gaza Strip," American Economic Review, American Economic Association, vol. 85(5), pages 1065-87, December.
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  12. Francesco Caselli & Wilbur John Coleman II, 2000. "The World Technology Frontier," NBER Working Papers 7904, National Bureau of Economic Research, Inc.
  13. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
  14. Ottaviano, Gianmarco I.P. & Peri, Giovanni, 2005. "Cities and cultures," Journal of Urban Economics, Elsevier, vol. 58(2), pages 304-337, September.
  15. George J. Borjas & Jeffrey Grogger & Gordon H. Hanson, 2008. "Imperfect Substitution between Immigrants and Natives: A Reappraisal," NBER Working Papers 13887, National Bureau of Economic Research, Inc.
  16. Ethan Lewis, 2005. "Immigration, Skill Mix, and the Choice of Technique," Working Papers 05-04, Center for Economic Studies, U.S. Census Bureau.
  17. Grossman, Jean Baldwin, 1982. "The Substitutability of Natives and Immigrants in Production," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 596-603, November.
  18. Felbermayr, Gabriel J. & Geis, Wido & Kohler, Wilhelm K., 2008. "Restrictive immigration policy in Germany: pains and gains foregone?," Discussion Paper Series 1: Economic Studies 2008,18, Deutsche Bundesbank, Research Centre.
  19. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  20. Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
  21. David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," Working Papers 633, Princeton University, Department of Economics, Industrial Relations Section..
  22. Giovanni Peri & Gianmarco I.P. Ottaviano, 2006. "Rethinking the Effects of Immigration on Wages," Working Papers 634, University of California, Davis, Department of Economics.
  23. George J. Borjas, 2005. "Native Internal Migration and the Labor Market Impact of Immigration," NBER Working Papers 11610, National Bureau of Economic Research, Inc.
  24. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 781-809, October.
  25. David Card, 1997. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," NBER Working Papers 5927, National Bureau of Economic Research, Inc.
  26. George J. Borjas, 2003. "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1335-1374, November.
  27. George J. Borjas & Lawrence F. Katz, 2007. "The Evolution of the Mexican-Born Workforce in the United States," NBER Chapters, in: Mexican Immigration to the United States, pages 13-56 National Bureau of Economic Research, Inc.
  28. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  29. Rachel M. Friedberg, 2001. "The Impact Of Mass Migration On The Israeli Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1373-1408, November.
  30. David Card & Ethan G. Lewis, 2007. "The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts," NBER Chapters, in: Mexican Immigration to the United States, pages 193-228 National Bureau of Economic Research, Inc.
  31. David Card, 2007. "How Immigration Affects U.S. Cities," CReAM Discussion Paper Series 0711, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  32. Simonetta Longhi & Peter Nijkamp & Jacques Poot, 2004. "A Meta-Analytic Assessment of the Effect of Immigration on Wages," Population Studies Centre Discussion Papers dp-47, University of Waikato, Population Studies Centre.
  33. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
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