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Immigration and National Wages: Clarifying the Theory and the Empirics

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Author Info
Ottaviano, Gianmarco Ireo Paolo
Peri, Giovanni

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Abstract

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 nativeworkers 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6916.

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Date of creation: Jul 2008
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Handle: RePEc:cpr:ceprdp:6916

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Related research
Keywords: Less Educated Workers; Physical Capital Adjustment; Skill Complementarities; Wages;

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Find related papers by JEL classification:
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers

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References listed on IDEAS
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  2. 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. [Downloadable!]
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  3. 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. [Downloadable!]
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  4. George J. Borjas & Lawrence F. Katz, 2005. "The Evolution of the Mexican-Born Workforce in the United States," NBER Working Papers 11281, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. 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. [Downloadable!]
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  6. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "Rethinking the Effects of Immigration on Wages," NBER Working Papers 12497, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
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  16. 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. [Downloadable!] (restricted)
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  17. 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. [Downloadable!]
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  18. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November. [Downloadable!] (restricted)
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  19. 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. [Downloadable!] (restricted)
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  22. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January. [Downloadable!] (restricted)
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  23. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  24. Johnson, George E, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring. [Downloadable!] (restricted)
  25. 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. [Downloadable!] (restricted)
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  26. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 781-809, October.
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  28. 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. [Downloadable!]
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  30. David Card, 1990. "The impact of the Mariel boatlift on the Miami labor market," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(2), pages 245-257, January.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luca MARCHIORI & I-Ling SHEN & FrŽdŽric DOCQUIER, 2009. "Brain drain in globalization A general equilibrium analysis from the sending countriesÕ perspective," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009013, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
    Other versions:
  2. Giovanni Peri & Chad Sparber, 2008. "Highly-Educated Immigrants and Native Occupational Choice," CReAM Discussion Paper Series 0813, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
  3. Francesc Ortega & Giovanni Peri, 2009. "The Causes and Effects of International Migrations: Evidence from OECD Countries 1980-2005," NBER Working Papers 14833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Francesca Mazzolari & David Neumark, 2009. "Beyond Wages: The Effects of Immigration on the Scale and Composition of Output," NBER Working Papers 14900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Kugler, Adriana & Yuksel, Mutlu, 2008. "Effects of Low-Skilled Immigration on U.S. Natives: Evidence from Hurricane Mitch," IZA Discussion Papers 3670, Institute for the Study of Labor (IZA). [Downloadable!]
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