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Distributional effects of immigration and imperfect labour markets

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  • Costas-Fernández, Julián
  • Lodato, Simón

Abstract

In canonical models, the labour share is orthogonal to immigration shocks in the long run, regardless of the impact of immigration on productivity. In contrast, this paper provides evidence that immigration increases labour productivity while reducing the labour share. We produce this evidence using data from Great Britain with a shift-share instrument that exploits European Union expansions and changes in immigration to other high-income countries. Our results are consistent with the predictions from imperfect labour market models, where immigrant and native workers are heterogeneous in skills, and the former have lower labour supply elasticities than the latter. A significant implication of our analysis is that immigration redistributes income from workers to employers.

Suggested Citation

  • Costas-Fernández, Julián & Lodato, Simón, 2024. "Distributional effects of immigration and imperfect labour markets," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003161
    DOI: 10.1016/j.econlet.2024.111832
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    References listed on IDEAS

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    More about this item

    Keywords

    Immigration; Productivity; Labour share; Imperfect labour markets; Factor income distribution;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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