Immigration and Natives' Wages: Understanding Their Correlation in the 1980s

Major papers on immigration's wage impacts in the 1980s concluded that immigration into the U.S. modestly reduced the wages of natives. Authors based these conclusions on fixed-effects models that controlled for area-specific shocks. Without those fixed effects, however, these authors found positive correlations between immigration and wages. This study examines two specific shocks that might explain this counterintuitive result: changes in the industry structure of labor demand and differences in inflation rates among metropolitan areas. The study finds no evidence that the first shock matters for understanding immigration, but finds that a large proportion of the positive correlation between immigration and wages disappears if one controls for differences in inflation rates.