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THE LABOR MARKET EFFECTS OF o Local specialization – (Peri and

IMMIGRATION: A Unified view of recent Sparber)


development by Giovanni Peri o Technological choice (Lewis)
o Process of nontradable services (Cortes)
 International mobility of GCIT o Investments and productivity (Peri)
o Increasing steadily BUT free mobility o Public availability of better individual
of workers are limited and country level data
 Limited due to  Microsamples of censuses
IMMIGRATION LAWS in as the Integrated Public Use
most receiving countries Microdata Series (IPUMS) –
 Immigration laws Ruggles et al 2008 IPUMS
o Restrictive o Made it possible to study immigration
o Limit foreign citizens to access and issues while relying on longer
domestic labor markets panel data (rather than cross
 OECD and EU countries, (except for special sections only)
categories of skills) o More precise aggregate measures
o Labor markets are restricted only to  Chap 1
nationals
 World perspective more labor mobility would: Framework that informed empirical analysis
o increase the efficiency of resource AGGREGATE PRODUCTION FUNCTION
allocation
o Applied by Borjas 2003, Borjas and
o increase substantially of total world
Katz 2007, Ottaviano and Peri 2008
production
_Analysis of the wage effects of
o produce dramatic economic benefits
immigrants
to migrants
o Approach analyzes national labor
by Prichett, Benhabib, and Jovanich
markets segmented by skills levels
 Receiving countries
o Useful and theoretically consistent
o Worries that some global benefits
method to nalayze effects of
may come at a cost for their own
immigtants on the wages of workers
economies
across different skill
o Immigrants “take jobs” from natives,
o But it relies on some functional
they “diminish” their opportunities is a
assumptions
common idea to media/policymakers
 Takes the spped of capital
 “job-stealing” theory by immigrants adjustment as given rather
o Important that economists provide than estimating it
evidence of economic effects of  Addresses only the issue
immigrants on receiving country (partially) of endogeneity of
 Chapter identifies and organizes simple immigration
theories and emirpical evidence on the  Problem of endogeneity in plain English
economic effects of immigrants, insgihts o While trying to isolate the effects
gained in the past 10 yrs ofimmigrants on the labor market
 Articles regarding the impact of immigratnsn on native wages outcomes of natives,
and employment, before 2000 o Labor market outcomes also affect
o Look at variation of immigrants and the inflow of immigrants -which
wages across local economies makes “reverse causality”
(cities, regions, states) o Method to use this problem:
o Reduced form approach  Instrumental variable
o Not included is skill differences strategy
among worker or local adjustments  Immigrants preger to
mechanisms settle where there
o Handled endogeneity simply are other immigrants
 Aggregate production function (potential  A differential inflow of
effects of immigration) immigrants across local
o Tool to analyze wage effects while economies based only on the
paying closer attention to the
differentiation of workers by skills
potential “network effects” on understand how local economies
previous settlements absorb immigrants
o Such approach - Instrumental o Present new evidence from
variable strategy California, US state with the largest
 Explains the variation of inflow of immigrants from the past 40
immigrants across US states years
due to their preferences and
network connections rather
than the endogenous labor
demand conditions
 Aka the variation of FRAMEWORK FOR THE ANALYSIS AND
immigrants across APPLICATION TO US LABOR MARKETS
local economies
produced by this  Friedberg and Hunt 1995
supply factor o The reason why wage effects were
(preferences) is not not found based on local area
affected by labor analysis
demand factors  Regions in the long run are
 Thus, serves as a not isolated from labor
good instrument by markets
allowing to isolate  Thus, immigration trigger a
the causal effect of response from nativesnatives
immigration on labor who go in/out in area, to
market conditions arbitrage away wage
 Instrument is avail on cross differentials
regional variation, it does not  Borjas 2003
work in national level o To observe wage effects
 Instrument is based on push  One must look at the
factors in countries of origin aggregate US labor market
(economic, demographic over time (which is also
conditions) which increase segmented by skills)
the probability of emigration  Workers of diff ages
 It does not depend (experience lvl) and lvls of
on the receiving educ- found in diff jobs and
country labor market have diff skills
conditions  Thus, separate
 Parts of immigration flows -- Depend on EPD workers by skill level
factors in the countries of origin (educ and age)
 It can be used to identify the  Assume that
average employment and immigrants are
wage impact of immigration closer competition
across countries for natives within the
 Cross country analysis same skill group
o Average effects of immigration on  Immigrants in diff skill groups
average wages could even be
o Estimate the adjustment of capital to complementing natives
immigration  E.g. native born
 Final section of chapter college educated
o Regional analysis engineer may have
o Local wage response in the US more employment
o Employment response of natives to opportunities if there
immigrants by skill level offers are a lot of
alternatives to approach issue uneducated
o Summarize studies that identify construction workers
promising mechanisms to with diff skills, and
the impact of  high schooling equivalents
immigrants  college “
 Idea of studying workers with different skills & o each of these grps 8 experience grps
impact of immigrants on wages across skill  e intervals of 5 yrs, between
groups 0 and 40 yrs of experience
o Important step towards o partition implies that the effect of
understanding the economic immigration on the demand for native
consequences of immigration labor will be different within cells
o Introduce structure on the [productive relative to across cells
interactions of workers with different o strongest effects on native wages is
skill levels due to the competition of immigrants
 E.g. how does the increase with the same skill lvl
in the supply of young less o natives in other cells, small
educ worker immigrants competition effect
affects the wages and o e.g. newly immigrated construction
productivity of other workers workers will compete with existing
in the same group construction workers but will also
 How does it affect produce increase in construction
productivity of older, more projects undertaken
educ workers.  increasing the demand for
o These interactions are to be construction engineers and
evaluated, and framed within a supervisors who are
production-function structure complementary to
construction workers=
complementary & not
compete
AGGREGATE PRODUCTION FRAMEWORK
 need cross group
 Literature on: complementary effects to
o wage dispersion (katz and murphy produce estimate of the
1992) & effects of immigrants on
o growth and technological progress demand for natives in diff
(eg. Acemoglu and Zilibotti 2000) skills
 Immigration economists WAGE EFFECTS IN AN EDUCATION-
o Assumed at the country lvl, total SEGMENTED LABOR MARKET
output is produced by combining
Physical Capital (K), Labor (L) and  popular way to combine workers w diff skills
Total Factor Productivity (A), usually in production
in the simple Cobb-Douglas form as o by group in relatively homogenous
in Equation groups
 Parameter a, between 0 and o by estimating the substitutability
1 captures the importance of across these groups using
capital production CONSTANT ELASTICITY OF
 Labor input L, not just SUBSTITUTION (CES) function
measure of total workers but  Ottaviano and Peri 2008 and Card 2009
is a composite function of hrs o Correct skill partition partition to be
worked by people in each alnalyzed in the US
skill grp economyseparates
o 2 crucial features of a good partition  Workers w high school educ
into skill groups or less
 Individual in same grp shall be close  College or more
substitutes in production—prods are similar  These groups are the least
and not vary w relative supply substitutable in production
 Ottaviano and Peri 2008 and Card 2009 for o Within group, several experience
post 196- US labor market citeria cells are allowed to be more
o Consider 2 schooling groups substitutable than those w diff educ
o Within each education/exp cell, spilt o Rowos 1-4
is created between natives and  Present estimated elasticity
immigrants for workers of diff educ lvls
o Natives of same educ and ecp are within an educ grp
still imperfect subs for immigrants,  Natives and immi within an
since immigrants hae diff skills educ-exp cell
o Diff occupations and due to visa o Three results emerge from the
procedures and availability, makes calculated wage effects
simmigrants more prevalent in some  1 in the long run there is not
occupations much relative effects of
o Supply of immigrants in a certain immigration on the wages of
educ and age grp increases the less educated relative to
 Effect on employment of the highly educated
others in the same grp can  Reason: immigrants
be diff with no schooling, hs
 Thus, estimation procedure degree, inflow is that
allow possibility of the percentage of
IMPERFECT group employment is
SUBSTITUTABILITY similar to the inflow
 Betwwn natives and of immigrants w
immigrants within educ-age college educ
cell  Workers w no hs and
 With this estimate of elasticity between all those w hs are close
skill groups within the aggregate US marker subs, making the
o Physical capital adjusts to labor unbalance, thus no
inputs in the long run in order to keep relative wage effects
the return ti capital equal to its  Inflow of imigrants
marginal productivity are balanced
o Can calculate the wage effect between college equ
(nationally) of immigrants and hs equ., thus no
 Table 6.1 altering of relative
o Calculated wage effects of wages
immigration 1990 -2006  2 there is a small positive
o Actual wages of US workers w no effect on the wages of native
college degree decreased 2.6% workers and a sizable nega
o Wages of college grad increased effect on the wages of
9.6% immigrants
o Large inflow of immigrants w low lvls  Due to immig and
of educ natives are good
o Use TYPICAL ESTIMATES OF THE subs
ELASTICITY PARAMETERS frm  Small imperfect
Ottaviano and Peri 2008 substitutability
 Effect of immigration on means very large
wages of natives w no inflow of immigrants
degree equal to .3% relative to natives
 Natives w college degree has penalized the
.5% wages of 1st grp
 Hence, small effects relative t last in each
only, 2% favor educ category
college degree, not  3 biggest difference between
account much for the calcualtions
12.2% differential  1-3 based on the
wage growth Borjas and Katz
2007 estimates
column 4
o Effects of o difficult questions to address are sill
immigrants on present
the wages of o constraints in using US census data
native workers  1 speed of response of
w no hs capital determines how much
diploma immigration affects the
o Small effect average wage in the short
calculated run
o Difference is  2 the identification of relative
due to the wage elasticity using the
assumption inflow of immigrants as a
of borjas and pure supply shock neglects
katz the fact that immigrants with
assumption skills may be attracted to
that productivity changes in the
substitutabilit US that are specific for those
y between skills
hs and  Education-specific
college productivity changes,
workers are demand factors attracting
equivalent immigrants that this method
 BUT Ottaviano and Peri 2008 and Card 2009 cant identify & endogeneity
and Goldin and Katz 2008 problems
o Provide strong evidence that the  Ans to this prob: use
workers w no degree and w hs data on yearly flows
degree are highly substitutable across states
o Whole college equivalents and sh  Using cariation
equivalent workers have elasticity of across years, can
substitution around 2 track the short run
o Meaning- college educated and hs response of capital
educated workers are different when  Instrument immigrant
supply of first decreases, impossible inflows w push
for hs to fill roles of college educ factors specific to
workers sending state
 Borjas and katz assumption  Thus, likely to
o Not supported by the estimates in the uncorrelated w
rest of the lit demand/productivity
o Effect of immigration on the wages of shocks in receiving
less educated natives in column 4 is states
not relevant to the calculated effects
in column 2 specification COUNTRY EVIDENCE: IMPACT ON AGGREGATE
EMPLOYMENT
EMPIRICAL ISSUES: SHORT RUN
EFFECTS AND ENDOGENOUS  Homogenized and collected data- analyze
IMMIGRATION impact on immigration
o On 14 OECD countries
 cross skill interactions in production  Australia, Belgium, Canada
o need to understand^ to know effects Denmark, France, Germany,
of immigration on wage distribution Japan, Luxembourg,
o findings: small relative effects Netherlands, Norway,
between education groups and Sweden, Switzerland, UK,
imperfect substitutability between US
natives and immigrants  Yearly data from 1980-2005
 analysis of aggregate national labor market  Provide source of
at decimal intervals cariation across
countries over time
 Combined national o 1 no evidence of a displacement
data on hrs worked, effects in terms of eomplyment and
capitals stocks, total hrs worked
production, factr o 2 one yr total capital adjusts by 1
productivity percent only
o Suitable to o 3 effects, and the no impact on total
identify the factor productivity imply that a push
shot/long driven inflow of immi of receiving
effects of country, increases its GDP by 1%
immigration  Aggregate production function approach
 Cross country approach o Helpful tool to analyze immigration
o Identify the average wage effects of o The response of capital and
immigrants complements the employment in receiving state
receiving states by skill and o and its effect on both average and
distributional effects on wages of relative wages of natives
high low skill workers
BACK TO LOCAL EVIDENCE: US STATES AND
IMMIGRATION IN OECD COUNTRIES THE CASE OF CALIFORNIA
 Data measures of inflow of legal foreign  empirical analysis using local area data
people into each country o not found significance evidence f a
 Shows large variation between countries over nega wage impact on immigration
time  analyzing the employment response of
o Germany- spike of immigration rates natives by skill lvl in cali
after opening border with East o the state with largest inflow if
Europe in 1990 immigrants relative to the average
 Flow of immigrants from origin to destination across us markets, result in obtaining
country is explained by 3 factors info on the extent to which immi
o 1 pull factors, features of receiving compete w complement native labor
country that attract
o 2 push factors, origin country EFFECTS OF IMMIGRANTS ON TECHNOLOGCAL
average wage, demographic CHOICE AND PRODUCTIVE SPECIALIZATION
structure, affect mobility of workers
o 3 the cost of migration, due to  Lewis and Card- cities with
bilateral costs- language, traditions, o Large inflow of immi have large
instis, distance, captured by invariant share of labor force w no hs diploma
pair specific effects o Wages of less educ workers, noy
lower than other cities
EFFECTS OF IMMIGRATION ON EMPYMENT, o Greater employment of no degree
INVESTMENT AND PRODUCTIVITY workers, not correspond to
specialization of unskilled intensive
 To impute the push driven rate industries but large less educ
o Estimate effects of immigrants on hrs workers in all industries
worked  Lewis
o Employment o Firms use less skill intensive
o Physical capital techniques in cities w lots of immi
o Productivity o Due to the adoption of technology
o Total output that use low educ workers
o Average wages  Peri and Sparber
 The effect if average wages is derived by o Less educ specialize in manual
combining the effects of ^ and assuming that intensice production tasks due to
wage is equal to marginal product if ine hr compa advantage such as ;language
worked in a production function framework speak better
 Effects are similar to estimated across
samples 3 results emerge
EMPLYMENT EFFECTS: CALI CASE CONCLUSION

 Model of a national production function (skill  Overview of the impacts of immigration on


wise)  Employment
o Has implications at the local lvl  Average wages
 Adjustment mechanism is a national market  Relative wages of natives
o Immi flow generate locale wage  Importance of analyzing effects across skill
pressures groups
o Induce native to move out and re- o By combining types of evidence such
establish balance in relative supply as
across skills os that national wages  US labor market
by skill lvl are equated  Cross country analyses
 US census & ACS  Employment responses at
o Immi 36% employment rate, US 16% the area CALIFORNUA
 National market theory predicts  California labor market
o Wages/changes in wages in cali for o Relative to US by analyzing
each skill grp should not be very diff employment response of natives to
in us too immigrants
o Due to national mobility, it ensures  All these approaches seem to converge
wage equalization by skill these findings
o Reports of average yearly o 1 immigration does not seem to
percentage change of wages 1960- reduce average wages or native
2005 employment (long/short term)
 Analyze flow of native employment out of cali o 2 balanced inflow of immigrants
o If natives and immi are subs between HS equivalent and college
immigration skill would reduce the equivalent workers are due to the
employment of natives in that skill IMPERFECT SUBSTITUTION with
grp natives, immigrants in US have not
o Natives would re-establish wage changed the native wage distribution
equality elsewhere much
o If native and immi in a skill grp are o 3 national evidence on wages and
not subs, employment response California data on employment
would differ converge in showing that immigrants
o If they are as sub as natives across and native are imperfect subs under
skill/exp gtps, or if they are even less the assumption that there is a
substuitable, no negative national labor market for each
employment effects and posi effect education-experience group
 This is due to the immigrants  labor effects of immigration
presense in a skill group, o not all matter
they increase the o accomplish positive economic effect
MARGINAL PRODUCTIVITY on immigrant’s income and increase
of natives (that don’t have world production
complementary jobs) relative o produces no negative effects, has
to natives in other exp grps positive effects on wages and
 More native workers with employment of workers in rich
such skills means more receiving country
attraction to cali, thus making o least educated in receiving country,
cali take advantage of this immigration do not significantly
increase in native lavor decrease wages
demand in the skil grp