How is an increase in immigrants expected to impact native employment when they are substitutes?
- Increase immigration = increase total labour supply
- ^Ls = fall in wage and Increase employment
- But fall in native employment level
- More elastic labour demand = shallower curve = smaller fall in wage
How is an increase in immigration expected to impact natives when they are viewed as compliments?
- Natives and immigrants don’t compete in the same labour market
- Immigration makes natives more productive
- ^imm = ^ LDn = ^E and ^w
- Eg. Immigrant nurses making doctors more productive, therefore increasing doctors wage
What is the immigration surplus?
- The idea that immigrants will increase the national income due to increased employment, but they wont get paid the same amount the country gains
- The surplus is the gain in income minus the wages
- The surplus accrues to the natives
- Borjas estimated the value for the US as 0.13% of GDP which isnt significant
What factors affect the impact of immigrants on natives?
- Size of influx
- Substitutability between natives and immigrants
- Elasticity of labour demand
Explain general equilibrium effects.
- Natives may move to other markets in response to an influx of immigrants
- This leads to factor price equalisation
- Labour supply increases after influx
- As natives leave the supply contracts until the wage of the two markets are equal
- Leads to an issue of measuring the true impact of the influx
What are other adjustment mechanisms that may lead to false estimates of immigration impact?
High skill vs low skill industries
- ^unskilled workers (imm) = fall in wages = ^profitability
- Unskilled industry expands and increases demand for labour
- ^LD = ^w, no long run change in w
Change in Technology
- Firms can choose different factors of production
- ^LSLS = fall in wage = ^π
- Firms adjust to make labour more intensive, ^LD = ^wage
How have empirical studeies on immigration impacts been attempted?
Two methods:
- Area studies approach, Card (1990) - local labour markets
- Skill groups, Borjas (2003) - education, potential experience and age to form labour markets
What aare the two empirical problems when analysing immigration?
- Endogeneity of migration decision
- Immigrants likely to choose markets with high labour demand, likely to underestimate negative impacts
- Outmigration of Natives
- general equilibrium effects - natives relocating, will underestimae effects
What methods did Card use to analyse the impact of immigrants?
- Natural experiment - Mariel Boatlift
- 1980 - Cubans who wanted to go to US could go from Port of Mariel
- In 4 Months over 100k Cubans arrived in Miami increasing the labour force by 7%
- Card compared the outcomes on Miami residents compared to residents of 4 comparison cities
What results did Card’s study yield?
- Found that earnings stayed relatively stable for all in the area
- There was no evidence that unemployment was negatively impacted by the influx
How did Card’s study attempt to overcome the two empirical problems?
- Endogenity - Miami was the cloests city to the port of Mariel so no selection to a particular labour market
- Could argue in the long run they would only stay in Miami if the market was good
- G.E. effects - Decline in growth rate of population after so can see some evidence of general equilibrium effects at work
What was the potential issue with the study by Card?
- Key assumption is that the control cities needed the same time trends as Miami
- To highlight this Angrist and Krueger (2000) did another study
- Diff - in - diff of placebo cuban influx gave results of an increase in black unemployment by 6.3% points.
- But there was no actual change in the market, just in the trends
How does area atudies attempt to overcome the endogeneity issue?
- Use of ‘natural’ or ‘quasi-experiments’
- Examples where immigrants were randomly distributed into labour markets:
- Card (1990) Miami
- Foged and Peri (2016) Refugees in Denamrk
- Example of exogenous supply shock:
1. Dustman et al (2017) - commuting policy in Germany
How does empirical literature using area studies appraoch attempt to overcome the general equilibrium effetcs?
Card and DiNardo (2010)
- Testing for outmigration, found natives dont leave after large influx
- In their studies they actually found native growth rate and immigrate growth rate were positively correlated
- OLS estimates could be upward biased if both groups are attracted by the same prospering cities
- They repeated using fraction of Mexicans in a county to try and improve the study but stilll found a positive relationship
What is the key Skills Groups study and who completed it?
Borjas (2003)
Made cells/groups depending on:
- Decade born (5 groups, 1960-2000)
- Education level (4 groups)
- 5 year potential experience (8 groups)
- Total of 160 groups each affected differently by immigration
What were the results of the National skill cell approach study?
- Between 1980 and 2000 immigrants grew as a percentage of the labour sgare
- This growth was most concentrated among high school dropouts (by 2000 50% young dropouts foreign born)
- Immigrants tend to be young, especially for poor educated immigrants
- There was a negative correlation between immigrant supply and native wages
- Scatter digram (x-%labour share, y- log wage)
- College grads were only group where increase in imm share led to increased wages
What were the problems of the national skill cell approach?
- If labour is elastic, immigrantion affects native wage and employment, alters figures if only looking at wage
- Debatable how different someone with 3-4 years experience is to someone with 5-6
- Different definitions of skill groups imact results
Which two economists were key to forming a migration deicision model?
- Roy initially
- Borjas (1987) formalised the Roy Idea
What is negative selection?
- Where if you are below the skill boundry you are better off in the destination country
- Low skill workers more likely to move country
What is positive selection for migration?
- As skills improve you are more likely to get a higher wage in the destination country and are therefore likely to move
Show positive and negative selection on a diagram
What is the idea of migration costs?
Chiquiar and Hanson (2005) - found Mexican migrants came from the middle of the skill distribution
Expected negative selection
Explanation is the idea that migration costs may decline with higher skill levels
