Impact of Immigration on Labour Outcomes of

Receiving Populations

Econ 495/499Prof. Nicole M. Fortin

Current Studies• Theoretical considerations:

– The effect of immigrants on receiving population (called natives in the US literature) depends on whether immigrants are complements or substitutes for native workers.

• The effect of immigrants on native wages/employment:– Local Labour Market (Area Approach): Estimating the effect of

immigration on natives using local labour markets (Card, 1990)– Occupations as the relevant labour market (Friedberg, 2001)– Local labour markets interaction with occupation (Federman,

Harrington and Krynski, 2006).– Skill groups (by education and experience) as the relevant labour

market (Borjas, 2003).• The effect of immigrants on native innovation (Hunt and Gauthier-Loiselle,

2010; Moser, Voena, and Waldinger, 2012).

The Effect of Immigrants on Natives - Perfect Substitutes

• Influx leads to decrease in wages and employment among natives

The Effect of Immigrants on Natives - Perfect Substitutes

• The more elastic labourdemand:

• the smaller the fall in the wage.

• the smaller the fall in employment of natives.

The Effect of Immigrants on Natives - Perfect Complements• If immigrants and natives are complements, labour demand for natives

would shift outwards with the arrival of immigrants. • Natives would gain from immigration

Current Studies• Theoretical considerations:

– The effect of immigrants on receiving population (called natives in the US literature) depends on whether immigrants are complements or substitutes for native workers.

• The effect of immigrants on native wages/employment:– Local Labour Market (Area Approach): Estimating the effect of

immigration on natives using local labour markets (Card, 1990)– Occupations as the relevant labour market (Friedberg, 2001).– Local labour markets interaction with occupation (Federman, Harrington

and Krynski, 2006).– Skill groups (by education and experience) as the relevant labour market

(Borjas, 2003).• The effect of immigrants on native innovation (Hunt and Gauthier-Loiselle,

2010; Moser, Voena, and Waldinger, 2012).

The Effect of Immigrants on Native Labour Market Outcomes

• The effect of immigrants on natives depends on a number of factors:1) Size of the immigrant influx.2) Substitutability between natives and immigrants and elasticity of

labour demand.3) Relative abundance of natives in different skill, education,

occupation, and/or experience groups.4) General equilibrium effects 1: migration of natives to other markets.5) General equilibrium effects 2: If labour markets across areas are

perfectly integrated, the law of one price will lead to factor price equalization (FPE) across areas → wages would be the same in all areas.

• It is therefore an empirical question which effects predominates depending on the labour market of interest

Problems in the Empirical Investigation of the Effect of Immigration on Natives

• The standard regression to estimate the impact of immigration on employment or wages of natives would be to estimate the following regression:

𝑤𝑤𝑖𝑖𝑁𝑁 = 𝛽𝛽0 + 𝛽𝛽1𝑆𝑆𝑖𝑖𝐼𝐼 + 𝜀𝜀𝑖𝑖where 𝑤𝑤𝑖𝑖𝑁𝑁 is the wage of the native in labour market 𝑖𝑖

𝑆𝑆𝑖𝑖𝐼𝐼 is the immigrant share in labour market 𝑖𝑖

• What are the problems when estimating this equation?

Does More Immigration Cause Lower Wages for Low Skilled Natives?

Problems in the Empirical Investigation of the Effect of Immigration on Natives

• The standard regression to estimate the impact of immigration on employment or wages of natives would be to estimate the following regression:

𝑤𝑤𝑖𝑖𝑁𝑁 = 𝛽𝛽0 + 𝛽𝛽1𝑆𝑆𝑖𝑖𝐼𝐼 + 𝜀𝜀𝑖𝑖

1) Endogeneity of migration decision: immigrants are more likely to locate in labour markets with high labour demand (or increasing labourdemand). will normally lead us to underestimate negative effects on natives.

2) Outmigration of natives: Natives may relocate to counteract the lower demand for native labour. will again lead us to underestimate the effect.

Examples of Existing Empirical Studies

• The existing empirical studies differ in what they use as the unit of analysis (i.e. what is the labour market within which we analyze the effect of immigration).

1) Local labour markets (Area approaches e.g. Card (1990).2) Occupation groups: e.g. Friedberg (2001).3) Local labour markets interaction with occupation: e.g. Federman,

Harrington and Krynski (2006).4) Groups by education and years of labor market experience: e.g. Borjas

(2003).• Endogeneity issues is addressed but both Card (1990) and Friedberg

(2001) by choosing “quasi-natural experiment” where immigrants are sent to receiving area by virtue of a policy fluke!

• Federman, Harrington and Krynski (2006) focus on Vietnamese manicurists for which the enclave strategy apply quite well

Enclave Strategy to Deal with Endogeneity

• Key Assumption: New immigrants go to the same cities are earlier immigrants from the same country

• Bartik type of instrument, first used by Altonji and Card (1991) in the context of immigration

• predicts current share of immigrant in ethnic group e in city c at time t as follows:

predicted current shareect = total US arrivals t-(t-1) × earlier shareect0

where t0=1980, for example

• example: Filipinos (2nd largest US immigrant group)– still go to the “naval base” cities– provides an “exogenous” supply shock (?)– results confirm simpler cross-city comparisons

The Enclave Effect (First-Stage): Relative Shares of Filipino Immigrants in Major Cities

Source: Card (2009)

The Enclave Strategy: Wage of Native Dropouts vsPredicted Relative Inflow of Immigrant Dropouts

Source: Card (2009)

Impact of Highly Skilled Immigration

• Peri (2007) “Higher Education, Innovation and Growth” • Chellaraj, Maskua and Matoo (2008) “The Contribution of Skilled

Immigration and International Graduate Students to US Innovation” • Stuen, Mobarak and Maskus (2007) “Foreign PhD Students and

Knowledge Creation at US Universities : Evidence from Enrollment Fluctuations”

• Paserman (2008) “Do High Skills Immigrants Raise Productivity: Evidence From Israeli Manufacturing Firms”

• Jennifer Hunt and Marjolaine Gauthier-Loiselle (2010) “How Much Does Immigration Boost Innovation? “

• Moser, P., Voena, A., & Waldinger, F. (2012) “German Jewish Emigres and US Innovation”

Impact of Immigrants on Innovation Why Does This Issue matter?

• Hunt and Gauthier-Loiselle assess the impact of skilled immigration on innovation measured by US patents

• Immigrants seem to play an active role in the innovative process of a country. Example:• 26% of US Nobel price winners from 1990 to 2000 were

immigrants.• 25 % of founders of public venture-backed US companies from

1990 to 2005 were immigrants.• 26% of the founders of big high tech companies in 2006 were

immigrants.

Innovation + Immigration

Hunt and Gauthier-Loiselle:Two-Level Analyses

1) Individual-level data to study the impact of immigrants on patents per capita under the assumption that immigrants do not influence the behavior of natives or other immigrants, and Do immigrants patent more than natives because they have

higher inventive ability or merely different education or occupations?

Hunt and Gauthier-Loiselle: Two-Level Analyses

2) Use a panel of US states from 1940–2000, based on data from the US Patent and to account for immigrants’ possible influence on natives or other immigrants

• To obtain causal effect of immigrants despite endogenous choice of destination state, – The authors difference the data across census years, and– instrument the change in the share of skilled immigrants in a

state’s population with the state’s predicted increase in the share of skilled immigrants.

Data

1) Individual level analysis:– National Survey of College Graduates (2003) for the US.(Public

acess)– IPUMS Decennial census of micro data (US)(Public access)

2) State level analysis:– US Patent and Trademark office – Harvard Business School Patent Data– IPUMS Decennial census of micro data (US)

Individual Level Data

• They estimate a Probit for the probability of having a patent granted

• where j indexes individuals, and IM is a dummy for the foreign-born. The coefficient of interest is β1

Descriptive StatisticsTable 1 — Patenting by Immigrant Status

Descriptive StatisticsTable 3— Patenting by Field of Study

Table 4 — Effect of Immigrant Status on Patenting

State Level Analysis

• Use a panel of US states with decennial data from 1940–2000 to distinguish long-run and short-run effects.

• To study changes in

• where i indexes states, P is the number of patents, POP is state population, IS is the share of the population or workforce (18–65) composed of skilled immigrants, NS represents the corresponding share for skilled natives, Zi,1940 are characteristics of the state in 1940, X are characteristics, and μt are year dummies

• The coefficient of interest is γ1, though its size relative to γ2 is also of interest.

State Level Analysis

• Because of the endogeneity problem coming from skilled workers being likely to migrate to states which are experiencing positive shocks to innovation, they use an enclave type instrument

• For a state i, the predicted change in the number of skilled immigrants, caused by changing origin regions k, can be written as

• where λik is state i’s share in 1940 of the national total of immigrants who originate from region k, and ΔMk

S is the national change in the number of skilled immigrants from that region.

• And �∆𝐼𝐼𝑖𝑖𝑠𝑠=

Table 6— Effects of Immigrant College Graduates on Patents

What We Learned?

• Workers holding science and engineer degrees are more likely to migrate• Immigrants patent at twice the rate of natives: analysis of the NSCG data

shows that immigrants account for 24 percent of patents, twice their share in the population

• Patenting advantage driven by immigrants’ disproportionately holding degrees in science and engineering fields.

• The 1.3 percentage point increase in the share of the population composed of immigrant college graduates, and

• the 0.7 percentage point increase in the share of post-college immigrants, each increased patenting per capita by about 12 percent based on

least squares or 21 percent based on instrumental variables• Immigrants do not crowd out native inventors and they have a positive

spill over effect.

Productivity Spillovers

• High skill “H1-B” (type of US visa) immigrants may raise productivity by e.g., generating new ideas– H1-B immigrants have high patent rates, induce more patents from

native-born: Hunt & Gauthier-Loiselle (2010), Kerr & Lincoln (2010)• Link to productivity? HGL say may have ↑d GDP ≈2% in the 1990s

(applying est’s from Furman et al. 2002)

– Direct association between “H1-B induced” increase in science workers and productivity across U.S. metro areas (Peri et al., 2013)

• 1990-2000: TFP ↑ 3.8%; higher college, but not non-college wages

• But Paserman (2013) finds no evidence of productivity spillovers in Israel following the influx of former Soviet Union immigrants – Israel too far from the technological frontier?

Gains from Variety

• Immigrants increase variety of goods and services– More small firms (Olney, 2013), ethnic diversity in restaurants

(Mazzolari and Neumark, 2012) though perhaps more big-box retailers– Hedonic value (Ottaviano and Peri, 2006)

• Another mechanism: scale effects increase the extent of the product market– Large effects from scale effects of immigration, e.g., 5% of GDP in U.S.

(di Giovanni et al., 2013)

Impact of Low Skilled Immigration

• Card, David E., "The Impact of the Mariel Boatlift on the Miami Labor Market", Industrial and Labor Relations Review, Vol. 43 (January 1990): 245-257

• Altonji, J. G., & Card, D. (1991). The effects of immigration on the labor market outcomes of less-skilled natives. In Immigration, trade, and the labor market (pp. 201-234). In Immigration, Trade, and the Labor Market, University of Chicago Press.

• Federman, Maya N., David E. Harrington and Kathy Krynski, (2006) “Vietnamese Manicurits: Are Immigrants Displacing Natives or Finding New Nails to Polish? Industrial and Labor Relations Review, Vol. 59 (January 2006): 302-318.

• Cortes, Patricia, and José Tessada. "Low-skilled immigration and the labor supply of highly skilled women." American Economic Journal: Applied Economics (2011): 88-123.

42.0

17.819.3

28.0

16.3

30.5

13.015.7

9.58.0

010

2030

4050

Dropout HS Grad 1-3 Yrs Coll 4 yrs Coll Adv. Degree

Percent at Five Education Levels among 1990s Immigrants and Existing Workers

Data Source: 2000 Census of Population

United States, 2000

1990s Immigrants Existing Workers

15.8

81.384.2

18.7

020

4060

8010

0

Non-College College

Percent College and Non-College, 1990s Immigrants and Existing Workers, 2000

Data Source: Docquier, Ozden, and Peri (2010)

United Kingdom, 2000

1990s Immigrants Existing Workers

020

4060

8010

0

Non-College College

United States

020

4060

8010

0Non-College College

United Kingdom

020

4060

8010

0

Non-College College

Canada

020

4060

8010

0

Non-College College

Sweden

020

4060

8010

0

Non-College College

France0

2040

6080

100

Non-College College

Germany

020

4060

8010

0

Non-College College

Netherlands

020

4060

8010

0

Non-College College

Belgium

020

4060

8010

0

Non-College College

Greece

020

4060

8010

0

Non-College College

Italy0

2040

6080

100

Non-College College

Spain

020

4060

8010

0

Non-College College

Portugal

Data Source: Docquier, Ozden, and Peri (2010)

Percent College and Non-College, 1990s Immigrants and Existing Workers, 2000

Impact of Low Skilled Immigrants on Natives’ Productivity

• Why is this interesting? Cortes and Tessada make the case for complementary between

immigrants and natives is in sharp contrast with papers focus on substitutability between immigrants and natives

• Followed by others• Farré, Lídia, Libertad González, and Francesc Ortega. "Immigration, family

responsibilities and the labor supply of skilled native women." The BE Journal of Economic Analysis & Policy 11, no. 1 (2011).

Cortes and Tessada (2011)

• Low-skilled immigrants work is proportionately in service sectors that are close substitutes for household production.

• Low-skilled immigrants represent– 25 % of the workers in private household occupations and – 12 % of the workers in laundry and dry cleaning services– 29 % of gardeners

• Paper focuses on the impact of low-skilled immigration on female labor supply

• The authors present a simple consumption-leisure model that also includes a household services and a time constraint to shown that only high wage women will likely change their time-use decisions as prices for household services decrease

• This justify the identification strategy of comparing effects across skill groups

Cortes and Tessada (2011)

• They test the model’s predictions using census data • on the labor supply of high wage women, the time they devote to

household work, and their expenditures on housekeeping services• Among their specific findings are data suggesting that the low-skilled

immigration wave of the period 1980–2000:– Reduced by close to seven minutes a week the average time women at

the top of the wage distribution spent on household chores;– Increased by 20 minutes a week the average time women at the top of

the wage distribution devoted to market work; and– Increased the probability that women employed in occupations

demanding long hours would work more than 50 to 60 hours a week.

Cortes and Tessada (2011)

• Their empirical strategy exploits the cross-city variation in the concentration of low-skilled immigrants.

• To address the potential endogeneity of the location choices of immigrants, they instrument for low-skilled immigrant concentration using the historical (1970) distribution of immigrants of a country to predict the location choices of recent immigrant flows.

• There are two main concerns with the validity of our instrumental variables strategy.

• First, cities that attracted more immigrants in 1970 might be systematically different from other cities

• To address this concern, we include specifications that allow cities to experience different decade shocks based on their 1970 value of key variables, such as female educational attainment distribution, female labor force participation, and industry composition.

Cortes and Tessada (2011)

• The second concern is that low-skilled immigration might have an impact on the labor supply of women through other channels in particular through interactions in market production.

• To tackle this issue, they present specifications that use men of similar skill level as a control group, and test that the estimated relative increase in the labor supply of women as a result of low-skilled immigration is not driven by an increase in their wages relative to men.

Impact of Low-Skilled Immigration on Women’s Labour Supply

Gains from Price Effects

• Cortes and Tessada (2011) find that women with high wages (and potentially their families) are benefiting from low-skilled immigration because of the reduction in the prices of services that are close substitutes for household production