The Economics of International Migration

The following sections are included:

• Dedication
• Table of Content
• Preface
• Acknowledgements
• About the Editor

In this introductory chapter we present important correlations between immigration and labor market outcomes of native workers in the US. We use data on local labor markets, states and regions from the Census and American Community Survey over the period 1970–2010. We first look at simple correlations and then we use regression analysis with an increasing number of controls for observed and unobserved factors. We review the potential methods to separate the part of this correlation that captures the causal link from immigrants to native labor outcomes and we show estimates obtained with 2SLS method using the popular shift-share instrument. One fact emerging from all the specifications is that the net growth of immigrant labor has a zero to positive correlation with changes in native wages and native employment, in aggregate and by skill group. We briefly review the channels and the mechanisms that allow local economies to absorb immigrants with no negative (and possibly positive) impact on the labor demand for natives.

This paper calculates the effects of immigration on the wages of native US workers of various skill levels in two steps. In the first step we use labor demand functions to estimate the elasticity of substitution across different groups of workers. Second, we use the underlying production structure and the estimated elasticities to calculate the total wage effects of immigration in the long run. We emphasize that a production function framework is needed to combine own-group effects with cross-group effects in order to obtain the total wage effects for each native group. In order to obtain a parsimonious representation of elasticities that can be estimated with available data, we adopt alternative nested-CES models and let the data select the preferred specification. New to this paper is the estimate of the substitutability between natives and immigrants of similar education and experience levels. In the data-preferred model, there is a small but significant degree of imperfect substitutability between natives and immigrants which, when combined with the other estimated elasticities, implies that in the period from 1990 to 2006 immigration had a small effect on the wages of native workers with no high school degree (between 0.6% and +1.7%). It also had a small positive effect on average native wages (+0.6%) and a substantial negative effect (-6.7%) on wages of previous immigrants in the long run. (JEL: F22, J61, J31)

Large inflows of less educated immigrants may reduce wages paid to comparably-educated, native-born workers. However, if less educated foreign- and native-born workers specialize in different production tasks, because of different abilities, immigration will cause natives to reallocate their task supply, thereby reducing downward wage pressure. Using occupational task-intensity data from the O*NET dataset and individual US census data, we demonstrate that foreign-born workers specialize in occupations intensive in manual-physical labor skills while natives pursue jobs more intensive in communication-language tasks. This mechanism can explain why economic analyses find only modest wage consequences of immigration for less educated native-born workers. (JEL J24, J31, J61)

The relocation of jobs abroad by multinationals and the increased labor market competition due to immigrant workers are often credited with the demise of many manufacturing jobs once held by American citizens. While it is certainly true that manufacturing production and employment, as a percentage of the total economy, have declined over recent decades in the United States, measuring the impact of those two aspects of globalization on jobs has been difficult. This is due to the possible presence of two opposing effects. On the one hand, there is a direct “displacement effect”: offshoring some production processes or hiring immigrants to perform them directly reduces the demand for native workers. On the other hand, there is an indirect “productivity effect”: the cost savings associated with employing immigrant and offshore labor increases the efficiency of the production process, thus raising the demand for native workers—if not in the same tasks that are offshored or given to immigrant workers, then certainly in tasks that are complementary to them.

In this paper we analyze the impact of immigrants on the type and quantity of native jobs. We use data on 15 Western European countries during the 1996–2010 period. We find that immigrants, by taking manual-routine type of occupations pushed natives towards more “complex” (abstract and communication) jobs. This job upgrade was associated to a 0.7% increase in native wages for a doubling of the immigrants' share. These results are robust to the use of an IV strategy based on past settlement of immigrants across European countries. The job upgrade slowed but did not come to a halt during the Great Recession. We also document the labor market flows behind it: the complexity of jobs offered to new native hires was higher relative to the complexity of lost jobs. Finally, we find evidence that such reallocation was larger in countries with more flexible labor laws.

In this study, we quantify the labour market effects of migration flows in OECD countries during the 1990s based on a new global database on the bilateral stock of migrants, by education level. We simulate various outcomes using an aggregate model of labour markets, parameterised by a range of estimates from the literature. We find that immigration had a positive effect on the wages of less educated natives and it increased or left unchanged the average native wages. Emigration, instead, had a negative effect on the wages of less educated native workers and increased inequality within countries.

What are the economic consequences to U.S. natives of the growing diversity of American cities? Is their productivity or utility affected by cultural diversity as measured by diversity of countries of birth of U.S. residents? We document in this paper a very robust correlation: US-born citizens living in metropolitan areas where the share of foreign-born increased between 1970 and 1990, experienced a significant increase in their wage and in the rental price of their housing. Such finding is economically significant and survives omitted variable bias and endogeneity bias. As people and firms are mobile across cities in the long run we argue that, in equilibrium, these correlations are consistent with a net positive effect of cultural diversity on the productivity of natives.

In this paper we analyze the long-run impact of immigration on employment, productivity, and its skill bias. We use the existence of immigrant communities across U.S. states before 1960 and the distance from the Mexican border as instruments for immigration flows. We find no evidence that immigrants crowded out employment. At the same time, we find that immigration had a strong, positive association with total factor productivity and a negative association with the high skill bias of production technologies. The results are consistent with the idea that immigrants promoted efficient task specialization, thus increasing TFP, and also promoted the adoption of unskilled-efficient technologies.

Science, technology, engineering, and mathematics (STEM) workers are fundamental inputs for innovation, the main driver of productivity growth. We identify the long-run effect of STEM employment growth on outcomes for native workers across 219 US cities from 1990 to 2010. We use the 1980 distribution of foreign-born STEM workers and variation in the H-1B visa program to identify supply-driven STEM increases across cities. Increases in STEM workers are associated with significant wage gains for college-educated natives. Gains for non-college-educated natives are smaller but still significant. Our results imply that foreign STEM increased total factor productivity growth in US cities.

This paper explores the relationship between openness to trade, immigration, and income per person across countries. To address endogeneity concerns we extend the instrumental-variables strategy introduced by Frankel and Romer (1999). We build predictors of openness to immigration and to trade for each country by using information on bilateral geographical and cultural distance (while controlling for country size). Since geography may affect income through other channels, we also control for climate, disease environment, natural resources, and colonial origins. Most importantly, we also account for the roles of institutions and early development. Our instrumental-variables estimates provide evidence of a robust, positive effect of openness to immigration on long-run income per capita. In contrast, we are unable to establish an effect of trade openness on income. We also show that the effect of migration operates through an increase in total factor productivity, which appears to reflect increased diversity in productive skills and, to some extent, a higher rate of innovation.

This article makes two contributions to the literature on the determinants of international migration flows. First, we compile a new dataset on annual bilateral migration flows covering 15 OECD destination countries and 120 sending countries for the period 1980–2006. The dataset also contains data on time-varying immigration policies that regulate the entry of immigrants in our destination countries over this period. Second, we present an empirical model of migration choice across multiple destinations that allows for unobserved individual heterogeneity and derive a structural estimating equation. Our estimates show that international migration flows are highly responsive to income per capita at destination. This elasticity is twice as high for within-European Union (EU) migration, reflecting the higher degree of labor mobility within the EU. We also find that tightening of laws regulating immigrant entry reduce rapidly and significantly their flow.

In this study, we use cross-country bilateral data to quantify a two-step process of international migration and its aggregate determinants. We first analyze which country-specific factors affect the probability that individuals join the pool of potential (aspiring) migrants. Then, we consider the bilateral and destination country factors that affect the frequency at which potential migrants turn into actual migrants. Using information on potential migrants from World Gallup surveys and on actual migrants from national censuses for 138 origin countries and 30 major destinations between 2000 and 2010, we analyze economic, policy, cultural, and network determinants of each step. We find that the size of the network of previous migrants and the average income per person at destination are crucial determinants of the size of the pool of potential migrants. Economic growth in the destination country, on the other hand, is the main economic generator of migration opportunities for a given pool of potential migrants. We also find that college-educated exhibit greater actual emigration rates mainly because of better chances in realizing their immigration potentials, rather than because of higher willingness to migrate.