Welcome, Stranger: The Positive Labor Market Effects of Immigration

“Closing the borders to immigrants…is sometimes presented by politicians as a way of protecting employment and wages of domestic workers,” writes Frédéric Docquier, Çağlar Özden, and Giovanni Peri in their December 2011 IZA discussion paper, “The Labor Market Effects of Immigration and Emigration in OECD Countries.” However, as Docquier, Özden, and Peri demonstrate, things just might be a little more complicated.

Previous analyses of the effects of immigration on receiving country labor markets have varied widely. Docquier, Özden, and Peri develop a new model to simulate the long-run effects of international mobility on wages and employment in both the sending and the receiving countries. Using census data from the 34 member countries of the Organization for Economic Cooperation and Development (OECD), the authors examine net immigration and emigration rates between 1990 and 2000. They find a neutral to positive relationship between immigration and both wages and employment.

One important innovation in the author’s model is the analysis of the education levels of immigrants. Within the literature on immigration, researchers have found that college educated residents tend to be more mobile than their peers. Within OECD countries, Docquier, Özden, and Peri find that legal immigrants are more likely to be college educated than the non-migrant population. By acknowledging the potentially positive effect that educated migrants have on their adopted home, the author’s model incorporates both optimistic and pessimistic views of immigration’s impact.

Despite accounting for wide variation, Docquier, Özden, and Peri find that, in general, legal immigration has a positive effect on the receiving country’s labor market. The average effect of net immigration on native wage rates ranged from no effect to an increase of four percent. Native workers without a college education experienced the largest wage increases. In the United States, for example, the authors estimate that workers without a college education experience a wage increase between 0.3 and 1.2 percent as a result of increased legal immigration. On the other hand, the authors find that net emigration has a negative effect on workers who stay behind. Among sending countries, those with a net loss of workers, the average wage decreased by between 0 and 7 percent.

The authors find smaller effects on employment rates, with a maximum 0.3 percent increase and only one country experiencing a small (0.05 percent) decrease in employment, as a result of legal immigration. They find similar results after controlling for “skill downgrading“ (a skilled immigrant may have to settle for a less-skilled position in a receiving country) and undocumented immigration.

The authors acknowledge that these results are surprising. However, even after accounting for factors like illegal immigration, their findings support the assertion that immigration could be a boon, rather than an impediment, to economic growth.

Feature photo: cc/Punxsutawneyphil