Native Competition and Low-Skilled Immigrant Inflows

Wed, 09 Jun 2010 10:15:00 +0000

A new paper by Brian Cadena uses a clever instrument to better understand the relationship between immigrant inflows and labor market opportunities.  From the abstract (my emphasis added):

This paper demonstrates that immigration flows respond to differences in labor market conditions by documenting the systematic change in newly arriving low-skilled immigrants’ location choices in response to exogenous supply increases among the US- born. In contrast to previous treatments of this question, this paper relies on an identifiable source of exogenous variation that alters the expected returns to entering a labor market. Using pre-reform welfare participation rates as an instrument for changes in native labor supply, I find that immigrant inflows shifted away from cities with more welfare leavers toward cities with smaller reform-induced supply shifts. The empirical methods I use improve upon previous immigrant location studies by explicitly allowing for unobserved city amenities that provide different values based on the immigrant’s source country. The extent of the selection uncovered is substantial: for each additional native woman working in a city as a result of welfare reform, 0.8 fewer female immigrants choose to live and work there. These results provide direct evidence that selective location choices among immigrants tend to equilibrate labor market returns across geography.

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The whole paper is available at the link above or here.  The findings suggest high substitutability between the native- and foreign-born in low-skilled occupations and that immigrants respond to economic opportunities.  The latter point was made, differentially for illegal versus legal immigrants, in this report from the Council on Foreign Relations a few years ago by Gordon Hanson with the title, "The Economic Logic of Illegal Immigration."