Immigration
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Immigration. General Questions. The type of questions that economists have been interested in are: what is the impact of immigration on the receiving/sending country ? how does the impact vary across groups? What determines attitudes to immigration?

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Immigration

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Immigration


General Questions

  • The type of questions that economists have been interested in are:

    • what is the impact of immigration on the receiving/sending country ?

    • how does the impact vary across groups?

    • What determines attitudes to immigration?

    • What should public policy on immigration be?

  • More interest in it currently because of rise of immigration in many OECD countries


Fraction Foreign-Born


Fraction Foreign-Born continued


Comment

  • Perhaps not what you expected

  • Reason is probably fast growth in immigrant share in some countries

  • Note that skill mix varies from country to country so hard to generalise.


Models of Impact of Immigration

  • Simplest model – homogeneous labour, immigration raises supply of labour in the economy – Y=F(K,N)

  • Basic idea is immigration surplus – natives gain from immigration

  • Size is small

  • Probably even smaller in LR with CRS

  • Distributional effects may be more important – workers lose, capitalists gain


The Immigration Surplus


Heterogeneous Labour

  • Skilled and unskilled labour

  • Can write production function as

  • Wages will be:


Implications

  • Wages only depend on relative supplies

  • Implies immigration only affects natives if alters skill mix

  • Will always be gains to natives if immigration affects skill mix

  • Largest if immigrants very different


The Immigration Surplus- Heterogeneous Labour


Other Issues

  • external effects

  • taxes and the welfare state – this affects net benefits of immigrants – even such an ardent free marketer as Milton Friedman says that “You cannot simultaneously have free immigration and a welfare state”

  • social consequences of immigration – perhaps these are more important than the economic effects.

  • Assimilation – immigrants often start at the bottom of the pile but many groups then rise up.

  • Does immigration ‘grease the wheels’ of the labour market?


Empirical evidence of impact of immigration

  • The ‘experiment’ one would like to do is to drop some immigrants at random into certain labour markets and then observe the outcomes.

  • That is difficult if not impossible to do - though some studies have tried to use the dispersal policies applied to asylum-seekers by some countries.


Common Empirical Specification

  • A typical regression using non-experimental data would try to run a regression of the form:

  • where I is some measure of the impact of immigrants on the local market (e.g. the share of immigrants).

  • Problems:

    • Endogeneity of immigrant flow

    • Responses of natives

    • What is the right level of aggregation


Card, ILRR 1990Mariel Boatlift

  • April 20 1980 – Castro allows Cubans to leave for the US

  • Between May and September 125000 did

  • Most went to Miami:

    • 7% increase in labour force

    • 20% increase in number of Cubans in Miami

  • Clear exogenous shock to the Miami labour force

  • Compares labour market performance before and after with comparison cities


Effect on Earnings


Effect on Unemployment Rate


Card’s Conclusions

  • virtually no effect on the wage or unemployment rates of less-skilled non-Cubans.

  • How is this possible?

    • off-setting flows of other immigrants or natives not very important

    • industrial structure made it relatively easy to absorb large numbers of low-skilled immigrants.

  • Other studies have used a similar methodology studying those who returned to Portugal after the end of its colonies, to France after Algerian independence and to Israel following the collapse of the Soviet Union.

  • The pattern found by Card seems fairly common.


Borjas, QJE 2003

  • Argued that cities are not distinct labour markets:

    • Labour mobility between them

    • Trade between them

  • Divides US labour market as a whole into segments by age and education – similar to Card-Lemiuex

  • Looks to see whether education-age cells with big changes in immigrant shares are correlated with wage changes of natives


Typical Borjas Result


Borjas Conclusions

  • Borjas concludes immigrants do depress wages of natives with whom they compete

  • But treats immigrants and natives as perfect substitutes within age-education cells

  • This is relaxed by Ottaviano and Peri – they find natives and immigrants are imperfect substitutes


Implications of Ottaviano-Peri

  • Effect of new immigrants is primarily on wages of existing immigrants

  • Effect on wages of natives does exist but is small and positive

  • Conclusion is controversial


Manacorda, Manning, Wadsworth

  • UK study

  • Other UK studies found little impact of immigration on wages of natives

  • Puzzle to reconcile this with Card-Lemieux who find that relative supplies do matter

  • Estimated Card-Lemieux model but with third level in which immigrants and natives are imperfect substitutes


Rising Immigration into the UK


Manacorda, Manning, WadsworthConclusions


Implications for Effect on Wages


The Final Word?

  • Perhaps not really

  • Card quite critical of Borjas results

  • Borjas has 3 education groups – college, HS, drop-out (Card-Lemiuex had 2)

  • Card argues it is important to distinguish between college/high school and high school/drop-put.

  • Card argues the former wage ratio is sensitive to relative supplies but the latter is not

  • It is the latter that, in the US in recent years, has been most affected by immigration.


Card evidence – EJ 2005


What’s the big deal about immigration?

  • Economists routinely fail to find large effects of immigration on natives

  • The effects they do find are often positive

  • Perhaps this misses the point because people get very upset about immigration


A Recent NBER Working PaperImmigration, Wages, and Compositional Amenities Card, Dustmann and Preston

  • Economic theory says effects of immigration like effects of trade

  • But people much more hostile to immigration than free trade

  • Perhaps because immigration also alters communities as well as economies

  • These effects seem at least as important


European Social Survey Data


And some more…


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