Rethinking the Gains from Immigration: Theory and Evidence from the US

Gianmarco Ottaviano and Giovanni Peri

No 5226, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent influential empirical work has emphasized the negative impact immigrants have on the wages of US-born workers, arguing that immigration harms less educated American workers in particular and all US-born workers in general. Because US and foreign born workers belong to different skill groups that are imperfectly substitutable, one needs to articulate a production function that aggregates different types of labour (and accounts for complementarity and substitution effects) in order to calculate the various effects of immigrant labour on US-born labour. We introduce such a production function, making the crucial assumption that US and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of US workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of US-born workers. We show evidence of this positive effect by estimating the impact of immigration on both average wages and housing values across US metropolitan areas (1970-2000). We also reproduce this positive effect by simulating the behaviour of average wages and housing prices in an open city-economy, with optimizing US-born agents who respond to an inflow of foreign-born workers of the size and composition comparable to the immigration of the 1990s.

Keywords: Foreign-born; Skill complementarity; Wages; Gains from migration (search for similar items in EconPapers)
JEL-codes: F22 J31 J61 R13 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-geo and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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Related works:
Working Paper: Rethinking the Gains from Immigration: Theory and Evidence from the U.S (2006)
Working Paper: Rethinking the Gains from Immigration: Theory and Evidence from the U.S (2006)
Working Paper: Rethinking the Gains from Immigration: Theory and Evidence from the U.S (2005)
Working Paper: Rethinking the Gains from Immigration: Theory and Evidence from the U.S (2005)
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