Immigrant versus Natives? Displacement and Job Creation
The impact of immigration on native workers is driven by two countervailing forces: the degree of substitutability between natives and immigrants, and the increased demand for native workers as immigrants reduce the cost of production and output ex...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/06/19604274/immigrant-versus-natives-displacement-job-creation http://hdl.handle.net/10986/18788 |
| Summary: | The impact of immigration on native
workers is driven by two countervailing forces: the degree
of substitutability between natives and immigrants, and the
increased demand for native workers as immigrants reduce the
cost of production and output expands. The literature so far
has focused on the former substitution effect, while
ignoring the latter scale effect. This paper estimates both
of these effects using labor force survey data from Malaysia
(1990-2010), a country uniquely suited for understanding the
impact of low-skilled immigration. The instrumental variable
estimates imply that the elasticity of labor demand (3.4) is
greater than the elasticity of substitution between natives
and immigrants (2.5). On average the scale effect outweighs
the substitution effect. For every ten additional
immigrants, employment of native workers increases by 4.1 in
a local labor market. These large reallocation effects are
accompanied by negligible relative wage changes. At the
national level, a 10 percent increase in immigrants,
equivalent to 1 percent increase in labor force, has a small
positive effect on native wages (0.14 percent). The impact
of immigration is highly heterogeneous for natives with
different levels of education, resulting in substantial
changes in skill premiums and hence inequality. Immigrants
on net displace natives with at most primary education;
while primarily benefiting those with a little more
education, lower secondary or completed secondary education. |
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