Immigration and Wages in the U.S. Labor Market

Abstract

While the economic effects of immigration have recently become topics of debate in the public arena, the debate is a long-standing one in the economics literature. The labor market effects of immigration have long been of interest to economists. Whereas theory predicts large negative effects on the wages of competing native-born workers from influxes of immigrants in local markets, the bulk of papers in the literature find only small effects. In this dissertation, I examine the impact of immigration on wages in the U.S. labor market. In the first essay, I show that many forces in the labor market confound the identification of the effect of immigration on wages of native-born. Using U.S. Census data, I find that the negative correlation between wages and immigration over 1960-2000 is driven entirely by low educated workers, and many demand-side trends over this period can equally explain the result.

The conclusion of Chapter 2 resolves the conflict between the majority of studies and recent ones that use a skill-based methodology to estimate the impact on wages of natives. However, it does not resolve the divergence between theory's predictions and empirical evidence. In Chapter 3, I suggest how a reframing of the question of immigration's labor market effects. Namely, I present evidence that recent immigrants compete primarily with other immigrants, so that the strongest wage effects are found on immigrants rather than natives. Immigrant competition with other immigrants is likely substantial due to the imperfect substitutability of immigrants for native workers, segmentation of the labor market by ethnicity and language, and skyrocketing levels of immigration. In addition to estimating the effect of competition on the wages for all immigrants, I also analyze the effect on entry wages for new immigrants. Previous literature has established that entry wages of new immigrants declined over 1970-1990 and attributes this to declining unobserved "quality". I find that up to forty percent of the declining entry wage can be explained by increasing competition among immigrants. This provides is a powerful alternative story to that of declining immigrant quality.