Immigrants Labor Market Impact

and Immigration Policies Against

the Background of Demographic
Change
20th January 2015
Faculty of Economics
Chair of Applied Economic Policy and Econometrics
Prof. Dr. Christoph M. Schmidt

Jennifer Rogmann

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Contents

Introduction

Recent Immigration Policy

Theoretical Predictions

Empirical Evidence

Evaluation of Empirical Evidence

Future Immigration Policy

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Introduction

Decrease of labor supply as a major problem of demographic changes

Role of immigration

Without immigration decrease in labor supply even higher

Displacement effects for natives

Is immigration able to alleviate the decrease in labor supply?

Which immigration policies are needed?

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Recent Immigration Policy

Constant liberalization of borders in the EU

Immigration law (2004) and law for controlling labor migration (2009)
short-run needs, only for immigrants who do not replace natives

Green Card (2002) reduced labor shortages in IT sector temporarily

No point system

Switch in immigration policy ?

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Theoretical Predictions I

Exogenous increase in immigration in a closed economy with skilled and

unskilled labor as production factors

Wage effects:

If skill composition of immigrants equal to skill composition of natives

no wage effect

If more unskilled immigrants than unskilled natives wskilled and

wunskilled

If more skilled immigrants than skilled natives wunskilled and wskilled

Negative wage effect for substitutes and positive wage effect for complements
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Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Theoretical Predictions II

Employment effects:

Immigrants crowd out their substitutes

Immigrants Labor market impact depends on skill composition of immigrants

and natives

Immigration due to imbalances in the labor market seems to be beneficial

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Empirical Evidence I

Wage regression:

= + + + +

: log wage of individual i in region r at year t

: amount of immigrants

: vector of characteristics (age, work experience, education etc.)

and : regional and time fixed effects

: partial correlation between immigration density and wages

Main empirical problem: isolate shifts in labor supply Instrument variables

or natural experiments to solve endogeneity problem
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Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Empirical Evidence II

Quasi-natural experiments

CARD (1990): Impact of Cuban Mariel boatlift on Miami labor market

HUNT (1992): Impact of Algerian repatriates on French labor market

FRIEDBERG (2001): Impact of Russian Jewish on Israeli labor market

GLITZ (2006): Impact of ethnic Germans on German labor market

Only weak evidence for employment displacement effects and no wage

effect

Employment effect larger for foreigners itself

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Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Empirical Evidence III

Wage elasticities in a general equilibrium approach

DENEW AND ZIMMERMANN (1994): significant negative effect of Foreign

share on German wages (-0.35) for years 1984-1989

BAUER (1997): negligible wage effect of immigration on all native skill

groups, significant wage impact on foreigners

BORJAS (2003): significant negative wage impact (-0.3 to -0.4) for the US

DAMOURI ET AL. (2010): small negative wage and employment effects for

natives, but significant negative employment effect for foreigners

Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Evaluation of Empirical Evidence

Except from BORJAS, only weak evidence is found

Results differ among regions and time

Impact for closest substitutes is larger

Employment effect seems to be larger in inflexible labor markets

Immigrants need to be scanned by their skill level

Identification of labor shortages
Flexible labor markets

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Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Future Immigration Policy

Selection of immigrants through a point system BELOT AND HATTON (2012):

introduction increases amount of skilled immigrants by 7%

Selection of immigrants through an auction system

need to identify labor shortages to alleviate problems of demographic change

Exchange of data for better knowledge of immigrants skill composition

HINTE, RINNE AND ZIMMERMANN (2011): combination of adjustable quotas, a

selective point system with clear criteria and labor market monitoring

convincing strategy

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Chair of Applied Economic Policy and Econometrics

Seminar in Applied Economic Policy| Prof.Dr. Christoph M. Schmidt

Thanks for your attention!

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