Albrecht Glitz (Universitat Pompeu Fabra)

“Labor Market Competition and the Assimilation of Immigrants”

with Centro Studi Luca d’Agliano

Abstract

In this paper, we propose a unified framework to model the relative earnings profiles of immigrants. Combining the approaches of the literature on immigrant wage assimilation and the labor market impact of immigration, we allow for both the accumulation of host country specific human capital and labour market equilibrium effects in the determination of immigrants’ relative earnings. When output is produced using imperfectly substitutable native and immigrant skills, the relative remuneration of these skill depends on their total relative supply in the economy. As a consequence, observed earnings gaps between natives and immigrants reflect both individual skills and the degree of labor market competition. Estimating the model using decennial US data from 1970 to 2010, we obtain an elasticity of substitution between native and immigrant labor of around 13. We then simulate counterfactual assimilation profiles by holding the total skill supplies across arrival cohorts constant, isolating differences in human capital accumulation across cohorts. We find that around 30 percent of the decline in entry wages experienced by immigrant cohorts entering the US in the 1970s and 1980s, and 63 percent of the decline experienced by the cohort entering in the 1990s can be explained by shifts in the relative supplies due to rising immigrant inflows in the US since the 1960s.