High skilled immigration and the market for skilled labor: The role of occupational choice

Abstract

In recent years, immigration rates have increased dramatically among the most highly skilled workers. How does this inflow affect labor market outcomes among highly skilled native-born workers? I estimate a labor market equilibrium model in which individuals adjust to skilled immigration by changing occupations and investing in human capital differently. I also estimate the demand functions for native and immigrant workers and find that skilled immigrants and natives are imperfect substitutes in some occupations but are complements in others. Counterfactual exercises indicate that even large inflows of foreign skilled workers have limited impacts on domestic workers. In particular, the skill rental rates for native science and engineering workers would have been approximately 2% higher if firms were not able to hire more foreigners than they did in 1994. On the other hand, had the U.S. workers been constrained to remain in their original occupations, the adverse impacts of foreign labor competition would be more severe. When natives’ occupational choices respond to immigration, the negative effects are diffused.