Immigration and Natives’ Wages: Understanding Their Correlation in the 1980s

Todd Easton

doi:10.52324/001c.8529

Abstract

Major papers on immigration’s wage impacts in the 1980s concluded that immigration into the U.S. modestly reduced the wages of natives. Authors based these conclusions on fixed-effects models that controlled for area-specific shocks. Without those fixed effects, however, these authors found positive correlations between immigration and wages. This study examines two specific shocks that might explain this counterintuitive result: changes in the industry structure of labor demand and differences in inflation rates among metropolitan areas. The study finds no evidence that the first shock matters for understanding immigration, but finds that a large proportion of the positive correlation between immigration and wages disappears if one controls for differences in inflation rates.

Highlights

Restructuring of the U.S economy has shmg Americans with lower levels of education
These results suggest, first, that it is important to control for prior wage levels in a metropolitan area
To enhance our understanding of this surprising finding, this research provides estimates of metropolitan wage levels that control for other metropolitan characteristics besides immigration

Summary

INTRODUCTION

Restructuring of the U.S economy has shmg Americans with lower levels of education. Three careful studies of immigration's more recent effects reach the conclusion that immigrant inflows reduce wage levels for some groups of native workers (Borjas, Freeman, and Katz 1997; Card 1997, 2001) All these studies estimate metropolitan wages by skill groups and measure immigration into metropolitan areas within the same skill groups. To clarify the implications of the regressions with and without area fixed effects, focus for a moment on the Borjas, Freeman, and Katz (1996) study, and think about less-educated workers as a skill group with high levels of immigr_ation. These factors is important if we wish more confidently to draw conclusions about the relationship between immigration and native wages To examine these area-specific factors, this paper estimates metropolitan wage levels for 20 subpopulations of workers (defined by sex, education, experience, and race/ethnicity), focusing its attention on less-educated natives who might be susceptible to immigration's impact. Demand shifts and differential inflation rates are not sufficient to explain completely the positive relationship between immigration and metropolitan wage levels

DATA AND METHOD

ESTIMATING METROPOLITAN WAGE LEVELS

Variables Defined for Metropolitan Areas

Findings

CONCLUSIONS