IMMIGRATION AND THE EARNINGS OF YOUNG NATIVE WORKERS

Abstract

This paper studies the impact of increased immigration in Austria on the wages of young native blue collar workers. We find that in regions, industries, or firms with a larger foreign share, Austrians earn higher wages. With respect to the impact of changes in the immigrant share on wage growth, the results are mixed. We develop a simple bargaining model which is consistent with these surprising results. IMMIGRATION policy has become a hotly debated issue in most Western European countries. With the fall of the Iron Curtain the possibility of mass migration from Russia and other former communist countries alarmed politicians and laymen alike. One of the main arguments for restricting legal immigration is the fear that immigrants might have a negative impact on labour market prospects of natives.' This distinctive public opinion contrasts sharply with widely acknowledged economic evidence. The usual economic apparatus for analysing this question is a production framework. A growing number of immigrants with given qualifications raises the supply of this particular labour input. Depending upon the patterns of substitutability or complementarity in the production process, demand for native workers may fall or rise. Empirically, it is useful to separate different groups of native workers. Due to the limited transferability of skills, it can be assumed that immigrant labour is at least initially less skilled than native labour. Therefore, it can be argued that immigrants should compete on the labour market mostly with unskilled blue-collar workers, whereas complementarity can rather be assumed between skilled white-collar workers and aliens. In recent years several studies investigated the US experience in the 1970s and the 1980s. Using regional variation in the labour supply of foreign workers, they indicate that the impact on native wages attributable to an increase in the supply of immigrants is numerically small. For an increase of 10% in the size of the immigrant population, different studies calculate a change in natives' earnings between -0.3 and +0.5%.2 These results refer to different native sub-samples, where the most significant negative impact of recent immigrants was found among earlier immigrant cohorts of the same ethnicity or black