Immigration and wage inequality in the 1990s: Panel evidence from the current population survey

Abstract

In spite of record economic growth in the 1990s, income inequality continued to escalate in the United States. One popular explanation is that the proportion of unskilled immigrant inflows has increased due to policy reforms over the last four decades. This study evaluates the impact of immigrant skills on inequality using a panel data set of states derived from the March Current Population Survey (CPS). The data set provides unique insights into local impacts of immigration due to its ability to discern shorter-term annual adjustments versus the traditional longer-term focus of the Decennial Census. Using a basic theoretical model to develop testable hypotheses, the dynamic analyses reveal that increased relative inflows of unskilled immigrants indeed increase wage inequality. The impact on native wage inequality is especially pronounced, with an effect nearly twice as large as that on overall wage inequality.