Immigration-induced effects of changes in size and skill distribution of the labor force on wages in the U.S.

Abstract

We isolate the effect of immigration-induced changes in the size and skill distribution of the labor force on labor market outcomes using a model in which firms endogenously respond to these changes. We analytically show that while the immigration-induced increase in the size increases the relative wages, employment and output shares of the skill intensive sector, changes in the skill distribution lead to analytically ambiguous effects. We derive quantitative results for the US economy under different counter-factual scenarios with respect to immigration-induced changes in size and skill distribution of the labor force, where these changes resemble those of U.S. as a whole, New York, California and Canada, and reflect different immigration policy regimes. For example, immigration increases the mass of workers at the lower range of the skill distribution in the U.S., and the upper range in Canada. Regardless of these differences across scenarios, our quantitative results indicate that immigration increases the relative average wages of the skill intensive sector. Further, real wages of all workers increase due to reduced prices caused by the increased size of the labor force.