Effects of Low-Skilled Immigration on U.S. Natives: Evidence from Hurricane Mitch

Abstract:     
Starting in the 1980s, the composition of immigrants to the U.S. shifted towards less-skilled workers partly due to the influx of Latin American immigrants in the past few decades. Around this time, real wages and employment of younger and less-educated U.S. workers fell. Some believe that recent shifts in immigration may be partly responsible for the bad fortunes of unskilled workers in the U.S. On the other hand, some recent studies claim that low-skilled immigrants may complement relatively skilled natives. OLS estimates using Census data are consistent with this as they show that wages and employment of natives and earlier Latin Americans are positively related to recent Latin American immigration. However, these estimates are biased if immigrants move towards regions where there is high demand for their skills and/or if natives and earlier immigrants out-migrate in response to Latin American immigration. An IV strategy, which deals with the endogeneity of immigration by exploiting a large influx of Central American immigrants towards U.S. Southern ports of entry after Hurricane Mitch, also generates positive wage effects but only for more educated native men. Yet, ignoring the flows of native and earlier immigrants in response to this exogeneous immigration is likely to generate upward biases in these estimates too. When we control for potential out-migration, we find that the wage effects disappear and less-skilled employment of previous Latin American immigrants falls, indicating instead that recent Latin American immigrants substitute for previous immigrants from this region. This highlights the importance of controlling for out-migration not only of natives but also of previous immigrants in regional studies of immigration.

Number of Pages in PDF File: 41

Keywords: immigration, imperfect substitution, disemployment effects, natural experiments, outmigration

JEL Classification: J11, J21, J31, J61

working papers series