The Effects of Immigration on US Wages and Rents: A General Equilibrium Approach

53 Pages Posted: 5 Jun 2008  

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Giovanni Peri

University of California, Davis - Department of Economics

Abstract

In this paper we document a strong positive correlation of immigration flows with changes in average wages and average house rents for native residents across U.S. states. Instrumental variables estimates reveal that the correlations are compatible with a causal interpretation from immigration to wages and rents of natives. Separating the effects of immigrants on natives of different schooling levels we find positive effects on the wages and rents of highly educated and small effects on the wages (negative) and rents (positive) of less educated. We propose a model where natives and immigrants of three different education levels interact in production in a central district and live in the surrounding region. In equilibrium the inflow of immigrants has a positive productive effect on natives due to complementarieties in production as well as a positive competition effect on rents. The model calibrated and simulated with U.S.-states data matches most of the estimated effects of immigrants on wages and rents of natives in the period 1990-2005. This validation suggests the proposed model as a useful tool to evaluate the impacts of alternative immigration scenarios on U.S. wages and rents.

Keywords: housing prices, immigration, rents, U.S. States, wages

JEL Classification: F22, J61, R23

Suggested Citation

Ottaviano, Gianmarco I.P. and Peri, Giovanni, The Effects of Immigration on US Wages and Rents: A General Equilibrium Approach. CEPR Discussion Paper No. DP6551. Available at SSRN: https://ssrn.com/abstract=1140078

Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

Giovanni Peri

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-3033 (Phone)
530-752-9382 (Fax)

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