Immigrant Versus Natives? Displacement and Job Creation

65 Pages Posted: 20 Apr 2016 Last revised: 30 Apr 2018

See all articles by Caglar Ozden

Caglar Ozden

World Bank - Research Department

Mathis C. Wagner

Boston College

Caglar Ozden

World Bank

Date Written: June 1, 2014


The impact of immigration on native workers is driven by two countervailing forces: the degree of substitutability between natives and immigrants, and the increased demand for native workers as immigrants reduce the cost of production and output expands. The literature so far has focused on the former substitution effect, while ignoring the latter scale effect. This paper estimates both of these effects using labor force survey data from Malaysia (1990-2010), a country uniquely suited for understanding the impact of low-skilled immigration. The instrumental variable estimates imply that the elasticity of labor demand (3.4) is greater than the elasticity of substitution between natives and immigrants (2.5). On average the scale effect outweighs the substitution effect. For every ten additional immigrants, employment of native workers increases by 4.1 in a local labor market. These large reallocation effects are accompanied by negligible relative wage changes. At the national level, a 10 percent increase in immigrants, equivalent to 1 percent increase in labor force, has a small positive effect on native wages (0.14 percent). The impact of immigration is highly heterogeneous for natives with different levels of education, resulting in substantial changes in skill premiums and hence inequality. Immigrants on net displace natives with at most primary education; while primarily benefiting those with a little more education, lower secondary or completed secondary education.

Keywords: International Migration, Migration and Development, Human Migrations & Resettlements, Rural Labor Markets, Labor Markets, Indigenous Peoples Law, Indigenous Peoples, Indigenous Communities, Educational Sciences

Suggested Citation

Özden, Çaglar and Wagner, Mathis Christoph and Ozden, Caglar, Immigrant Versus Natives? Displacement and Job Creation (June 1, 2014). World Bank Policy Research Working Paper No. 6900, Available at SSRN:

Çaglar Özden (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States


Mathis Christoph Wagner

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Caglar Ozden

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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