Immigration, Endogenous Technology Adoption and Wages
CentER Discussion Paper Series No. 2015-008
30 Pages Posted: 30 Jan 2015 Last revised: 4 Feb 2015
Date Written: January 27, 2015
We document that immigration to U.S. states has increased the mass of workers at the lower range of the skill distribution. We use this change in skill distribution of workers to analyze the effect of immigration on wages. Our model allows firms to endogenously respond to the immigration-induced changes in skill distribution in terms of their decisions (i) to enter different industries which require the use of different technologies; (ii) to choose across technologies that differ in their skill-intensity; and (iii) to employ workers of different skill levels. Allowing these mechanisms to interact, we find that, in line with much of the related empirical literature, immigration has a small effect on average real wages of low skilled workers for U.S. states. We further show that immigration increases the wage inequality between workers of different skill levels in all states, and that the effect of immigration on wages and wage inequality varies systematically with the volume of immigration across states.
Keywords: immigration, technology adoption, wages
JEL Classification: J61, J31, J24
Suggested Citation: Suggested Citation