Rethinking the Gains from Immigration: Theory and Evidence from the U.S.

47 Pages Posted: 24 Oct 2005

See all articles by Gianmarco I.P. Ottaviano

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

Multiple version iconThere are 3 versions of this paper

Date Written: September 2005

Abstract

Recent influential empirical work has emphasized the negative impact immigrants have on the wages of US-born workers, arguing that immigration harms less educated American workers in particular and all US-born workers in general. Because US and foreign-born workers belong to different skill groups that are imperfectly substitutable, one needs to articulate a production function that aggregates different types of labor (and accounts for complementarity and substitution effects) in order to calculate the various effects of immigrant labor on US-born labor. We introduce such a production function, making the crucial assumption that US and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of US workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of US-born workers. We show evidence of this positive effect by estimating the impact of immigration on both average wages and housing values across US metropolitan areas (1970-2000). We also reproduce this positive effect by simulating the behavior of average wages and housing prices in an open city-economy, with optimizing US-born agents who respond to an inflow of foreign-born workers of the size and composition comparable to the immigration of the 1990s.

Keywords: Foreign-born, skill complementarity, wages, gains from migration

JEL Classification: F22, J31, J61, R13

Suggested Citation

Ottaviano, Gianmarco I.P. and Peri, Giovanni, Rethinking the Gains from Immigration: Theory and Evidence from the U.S. (September 2005). CEPR Discussion Paper No. 5226. Available at SSRN: https://ssrn.com/abstract=831871

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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