Immigrants and Wage Distribution in US – A one percentage point increase in the share of foreign-born leads to a 0.2–0.3 percent wage decrease in the bottom decile research finds

Since the early 1980s, the stock of immigrants to the US has been rapidly increasing and potentially disrupting labor markets across the country. Over the same period, the US wage distribution has experienced significant and uneven changes. Traditional economic models predict that foreign-born can affect relative wages so long, they alter the relative supplies of different skill types, thus directly changing the earnings structure. The overlapping nature of both phenomena further implies a possible linkage between them.

A large body of literature estimates the relative wage impacts of immigration on low- and high-skill natives, but it is unclear how these effects map onto changes of the wage distribution.

I document the movement of foreign-born workers in the U.S. wage distribution, showing that, since 1980, they have become increasingly overrepresented in the bottom. Downgrading of education and experience obtained abroad partially drives this pattern. I then undertake two empirical approaches to deepen our understanding of the way foreign-born workers shape the wage structure. First, I estimate a standard theoretical model featuring constant elasticity of substitution technology and skill types stratified across wage deciles. Second, I estimate reduced-form quantile treatment effects by constructing a ceteris paribus counterfactual wage distribution with lower immigration levels.

Both analyses uncover a similar monotone pattern: a one percentage point increase in the share of foreign-born leads to a 0.2–0.3 (0.2–0.4) percent wage decrease (increase) in the bottom (top) decile and asserts no significant pressure in the middle. When analyzing the drivers of this pattern, I find suggestive evidence for a novel mechanism through which local labor markets absorb foreign-born workers: occupational differentiation of immigrants relative to natives.

Chosen excerpts by Job Market Monitor. Read the whole story @ “Immigrants and the U.S. Wage Distribution” by Vasil I. Yasenov