Refining the Estimation of Immigration’s Labor Market Effects

Seth G. Sanders, University of Maryland
Sarah Bohn, University of Maryland

Except for Borjas (2003), most papers estimating labor market effects of immigration find quantitatively small, negative effects on native workers using a spatial variation approach. Borjas suggests these effects are understated since migration within the U.S. arbitrages local wage differentials. He uses variation across skill groups over time in the national labor market and finds large, negative effects. This paper finds that Borjas’ results are driven by the earnings of high school dropouts between 1980 and 2000. Any factor correlated with decreasing earnings of this group – de-industrialization, skill-biased technological change, increasing negative selectivity of dropouts – explains his results. Indeed, we find wage decreases from these factors preceded the effect from immigration shocks. We use the different skill composition of immigrants to Canada as a point of comparison to Borjas (2003) and find the effect of immigration on wages of Canadians is negative, small and statistically indistinguishable from zero.