Reexamining the Impact of Immigration on the Labor Market

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The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market George J. Borjas Harvard University November 2002 1 The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market George J. Borjas Abstract This paper presents a new approach for estimating the labor market impact of immigration. The existing studies typically exploit the geographic clustering of immigrants and use differences across local labor markets to identify the impact. This approach has not been successful because it ignores the strong currents that tend to equalize economic conditions across regions. My analysis is based on the notion that increases in labor supply in a finely-detailed skill group should affect the earnings and employment opportunities of that group. I use a key insight of human capital theory to define the skill groups: a worker acquires skills both in school and on the job. The comparison of labor market outcomes across these skill groups suggests that immigration has indeed harmed the earnings and employment opportunities of competing native workers. An immigrant influx that increases the supply of workers in a particular schoolingexperience group by 10 percent lowers the wage of natives in that group by 3 to 4 percent, and reduces weeks worked by 2 to 3 percent. 2 The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market George J. Borjas* “By keeping labor supply down, a restrictive immigration policy tends to keep wages high.” Paul Samuelson, Economics, 1973. “While the pool of officially unemployed and those otherwise willing to work may continue to shrink, as it has persistently over the past seven years, there is an effective limit to new hiring, unless immigration is uncapped. At some point in the continuous reduction in the number of

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