Immigration, labor market mobility, and the earnings of native-born workers: an occupational segmentation approach

American Journal of Economics and Sociology, The,  April, 2006  by Roberto Pedace

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In either case, measures of net migration will provide a more accurate representation of labor supply conditions in a given region. For example, suppose that some local labor markets that have large flows of in-migration have an even larger flow of out-migration. The expectation is that the net reduction in labor supply will increase earnings, ceteris paribus. This does not imply, however, that larger flows of in-migration are associated with higher earnings. Nevertheless, without simultaneously controlling for in- and out-migration, the empirical results will tend to underestimate the negative effects associated with in-migration.

IV

Natives and Labor Market Mobility: A Model of Labor Market Outcomes

IN ADDITION TO PHYSICAL MIGRATION, any analysis that attempts to determine the impact of immigration on wages and employment should be concerned with other shifts in labor supply. It is expected that workers in direct competition with immigrants will adjust their labor supply but may or may not physically move from one area to another. In particular, native workers may respond to increased competition in the labor market by dropping out of the labor force, becoming self-employed, changing occupation segments, and/or physically migrating. Since immigration and native labor supply in a given labor market segment are expected to be negatively correlated, empirical estimates of the impact of immigration are likely to be understated if any of these movements are ignored.

The importance of capturing different types of labor market mobility is highlighted by Heckman's (1993) empirical work, which shows that labor force participation decisions are largely affected by wages. In other words, if the labor force participation decision is elastic with respect to wages, then many native workers may simply drop out of the labor force in response to increased immigration and subsequently lower wages.

Occupational mobility may be equally important. Eck (1984), for example, finds that approximately 17 percent of men and 24 percent of women who were employed in 1980 and were living in the same residence in 1981 were not working in the same occupations by 1981. In addition, empirical studies on labor market segmentation find more upward occupational mobility than was initially suggested by the dual labor market view, especially for whites (Rosenberg 1989). (10)

It is expected, therefore, that labor market movements out of the secondary sector will be negatively correlated with increases in immigration. If wages in the secondary sector fall as a result of immigration, then workers will be attracted to relatively higher wages in the primary sector. This may be followed by an increased movement into the primary sector by those secondary sector workers who are most mobile. Other workers, who are not attracted by the relatively higher rewards in the primary sector or cannot find employment in that sector, may opt for self-employment or simply drop out of the labor force. Consequently, an empirical model that does not control for these factors will generate coefficients on the impact of immigration that are biased down.