DP16432 Labor Market Competition and the Assimilation of Immigrants

Author(s): Christoph Albert, Albrecht Glitz, Joan Llull
Publication Date: August 2021
Keyword(s): Cohort Sizes, General and Specific Skills, Immigrant assimilation, Imperfect Substitution, Labor Market Competition
JEL(s): J21, J22, J31, J61
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16432

In this paper, we show that the wage assimilation of immigrants is the result of the intricate interplay between individual skill accumulation and dynamic equilibrium effects in the labor market. When immigrants and natives are imperfect substitutes, increasing immigrant inflows widen the wage gap between them. Using a simple production function framework, we show that this labor market competition channel can explain about one quarter of the large increase in the average immigrant-native wage gap in the United States between the 1960s and 1990s arrival cohorts. Once competition effects and compositional changes in education and region of origin are accounted for, we find that the unobservable skills of newly arriving immigrants increased over time rather than decreased as traditionally argued in the literature. We corroborate this finding by documenting closely matching patterns for immigrants' English language proficiency.