While most economists agree that free international movement of labour promotes allocative efficiency, the adverse effects of increased immigration on native labour may make it politically and fiscally undesirable when unemployment is increasingly prevalent in the host country. Since poorly- and highly-qualified workers are usually complements, an inflow of low-skilled foreigners should raise the wages of the relatively scarce better qualified, and adversely affect the wage levels of natives in jobs requiring little skill.

In Discussion Paper No. 851, John De New and Programme Director Klaus F Zimmermann explore migration's effects for a large West German micro panel data set for 1984-9. They relate the wage functions of white and blue collar natives to the share of foreigners in each industry branch. Immigration reduces German wages overall and hits some groups and industries harder than others. Increased migration has no effect on white collar workers with 20 years of experience or more as a group, while less experienced, white collar workers receive some minor benefits. These are outweighed, however, by the overwhelming negative effects on all blue collar workers. Inexperienced blue collar workers bear the brunt of this effect, which is particularly strong in the primary, consumption, construction and investment industries. De New and Zimmermann illustrate these findings by simulating a one percentage point average increase in foreigners' share of employment across all industries (roughly 400,000 foreigners). Their results indicate that blue collar wages workers decline by 5.9%, while those of less experienced white collar workers rise by about 3.5%; a weighted average yields an overall reduction of about 3.3%.

Native Wage Impacts of Foreign Labour: A Random Effects Panel Analysis
John P De New and Klaus F Zimmermann

Discussion Paper No. 851, November 1993 (HR)