Dynamic Impact of Immigration on Wages, Employment, Technology and Innovation

Immigration-induced labour supply shocks trigger responses by all agents in the economy: workers, firms and migrants themselves. There are three primary adjustment channels: wages and employment, technology, and the mix of output. Most of the existing research has focused on the first channel, with only few studies looking at adjustment of firms through the products they produce or their relative quantities, and through innovation or differential adoption of technologies available on the market. The lack of suitable firm-level data led most of the work that focusses on firm adjustment to be carried out at the industry level. Further, hardly any work exists that utilises direct measures of technology or considers alternative outcomes such as profits and product mix.

In the 1st phase of this project, our principal focus is on the responses to immigration through native wage and employment adjustment, changes in immigrant composition through return migration, and the effect of demand for specific skills of immigrants on their productivity, and contribution to the host country. This research makes a number of contributions to the existing literature, e.g. by providing analysis of the robustness of estimation approaches, using novel identification strategies and studying various channels of native responses to immigrant inflows. This project phase has so far produced three published (forthcoming) papers, one draft paper, and one project is ongoing. The 2nd phase of the project will focus instead of workers, on the adjustment of firms. This phase consists of three connected projects (i)-(iii) that address firm adjustment to immigration-induced labour supply shocks from different perspectives. In (i) we analyse the various margins of firm technology and organisational (T&O) adjustment to labour supply shocks, as well as adjustment in workforce composition and in wages, and how these interact. We investigate alternative and rarely researched firm responses, such as withdrawing from union agreements, product development, and product innovation. In (ii) we focus on the dynamics of T&O adjustment to labour supply shocks, to investigate the dynamics and timing of the various potential channels of firm response, and heterogeneity of adjustment across firms. In (iii) we provide in depth analysis of firm responses using a design that provides us with longitudinal information of immigrants and natives within firms after being hit by an unforeseen immigration induced labour supply shock. We will study for instance whether new immigrants underbid wages, and how firms may benefit from this in the short and long run.

Our project will use high quality data and employ new methods and alternative identification strategies to overcome the limitations previous studies have faced. Analysis is based on several data sources provided by the IAB, which will be used in-house, or through the IAB FDZ at UCL. Collaboration with the IAB is envisaged through the CADAL project.

Prof. Christian Dustmann, PhD (University College London)

Tanya Surovtseva, PhD (Universitat Pompeu Fabra)