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

The impact of immigration in receiving societies is a fundamental question in economics. Most existing research focuses on the very narrow question of how a one-time increase in immigrants affects native wages. Even here, despite a large body of research, there is no clear consensus. However, in most cases the immigration process is inherently dynamic: new immigrants undergo a long term series of investments and behavioural changes that gradually alter the way that they interact with the economy of the receiving country. In the longer run the presence of immigrants affects the choices of firms over new technology investments, and the choices of native workers over schooling and occupations. This dynamic adaptation process by new immigrants, firms, and native workers means that a simple static framework provides an incomplete and even potentially misleading perspective for understanding modern immigration patterns.

In this proposed research we will seek to analyse the impact of immigration on wages, employment, technology and innovation in the receiving country, fully recognizing the inter-temporal nature of the choices of immigrants, firms, and native workers, and the ways that these three groups of agents interact over a longer horizon. We will combine highly innovative theoretical perspectives with state-of-the-art empirical analyses exploiting previously unexplored data sources to push the frontiers of this literature in two directions. First, by analysing the interplay between the skill upgrading of immigrants after arrival and the implied effects this has on native workers along the distribution of wages, we explicitly study a key aspect of the dynamics of the impact immigration has on native wages while – at the same time – combining the literature on immigrants earnings assimilation and the impact immigration has on native workers in one over-arching framework. Second, by explicitly studying the effects immigration has on technology adaptation, and the dynamics of this process, we significantly extend the literature on alternative adjustment mechanisms to immigration.

Our project therefore adds a significant component to our understanding of the challenges to the German labour market in a globalised world, by providing analysis on the dynamic effects of labour movements on factor prices and technology, and how these processes interact with trade.

Prof. Christian Dustmann, PhD (University College London)

Tanya Surovtseva, PhD (Universitat Pompeu Fabra)