Immigration’s Effects on Wages: Norway Edition

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From a new study:

In a recent paper (Bratsberg et al. 2019), we ask what the impact is of such a large immigration-induced labour-supply shock on occupational wages, labour costs, and the industry mix of the economy. The impact of immigration on labour markets has received substantial attention over the last decades. However, most studies focus on the wage structure (e.g. Dustmann et al. 2016). Evidence on the general equilibrium adjustment of occupational wages, labour costs, and industry employment in response to immigration shocks is still relatively scant. We set out to close this gap using high-quality and detailed administrative Norwegian data.

The eastern enlargement in 2004 and 2007 extended the common European labour market to include roughly 100 million individuals from the EU accession countries. With real wages among the highest and unemployment among the lowest in Europe, Norway became a popular destination for labour migrants.

Over the ensuing decade, Norway stands out as one of the countries that received the largest inflows of migrants relative to country size.

Norway is “particularly useful to study because the policy change was exogenous. As a part of the single market, but not a member of the EU, Norway is bound to adopt EU legislation without representation in the European Parliament and Commission. The policy change was instant, comprehensive, and externally imposed, providing a unique setting to study the impact of immigration.” The authors conclude,

Based on the Norwegian data, we observe that the relationship between the initial level of, and the change in, the immigrant share and language intensity is strong. According to our estimates, the change in the immigrant share is 11 percentage points lower in language-intensive versus non-intensive occupations (comparing the 90th versus 10th percentile) over the 2004-2013 period.

According to our results, labour immigration leads to large adjustments in relative industry employment and labour costs. These effects are particularly strong in industries that are initially intensive in the use of immigrant-heavy occupations. In line with our hypothesis, this can be traced back to movements in relative occupation wages: occupations with a large increase in labour supply faced 18% lower wage growth compared to occupations with a small increase (comparing the 90th versus 10th percentile) over the same 10-year period.

As is well known, a reduced-form approach can only identify relative effects – the common effect of immigration across all occupations and industries is not identified. To address the real wage and overall welfare effects of the migration shock, we therefore quantify the general equilibrium effects of immigration according to our calibrated model. The counterfactual analysis shows substantial real-wage losses in some occupations, whereas other occupations have real-wage gains. Although real wages in some occupations decline, the aggregate welfare effects of the immigration shock on natives are close to zero, as some natives switch to higher-wage occupations in response to the immigration shock. The welfare effect on the existing population of immigrants, on the other hand, is negative, as they have a comparative advantage in low-wage occupations.

As I said in my BYU article last year,

According to the 2017 NAS report, most empirical research shows that “the impact of immigration on wages of natives overall is very small.” However, “native dropouts tend to be more negatively affected by immigration than better-educated natives. Some research also suggests that, among those with low skill levels, the negative effect on natives’ wages may be larger for disadvantaged minorities.” Yet, these negative effects “tend to be smaller (or even positive)” when periods of ten years or longer are considered. In fact, research suggests “that immigration to the United States between 1990 and 2006 reduced the wages of natives without high-school degrees by only 0.7 percent in the short run and increased their wages by 0.6–1.7 percent in the long run.” Similar to the effects of employment, low-skill native wages may be depressed in the short run, but long-run effects tend to be zero to
positive (pg. 95).

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