Local Labor Supply Responses to Immigration

• Author: Ximena Del Carpio,Çağlar Özden,Mathis Wagner,Mauro Testaverde
• Published date: 01 April 2015
• Date: 01 April 2015
• DOI: http://doi.org/10.1111/sjoe.12099

Scand. J. of Economics 117(2), 493–521, 2015

DOI: 10.1111/sjoe.12099

Local Labor Supply Responses

to Immigration∗

Ximena Del Carpio

World Bank, Washington, DC 20433, USA

xdelcarpio@worldbank.org

C¸a˘

glar ¨

Ozden

World Bank, Washington, DC 20433, USA

cozden@worldbank.org

Mauro Testaverde

World Bank, Washington, DC 20433, USA

mtestaverde@worldbank.org

Mathis Wagner

Boston College, Chestnut Hill, MA 02467, USA

mathis.wagner@bc.edu

Abstract

How natives adjust is central to an understanding of the impact of immigration in destination

countries. Using detailed labor force data for Malaysia for 1990–2010, we provide estimates

of native responses to immigration on multiple extensive margins and rare evidence for a

developing country. Instrumental variable estimates show that increased immigration to a

state causes substantial internal inward migration, consistent with the fact that immigration

increases the demand for native workers. Relocating Malaysian workers are accompanied by

their spouses (three-quarters of whom are housewives) and children who attend school. We

find that these effects are concentrated among middle- and lower-skilled Malaysians.

Keywords: Labor supply; migration; native adjustment

JEL classification:F22; J61; R23

I. Introduction

The labor market behavior of natives in response to immigration is central

to an understanding of the impact and associated welfare consequences

of international labor mobility. Potential adjustment mechanisms are

∗We are grateful to Amir Omar and his team at the Institute of Labor Market Information

Analysis (ILMIA) for their continuous support, to the Department of Statistics of Malaysia

for data availability, and to participants at the 6th International Conference on Migration

and Development, the 4th TEMPO Conference on Migration, and the 9th IZA/World Bank

Conference on Employment and Development for comments. The findings, conclusions, and

views expressed are entirely those of the authors and should not be attributed to the World

Bank, its executive directors, and the countries they represent.

CThe editors of The Scandinavian Journal of Economics 2014.

494 Local labor supply responses to immigration

numerous, but the primary focus of the literature has been on how

immigration affects relative wages in local labor markets, as well as the

resulting inflows and outflows of natives (Card, 2009; Borjas, 2014). In

this paper, using detailed labor force survey data from Malaysia, we extend

the analysis to consider a number of additional margins along which native

labor supply adjusts to immigration shocks. We decompose the total causal

effect of immigration on changes in the population of a local area into the

propensity of those individuals to be employed (full-time or part-time), to

be unemployed, or alternatives, such as to continue their education, to retire,

or to work in household activities. Our results show there is adjustment on

all of these dimensions, highlighting the value of a comprehensive analysis.

The paper contributes to a growing body of literature on native worker

(and firm) responses to immigration. The link between the arrival of for-

eign migrants and the internal mobility of native workers across geographic

areas has been extensively studied, primarily using US data. In early work,

Filer (1992), Frey (1995), and White and Liang (1998) have found evidence

that immigration into a locality results in outward migration of natives to

other areas. Subsequently, following the influential work by Altonji and

Card (1991), Wright et al. (1997), Card and DiNardo (2000), Card (2001),

and Kritz and Gurak (2001) have found the magnitude of these flows to be

small. However, Borjas (2006) finds evidence consistent with substantial na-

tive responses to immigration. Card and Lewis (2007) find little evidence of

such responses looking at changes in industry composition, a finding sup-

ported by Gonzalez and Ortega (2011) using Spanish data and by Dustmann

and Glitz (2015) using German data. Shifting their focus to labor market

responses of women, Cortes and Pan (2013) and Cortes and Tessada (2011)

find increased hours worked and increased employment in Hong Kong and

the US, respectively. Borjas et al. (2010) find declining employment and

rising incarceration rates for African-American men. Plausible adjustment

mechanisms to immigration are numerous, and in recent important work,

Lewis (2011, 2013) has looked at changes in technology, and Peri and Spar-

ber (2009) and Ottaviano et al. (2013) have looked at changes in native

task specialization. We consider a broader set of native extensive margin

responses to immigration than previous work, providing new insights into

how natives adapt to immigration shocks.

A further contribution of the paper is to help address a pronounced

imbalance in the literature, where existing evidence is nearly exclusively

for OECD destinations, even though almost half of global immigration

takes place between non-OECD countries ( ¨

Ozden et al., 2011; Artuc et al.,

2014).1For the analysis, we use detailed data from the Malaysian Labour

1Exceptions are Gindling (2009) for Nicaragua and Facchini et al. (2013) for South Africa;

both papers focus on employment and wages of natives.

CThe editors of The Scandinavian Journal of Economics 2014.