The contribution of foreign migrants to local labor market adjustment

Abstract: It is commonly argued that foreign migrants “grease the wheels” of the labor market, in that they accelerate the adjustment of local population following a shock to local demand. Using US evidence, I confirm that migrants do indeed contribute disproportionately to local labor market adjustment. But, I also show that the speed of adjustment is no faster in those markets which are better supplied by migrants. That is, the migrant population response “crowds out” the contribution of natives. This is fundamentally a story of geographical displacement, which can be tested more explicitly: using the census data, I cannot reject the hypothesis that new migrant arrivals displace natives (and earlier migrants) one-for-one from areas with large co-patriot communities. These results differ markedly from much of the existing literature, and I identify three reasons for this: choice of sample and right hand side controls, cohort effects, and the delineation of skill groups.