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101AUSTRALIAN JOURNAL OF LABOUR ECONOMICS

Volume 15 • Number 2 • 2012 • pp 101 - 121

Impacts of a High-skilled Immigration Policy and Immigrant Occupational Attainment on Domestic Wages

Sholeh Maani and Yu Chen,TheUniversityofAuckland

Abstract The recent international literature on immigration wage effects has shown contrasting results. Past studies have focussed on the effect of low skilled immigrants on native-born workers in the US, and have yielded results ranging from no impact to negative impacts. This paper, by contrast, explores the outcomes of highly skilled immigration on the wages of native born workers in a controlled environment. New Zealand represents a useful case study in this context, as it actively encourages skilled immigration and has exceptionally accurate immigrant data. Our analysis makes use of unit record data and incorporates labour markets across region, skill, and occupation groups. One of our contributions to this literature is to consider occupation and region as separate labour market choices. Furthermore, we separate the traditionally combined groupings of worker skill and occupation, thereby allowing us to study them independently. This approach enables us to realistically examine the downward movement by some immigrants to occupations that require less skill, and it provides greater detail that lends itself to more accurate analysis of potential wage effects. We find that contrary to what may be commonly expected there is no adverse wage impact from skilled immigration on native workers of similar skill. In addition, we find that highly skilled immigration has a small negative wage effect for low-skilled native workers. We discuss this effect while considering imperfect substitution, immigrant occupational movements, and the importance of auxiliary settlement policies to accompany high-skilled immigration policies.

JELClassification:J61,J62,J31,J3,J24

Address for correspondence: Associate Professor Sholeh Maani, Department of Economics,AucklandBusinessSchool,TheUniversityofAuckland,PrivateBag92019,Auckland,1141,NewZealand,Email:[email protected]:WewishtothankStatisticsNewZealandfortheuseofConfidentializedUnitRecordFile(CURF)data;theFacultyofBusinessandEconomicsattheUniversityofAucklandandtheNZDepartmentofLabourforresearchgrants;GeorgeBorjasandStephaneMahuteauforhelpfulcomments;andIsabellaGawith,MichaelTseandXingangWangforresearchassistance.Theauthorsaloneareresponsiblefortheviewsexpressed.©CentreforLabourMarketResearch,2012

102AUSTRALIAN JOURNAL OF LABOUR ECONOMICSVOLUME 15 • NUMBER 2 • 2012

1. Introduction Feweconomicquestions raiseasmuchpublic interest as theeffectof immigrationon the wages of native-born workers. A number of international factors such asregionalisation have facilitated greater immigration by skilledworkers in the pastdecade.Furthermore,professionaljobmarketsarepredictedtobecomeincreasinglyinternationalover thecomingyears,makingany insights into theeffectsofskilledimmigrationonregionaljobmarketsallthemorerelevant.

Therecentinternationalliteratureontheimpactofimmigrantsonthewagesofnativeworkershasshowncontrastingresults(e.g.AltonjiandCard,1991;Borjas,et al.,1992;Borjas,2003;Card,1990,2005).Inaddition,reviewsofpreviousstudieshaveconsistentlyhighlightedunansweredquestionsandtheneedforfurtherresearchinthisarea(seeforexample,Longhi,et al.,2005;PootandCochrane,2004;DustmannandGritz,2005).Ingeneral,thesestudieshavefocusedontheimpactoflow-skilledimmigrantsonnative-bornworkersintheUSlabourmarket.

Weinsteadfocusonhigh-skilledimmigrationinNewZealand,thusextendingtheinternationalliteratureintwoways.Firstly,byusingdataonNewZealand,whichhas a number of favourable characteristics (as explained below), we are able toanalysethedifferentialimpactsofhighskilledimmigrationasopposedtolowskilledimmigration.Secondly,byusingarichdataset,weareabletoanalysecertainskilled-immigrationphenomenainbetterdetailthanpaststudies.

New Zealand represents a very useful case study in this context, as itsimmigration policy encourages skilled immigrationwhich ensures a steady inflowof skilled immigration, and it has a relatively isolated geographic location whichpreventsillegalimmigrationfromoccurringandtherebyallowsforuniquelyaccurateimmigrantdata.

Traditionally,NewZealandisanimmigrant-receivingcountry.Forexample,annualnetmigrationhasaccountedformorethan40percentofthetotalpopulationgrowthfrom1973to1975,1995to1997,and2002to2004.

In addition to New Zealand being a controlled case study for the effectsof skilled immigration,we have obtained a rich data set that allows us to specifyoccupation groups separately from skill level, which allows us to examine thetendencyofsomehigh-skilled immigrants to initiallyfindemploymentbelow theirskilllevel.Card(2001),forexample,findsevidenceofskilledimmigrantstakingless-skilledjobsintheUS.Toassessthesephenomena,weusedatafromtheHouseholdLabourForceSurveyandcorrespondingIncomeSupplementdataset.Thisdatasethas a number of favourable features, including comprehensive worker wage, skill,andemployment information.Weusedata foraperiodwhich isof special interest(2003-2004),followinghighnetimmigrationintake.1Inthiscontext,weincorporateregional,skill,andoccupationallabourmarketsasthemostrelevantunitsofanalysis.Weexaminetheeffectofskilledimmigrationonthewagesofbothhigh-skilledandless-skillednative-bornworkersinNewZealand.

1Forexample,thecontributionofimmigrationtopopulationchangeinNewZealandwasanetgainof41,600peopleinMarch2003,whichexceededthenaturalpopulationincreaseof26,900peopleoverthesameperiod.

103SHOLEH MAANI AND YU CHEN

Impacts of a High-ski l led Immigration Policy and Immigrant Occupational Attainment on Domestic Wages

Wefirsttestthehypothesisoffactor-priceequalization:assumingthatlabourismobile intheopeneconomy,workersmovetowherethewagesarehighestuntilsupply anddemandbalance to equalizewagesbetween cities (Friedberg andHunt1995).Thisimpliesthatnativeworkersmovecitieswhenimmigrantswithsimilarskilllevelarrive,thusleavingthelabourmarketskillbaseintactinthecitythatwelcomestheimmigrants.Wegoontotesttheeffectsofimmigrationonthewageofvariousskill groups of native workers in the relevant labour market. A-priori, the supplyresponseeffectisunknown(e.g.Borjas,2003;Card2005).

Whenregressingnativeworkers’wagerateonthesupplyofagivenskilllevelof labour, immigrant labour supply is potentially endogenous, because immigrantsmaychoosethecityinwhichtheysettlebasedonhigherexpectedwages.Weaddressthispotentialendogeneityofimmigrantlaboursupplythroughinstrumentalvariable(IV)estimation,andstatisticallyverifythesuitabilityofourIVselection.Wethenexaminehypothesesofwageeffectsforthenative-bornworkersacrossoccupationalandskill-regionalmarkets(Card,2005;andAddisonandWorswick,2002).Nextweconduct sensitivity analyses using a more direct specification; alternative migrantvariabledefinitionandagegroup;andevidencebasedonchangesinimmigrantsupplyovertime.Finally,wediscussourresultsandtheirimmigrationpolicyimplications.

The structure of this paper is as follows: firstly, the data and samplecharacteristicsarepresented.Thenareviewoftheliteratureandmodellingapproachesisprovided.Thirdly, theeconometricmodel and results arediscussed, followedbyconclusionsandpolicyimplications.

2. Data and Sample Characteristics Attheoutset,wedefine‘immigrant’asanyforeignbornperson(independentofhowlongtheyhavelivedinNewZealand).2While‘native’or‘NewZealand’workersinthisspecificationareallthoseborninNewZealand.

Long-termanalysisofpopulationflowstoandfromNewZealandshowthat,whilepopulationinflowsandsomeoutflowsfromNewZealandareevidentthroughoutthepastdecades,NewZealandisclearlyanetimmigrantreceivingcountry(GlassandChoy,2001,NZTreasury).AnexaminationoftheskillbaseofpopulationmovementstoandfromNewZealandfurthershowsthat,whileemigrantsfromNewZealandhaveaskillbasesimilartotheaverageNewZealander,immigrantstoNewZealandhavehighereducationlevelsthantheaverageNewZealander.3

As previously mentioned, there are two important characteristics of thisdataset.Firstly,usingdataonNewZealand,whichencouragesskilledimmigrationandhaslimitedillegalimmigration,providesaninterestingcontrasttomuchofthepreviousliterature,whichisbasedonunskilledimmigrationtotheUS.Since1991,NewZealandhashadanimmigrationpolicythatselectsimmigrantsonthebasisof2Thedefinitionoftherelevantimmigrantgroupforanalysisvariesacrosstheliterature(e.g.foreignborn,orrecentormedium-term(fiveto10year)immigrants).Inthispaperwespecifyimmigrantsastheoverseasborn.Thisdefinitionofimmigrantsreflectsthelong-termnatureofimmigrationanditsoutcomes.Ouranalysisfurtherincludestwosensitivityanalyses:basedonanalternativedefinition of immigrant (migrationwithin 10 years); and difference-in-differences analyses foreffectsfromimmigrationinthepreviousyear.3Seeforexample,GlassandChoy(2001).


educationandgeneralhumancapital.4ThishasresultedinimmigrantshavinghighereducationlevelscomparedtotheNewZealandborn(seetable1).5

Thesecondimportantcharacteristicofourdataisthatwedistinguishbetweenskill level (using highest educational attainment as a proxy) and occupation.This isimportant because skilled immigrants with a higher degree are more likely to findemploymentinsectorsbelowtheirskilllevelthanNewZealandworkersofsimilarskill.

Inthispaperweuseunit-recorddatafromtheHouseholdLabourForceSurvey(HLFS)andtheNewZealandIncomeSurveys(NZIS).TheHouseholdLabourForceSurvey is a quarterly survey of approximately 29,000 individuals (approximately15,000 private households). The 2004 HLFS /NZIS (June Quarter Unit Records)used in thisstudy includes27,847 individual records.The targetpopulationfor theHLFS is the resident population, and as such is comprehensive.Overseas visitors,who expect to reside inNewZealand for less than 12months, and the populationyoungerthan15yearsarenotincluded.Foranadditionalsensitivityanalysis,weuseboththe2003and2004datasets.ThecombinedHLFS/NZISdatahasanumberofadvantages, including details of hourlywage,weekly earnings, and comprehensivedataoneducationalqualificationsandoccupation.

Table1presentsthesamplecharacteristicsacrossimmigrantandnative-bornpopulationsinNewZealandin2004.Astable1shows,30.1percentofimmigrantshaveaBachelor’sorhigherdegree,comparedto14.1percentofNewZealand-bornworkers.Inaddition,about13.8percentofimmigrantshavelessthanahigh-schoolqualification, compared to 19.3 per cent of native-born workers. Furthermore, thispatternholdswithinmost regionsofNewZealand.For instance, in theCanterburyregion,about40.4percentofimmigrantshaveaBachelor’sdegreeorhigher,comparedtoonly13.2percentofthenative-bornpopulation.ThissuggeststhatNewZealand’simmigrationpolicyofattractinghighlyskilledworkershaspotentiallybeensuccessful.

Our data also shows that skilled immigrants are more likely to settle inlarger cities. For example, theAuckland region– amajorbusiness centre and themostpopulouscity–hasthehighestpercentageofimmigrantsofanyNewZealandregion with immigrants comprising 45.3 per cent of the population. The secondhighestconcentrationoccursinthecapitalcity,Wellington,where12.8percentofthepopulationconsistsofimmigrants.

4Forexample,theNewZealandSkilledMigrantCategoryPointsIndicatorrequiresthatapplicantsanswer the following questions. If the answer to all first four questions and at least two otherquestions isYES, applicants are encouraged toproceed. The eligibility test questions are: 1.‘Areyouunder56yearsofage?’2.‘Areyou,yourpartnerandyourchildrenallhealthy?’3.‘Areyou,yourpartnerandyourchildrenfreeofmajorcriminalconvictionsandnotasecurity?’ 4.‘Canyoucompletelyspeak,writeandunderstandEnglish?’5. ‘Doyouhavea tertiaryor tradequalification?’6.‘HaveyoubeenofferedajobinNewZealand?’7.‘Doyouhaveatleasttwoyearsworkexperience?’Inthepointssystem,highereducationcarriessignificantpoints.5 The current Skilled Migrant Category (SMC) and the corresponding ‘point system’ wereestablishedinthe1991ImmigrationAmendmentAct.BasedontheSMCpointsystem,migrantsareclassifiedontheirpersonalandeducationalqualifications,workexperience,orajobofferinNewZealand.A featureof thepoint system that isnoteworthy is that aprior jobarrangementis not required for immigration. At the time of the last Census, 57 per cent of the residencyapplications were approved under Skilled Categories (Source: www.immigration.govt.nz). TheUnitedKingdomisthelargestsourcecountryofSkilledMigrationCategories,followedbySouthAfrica,andChina.



Inthispaperwelimitourdatatomaleworkers,astheemploymentpatternsand the experience of female immigrants are generally different to that of femalenative-bornworkers,whereastheexperienceofmaleimmigrantsandlocalsismoredirectlycomparable.Wealso limit theage range to25-54, in theaimofexcludingstudentsandindividualsnearingretirement.Weonlyemploydatawithnon-missingcountryofbirth,qualification,andoccupation.Thesampleincludedinouranalysesintherelevantagegroupsandcategoriesconsistsof6,166in2004and6,499in2003.6

Table 1 - Share of Native-born and Immigrant Workers who have Attained Different Levels of Education

Highest Education level attained NZ born (%) Immigrants (%)NoQualification(IncompleteHigh-school) 19.31 13.77High-schoolDegree 18.50 20.38Bachelor’sorhigherdegree 14.13 30.13Data:HouseholdLabourForceSurvey,NewZealandIncomeSupplementHLFS/NZIS,2004,Male,agegroup25-54(N:6,166,4,902NZbornand1,264immigrant).

In this literature, the use of well-defined and internationally comparableeducational/skill categories is important for analyses of relevant labour marketsand supply effects across immigrants and the native-born groups.Card (2001), forexample,focusesonthegroupwithincompletehigh-schooleducation,comparedtothebasegroupofhigh-schoolgraduates;Borjas(2003)andCard(2005)considerfourgroupsbasedoncompletionorincompletehigh-schoolanduniversityeducation;andBorjas(2005)focusesonimmigrationeffectswithdoctoraldegrees.Wefocusonthreewell-defined and comparable educational/skill groups specified in our data acrosstheimmigranteducational/skillgroups:aBachelor’sdegreeorhigher(high-skilled),andincompletehigh-schooleducation(less-skilled),incomparisontothebasegroupwith a high-school degree. In this literature, vocational degrees are generally notconsideredinthecomparativeanalyses,7sincetheyareusuallynotincludedinhigh-skilledmigrationpolicies,andtheyrepresentawiderangeofqualificationsandskillswhich would arguably introduce measurement error in controlling for skill levelsacrossimmigrantsanddomesticworkers.Therefore,thehigh-skilledandless-skilledcategoriesinthisliteratureprovideupperandlowerboundskilllevelsthatarewell-definedforrelevantcomparisons,andthatistheapproachthatwefollow.

3. Review of the Literature and Modelling Approaches Inrecentstudies,theestimatedeffectsofimmigrationonnative-bornworkers’wageshave generally been negative, of small magnitude, or insignificant. For example,AltonjiandCard(1991)find thataonepercentagepoint increase in thefractionofimmigrantsintheUSreducesthewagesofless-skilledUSbornworkersby0.3per6Throughouttheanalysestheusualappropriatesamplepopulationweightsareapplied.7Anexceptionis,forexample,thestudybyD’Amuri,Ottaviano,andPeri(2010)onwageeffectsofimmigrationinWesternGermany.Theyaccountforvocationaldegrees,giventheskill-baseoftheimmigrantstoWesternGermany.


cent.Similarly,Borjas(2003)findsthat immigrationlowers thewageofcompetingworkers:a10percentagepointincreaseinlaboursupplyoftheskillgroupinquestionreduceswagesamongstthatskillgroupbythreetofourpercent.Incontrast,Card(2005)findsnorelationshipbetweentherelativesupplyofworkerswhodidnotfinishhighschool(‘dropouts’)andtheirrelativewages.Furthermore,Dustmann,et al.(2005)andAddison andWorswick (2002) do not find an adverse impact of immigrationon the realwages ofUK andAustralian-bornworkers respectively. Similarly, in acrosssectionalanalysisofAustria’s jobmarketusing1991data,Winter-EbmerandZweimuler(1996)donotfindanegativeimpactofregionorindustryshareofforeignworkersonnativeworkers’earnings.IntermsofNewZealandbasedstudies,Boyd(2003)examinesthelabourmarketperformanceofimmigrantsinNewZealand,whileMare’ and Stillman (2007) examine regional settlement patterns of immigrants inNewZealand.

The international economics literature has adopted threemajor estimationapproachestomeasuringtheimpactofimmigrationonlabourmarketoutcomes:paneldatamodels,productionfunctions,andcross-regionalmodels.Thesethreeapproachesarebrieflydiscussedinthefollowingsection.

Time- series / Panel Models Inthisapproach,nationaltime-seriesorpaneldataareusedtoinvestigatetheimpactofimmigrantsonthelabourmarketoutcomesofnativeworkers.Inthesespecifications,thelabourmarketisassumedtoadjusttoimmigrationbecausenative-bornworkersarepresumed tobe fullymobile, such that factorpriceequalizationequateswagesacrosscities.Inotherwords,ifthereisaninflowoflow-skilledimmigrantstoacity,low-skillednativebornworkersinthatcityareassumedtomovetoanothercity.Assuch,thisapproachbypassesgeographicorregionallabourmarketwagedifferences.Characteristics thatareused todefineaskillgroupareeducationalattainmentandworkexperience.

Borjas (2003) uses 32 skill-experience groups andfinds that a 10 per centlabour supply shock reduced the annual earnings of native workers by 6.4 percent. In addition, he found that the impact of immigrants on theweekly earningsof nativeworkers is smaller than the effect of immigrants on the annual earningsof nativeworkers, reflecting a drop in hours supplied in response to lowerwages.Furthermore,thestudyfoundsignificantandnegativeimpactsofimmigrationontheweeklyearningsofalleducationalgroupsexceptforthegroupofcollegegraduates.Interestingly,immigrationwasfoundtohaveapositiveimpactontheweeklyearningsofcollegegraduates.Thiseffectmayreflectpositiveexternalitiesforcollegegraduatesworkingalongsideskilledimmigrants.Therearethreemainconcernsregardingthetime-seriesapproach.Firstly, thekeyassumptionthatnativeworkersmovecities toadjusttoaninfluxofimmigrantsissubjecttodebate(seeCard,2005).Secondly,thetime-series approach requires large data variation across extended time periods togeneratereliableresults.Thirdly,theaggregateapproachcanpotentiallyintroduceabiastowardzero:immigrantsaremorelikelytomigratetoacountryattimeswhenlabour market outcomes are favourable. Production function and cross-regionalapproachesbypassthesepotentiallyseriousconcerns.



Production Functions A production function approach generally uses cross-sectional data to estimateelasticities of substitution between immigrant and nativeworkers (see for exampleGrossman,1982).InNewZealand,Mare andStillman(2007)usedasimilarmethod,based on both constant elasticity of substitution (CES) and Generalized Leontiefproductionfunctions.TheyusedunitrecorddatafortheentireNewZealandpopulationfrom the 1996 and 2001 census. Since New Zealand has an immigration systemthat focusesmainlyonhigher-skilledmigrants, theyclassified individuals into twodifferentdefinitionsofskilledgroupsandallowedforsubstitutability,bothacrossandwithinthesegroups.8Theyinvestigatedtheimpactofrecentimmigrationonthelabourmarketusingthearea-analysisapproachbycreatinglabourmarketareasaccordingtotravel-to-workdata.TheyfoundlittleevidencethatrecentmigrantsreducethewagesofnativeworkersinNewZealand.

Cross-regional The cross-regional methodology is the most commonly adopted approach in theliteratureontheimpactofimmigrationonthewageofnativeworkers(Borjas,1987;LalondeandTopel,1991;Jaeger,1996;Card,2001and2005)andtheapproachthatweemployin thispaper. Itmakesuseofcross-sectionaldataonstatesandregionsto analyse the relationship between the differences in immigrant density and thedifferenceinthewagesofnativeworkersacrosscross-sections.

Thismethodologyinvolvestwosteps:firstly,regressingtheproportionoftheworkforcewithagivenskilllevelontheproportionofimmigrantswiththeskilllevel,to examine the theory of factor pricemobility. Secondly, the previously explainedproportionoftheworkforcewithacertainskilllevelisusedtoexplainthewagerateofnativeworkerswiththatskilllevel.ThesetwostepsarenowexaminedinmoredepthbyanalysingCard’s(2005)approach.

Carduseddatafromthe2000UScensustoclassifytheimmigrantpopulationbytheirskilllevels.DuetotheUSimmigrationpolicyofallowingexistingimmigrantstobringtheir,oftenunskilled,familymemberstotheUS,andduetotheproblemofillegalimmigrationintheUS,in2000averyhighfractionofUSimmigrantshadlowlevelsof schooling.Assuming that immigrants andnativeworkers arepotential substituteswithinagivenskillgroup,labourmarketcompetitionfromlow-skilledimmigrantsisexpectedtobemostintensefornativeworkerswiththelowestlevelsofeducation.

Firstofall,Cardtestedthetheoryoffactor-priceequalization:nativeworkersmovecitieswhenimmigrantsofsimilarskilllevelsarrive.Itisnecessarytotestforthis,becauseiffactorpriceequalizationdoesoccur,theneveniftheflowofimmigrantsdoesaffectthewagesofnativeworkersatthenationallevel,thecross-sectionalapproachmaynotcaptureit.Toexaminetheextentoffactorpriceequalization,thefollowingregressionisrun,whichexplainstheshareoftheworkforce(S)withacertaindegreeofeducation(d),bytheshareofthepopulationwiththatdegreeofeducationthatareimmigrants(I).Carduses‘highschooldropout’astheeducationlevelofinterest:

8 Firstly, they created six five-year age-groups, five qualification groups, and thus thirty age-qualificationgroups.Second,askilledgroupwascreatedaccordingtofouraggregatedoccupations.TheyallowedfordifferentdegreesofsubstitutabilitybetweenandacrossthoseskilledgroupsandtreateddifferentskillgroupsasafactorofCESandGeneralizedLeontiefproductionfunctions.


Sd(c)=α+βSdI(c)+e(c).

whereSd (c)istheshareofhighschooldropoutsintheregionalworkingagepopulationincityc,andisthesumoftheshareofnativedropoutsSdN (c)andtheshareofimmigrantdropoutsSdI(c),wheree(c)isaresidual.

Ofparticularinterestisthecoefficientβ:ifβequalszero,thenforeachnewimmigrantofskillleveldtocityc,anativeworkerofskillleveldleaves(thiswouldoccur if therewereperfect factorpriceequalization). In suchacase, the followingregressionanalysiswouldgiveawageeffectof immigrationonnativeworkers thatisbiasedtowardszero.Ifβwasbetweenzeroandone,thenforeverynewimmigrantof skill level b, the share of total skill level b in the workforce rises less thanproportionately.Thiswouldresultintheunderestimationofthewageeffect.

Inaunivariateregressionacrosscities,Card(2005)rejectedbothhypotheses,insteadestimatingthatβvaluesrangedfromaroundoneto1.3.Heconcludedthateachnewimmigrantinthelowestskillgroupisestimatedtoaddtothenetsupplyoflow-skilledworkersinacity.Thisindicatesthatimmigrantsdonotdecreasetherelativesuppliesofnative-born ‘dropout’ labour across localities, and therebywage effectswillnotbeunder-estimatedorgravitatetowardzero.

Thesecondstep is then todetermine theeffectofan increase in theshareofimmigrantworkersofagivenskilllevelonnative-bornworkers’wagesusingthefollowingregression:

Log(wd(c))=a1+b1log(sd(c))+e(c)

wherew disthewagerateofUSworkerswhodroppedoutofhighschool,ands distheshareofthetotalworkforce(USandimmigrant)thatfitsintothe‘highschooldropout’skillgroup.

Howeverthewagerateofnativeworkersinagivencitymayaffectimmigrants’choiceofcity(andthustheshareofthetotalpopulationofagivenskilllevel):higherwagesattractmoreimmigrants.Thisendogeneitymaypositivelybiasthecoefficienton the shareof totalworkers that areofagiven skill level. In this case, apositiverelationship between immigrants and wages of native workers may be found in acasewheretheactualrelationshipisnegative.Toaddressendogeneity,Cardusedthehistoricalimmigrationpatternasaninstrumentforcurrentinflows.Forexample,inasecondpaper,CardandDinardo(2000)usethefractionofMexicanimmigrantsinthecityin1970astheinstrumentalvariableforlow-skilledimmigrationinflowsbetween1980and1990.Thoseinstrumentalvariable(IV)modelsprovidednoindicationthattheordinaryleastsquares(OLS)estimatesarebiasedbyregionaldemandshocks.

Afterresolvingtheconcernsoffactorpriceequalizationandendogeneity,Card(2005)examinestheimpactoflow-skilledimmigrantsontherelativelabourmarketoutcomesof less-skilled native-bornworkers.The resultingOLSand IV estimateswereverysimilar,suggestingtheendogeneityproblemisminimal.Resultssuggestedthatanincreasedsupplyofhighschooldropoutsfromunskilledimmigrationdoesnotlowerthewageforthenative-bornhigh-schooldropouts.Buttheypointtoasmallnegativeemploymenteffectforhigh-schooldropouts:eventhoughtheirhourlywagedoesnot fall, their annual earningsdo, asunskilled immigrantworkers reduce thenumberofhoursworkedbyunskillednative-born.



4. Models and Results Wage Effects of Skilled Immigration on Skilled Native-born Workers Weapplyasimilarcross-regionalapproachtoCard(2005)inthispaper.DuetoNewZealand’shigh-skill immigrationpolicy,wefocusontheeducationalgroupswithaBachelor’sorhigherdegree(high-skilled),andlessthanhigh-schoolcompletion(less-skilled),comparedtothebasegroupofhighschoolgraduates.Weincorporateeightbroadoccupationallabourmarkets,acrossregions.9Theoccupationalcategoriesrangefrommanualworkerstoprofessionals,andtheyreflectdistinctoccupationalmarketsfortheanalysis.

Inthisliterature,discussedabove,largemetropolitanareas,states,orregionsareusedaslabourmarketsforanalyses.Anadvantageofconsideringstateorregionalunitsisthatitprovidesdistinctlabourmarkets,therebyreducingmeasurementnoiseof residential moves. The Confidentialized Unit Record Household Labour ForceSurvey(CURF,HLFS)data,whichweincorporateinthisstudy,specifiessixregionsforNewZealand.Theseregionscoversixmainmajorcitieswheremainpopulationslive,withsurroundingmoresparselypopulatedareas.Theseregionalspecificationscover distinct areas,which for the purpose of the studywould not be affected byhousing/commutingmovements. Each region is based on amajor citywheremostofthepopulationinthatregionlives,andhigh-skilledjobsforboththenative-bornand immigrants aremostly available. In theNorth Island, the four regional labourmarketsarebasedonWhangarei,Auckland,Hamilton,andWellington.IntheSouthIsland, regionsarebasedon the twomajorcitiesofChristchurch,andDunedin. InthecaseofNewZealand,theregionscoversmallerareasandpopulationscomparedtothestatesintheU.S.–neverthelessrepresentingdistinctareasforanalysis.10Thisspecification, based on eight occupational markets, across six regions and majoreducationalgroups,provides48distinct labourmarkets foreacheducationalgroup(Borjas’s(2003)analysis,forexample,had32datapoints).Thesedataunitsarebasedonalargesampleof6,166malesinthelabourforce.Thelargenumberofobservationsin thesecategoriesprovidesaspreadofdata inreasonably largesizedgroups(datacells)foranalysiscentredaroundthelargestcities.11

9Theeightone-digitoccupationalclassificationsare:(1)Legislators,administrators&managers,(2)Professionals,technicians&associatedprofessionals,(3)Clerks,(4)Service&salesworkers,(5)Agriculture&fisheriesworkers,(6)Tradesworkers,(7)Plant&machineoperators&assemblers,and(8)Elementaryoccupations.Thesecategoriesprovidedistinctlydifferentoccupationalgroupsforourpurposes.10These regionsalso include less-populatedareas that arenot affectedmuchby labour supplymovements. This is common across regional and state-wide labour market studies in theinternational literature, combining effects in major population areas with surrounding less-populatedandnotmuchaffectedsatelliteareas.Inthisrespect,NewZealand’scaseisnotdifferentfromother studies.This inclusionwould understate the size of the supply shock for the high-skilled,andpotentiallyover-statewageeffects.However,sincebothhigh-skillednative-bornandimmigrantsaremainlyemployedinthemajorcities,thiseffectisexpectedtobeveryminor.11Encounteringsomeemptycellsiscommoninthistypeofspecificationacrosssomeeducationand occupation groups.We encountered eight empty cells (out of 48 cells) in certain region-occupation-skill levels, whichwere eliminated from the sample. However, importantly, for alleducation-occupationemploymentcombinationsinouranalysisdata,thereissufficientvariationinthedataacrosslocalities,anddatacellsizesinourestimationsareallstatisticallyviable.


Wemakeadistinctionbetweentheeffectsofimmigrationonthehourlywageandannualearnings,andwereportonboth.Thisdistinction is important,becauseannualearningstakesintoaccountchangesinthenumberofhoursworkedinresponsetoanychanges inhourlywagesasseen inCard(2005)above.Forexample, ‘if thelabour supply curve of the native born has the usual positive slope, a downwardeffect on thewagewould lead to adecline inbothhoursworkedand labour forceparticipation.This‘hourseffect’tendstomaketheimpactofanimmigrationinflowonannualearningsgreaterthanonhourlywages’,(PootandCochrane,2004).

Occupation Congruence Index Itisimportantattheoutsettomeasurethesimilarityofoccupationsbetweennative-bornandimmigrantworkers.Weconstructanindexofcongruence.Thecongruencecoefficient(Borjas,2003)isdefinedasfollows:

(1)

GN,I is the congruence coefficient betweennative-bornworkers (N) and immigrantworkers,(I).qj,kisthefractionofaparticularskillgroupofworkers(e.g.immigrantworkerswithBachelor’sorhigherdegree) inoccupationk.q

_k is the fractionof the

entireworkforcethatisengagedinoccupationk.Acongruencecoefficient(index)issimilartoacorrelationcoefficient(within

±1),where positive values indicate similarities of occupations, and negative valuesindicatethatnativesandimmigrantsareengagedindissimilaroccupations.Avalueof+1,forexample,representsthecompletesimilarityofimmigrantandnativeworkersin their occupational engagement, and a value of -1 represents no overlap at all inoccupationalengagement.

The congruence index between the native-born and immigrant workersthathaveBachelor’sorhigherdegreequalifications is+0.83.Thishighcongruencecoefficient (close to1)means thathighlyskillednativeand immigrantworkersareemployedinsimilaroccupations.Thismeasureshowsthathighlyskilledimmigrantandnative-bornworkersareemployedinthesamejobmarkets.Animportantimplicationofthishighcorrelationisthatthemajorpotentialimpactofskilledimmigrationisthepossibleeffectontheskillednative-bornjobmarket,asthemainfocusofthispaper.

Labour Supply and Wage Effects Following the two-step method, we firstly test the hypothesis of factor priceequalization to ensure that nativeworkers do not perfectly adjust to the inflow ofimmigrantstoequalizewagesacrosscities.Weusethefollowingregression,whichexplainstheshareoftheworkforcewithaBachelor’sdegreeinlabourmarketik,bytheshareoftheworkforcewithaBachelor’sdegreethatisimmigrant.

Sb(c)ik=α+βS

bI(c)ik+e(c)ik(2)

i=1,...,n:regionsk=1,...,m:occupations



whereSb(c)ikistheshareofthemalelabourforcewithaBachelor’sorhigherdegreeinlabourmarketc(constructedbyregioniandoccupationk).Sb(c)ikisthesumofthepercentageofthemalelabourforceinalabourmarketwithaBachelor’sorhigherdegreewhichisnative,SbN(c)ik,andthepercentagewhichisimmigrant,S

bI(c)ik,whilee(c)ikistheresidual.

12Thisstudyfindsthatβisgreaterthanone,meaningthatforeverynewskilled

immigrantinlabourmaketik,theshareofthetotalworkforcewithaBachelor’sdegreeincreases–meaningskilledimmigrantsarenotperfectsubstitutesforskillednativeworkers. Therefore, this evidence does not support the ‘factor price equalization’hypothesis. In other words, high-skilled immigrants tend to settle in areas wherethere is already a relatively high number of high-skilled native bornworkers. Thegreaterthanoneestimatedcoefficient(β)indicatesthatthepotentialwageeffectsduetoimmigrantlaboursupplymay,incontrasttopreviousconcerns,beover-estimated(inabsoluteterms).Thisprovidesanupperboundcaseforpotentialimmigrantwageeffects.Giventhat themainconcernin this literaturehasbeenthepotentialunder-estimationofimmigrantwageeffects,thischaracteristicoftheanalysisisusefulandofinterestinthiscontext.

Table 2 - Supply Effects: showing how an increase in the share of the immigrant workforce in labour market ik with Bachelor’s degree affects the overall fraction of the labour force with Bachelor’s degree in that labour market

Equation(2):Sb(c)ik=α+βSbI(c)ik+e(c)ik

Explanatory variable OLS coefficient βFractionofimmigrantswithaBachelor’sdegreeorhigherSbI(c)ik 1.657(tvalue) (9.61)*R2 0.6400Data:HouseholdLabourForceSurvey,NewZealandIncomeSupplementHLFS/NZIS,2004.(N:48,occupation,andregionallabourmarketsperskilllevel(basedonasampleof6,166)).*significantatthe1%level.

Ourresultsintable2areconsistentwithMare’andStillman2007analysis,

whichfoundlittlesupportforthehypothesisthatmigrantinflowsdisplacetheNewZealand-bornofsimilarskillsintheareaswherenewimmigrantsaresettling.Theyconcludethatbothimmigrantandnative-borngroupsofsimilarskillstendtomoveto,orremaininthesameareas.

Wearenowabletoproceedtothesecondstepofthecross-regionalapproach,using the following regression to analyse the impact of skilled immigrants on thenative-bornwages:

Log(wb/whs)ik=a1+b1log(s

b/shs)ik+u1ik(3)12 For the unemployed observationswe assign the occupation that ismost frequently observedamong immigrants in the specific education level. In general, the unemployment rates inNewZealandwere very low throughout the past decade.We compared this approach against usingthe sample of employed only with actual occupations, and an alternative random occupationassignmentmethod.Wefindthattheseapproachesgiveverysimilarresults,partlyreflectingtheverylowNewZealandunemploymentratesacrosseducationalgroups.


wherewsisthehourlywageofnative-born maleworkersofskilllevels(highskilled–withBachelor’sdegreeorhigher(b),relativetoaveragelyskilled–withhighschoolqualification(hs))inagivenlabourmarket(regioni,Occupationk).Whilesjistheshareofall workers(bothnative-bornandimmigrant)withskillleveljintheregionallabourforce,andu1ik is thedisturbance.

13 Itshouldbenotedthatweareusingtheratioofhighskilledtothebasecategory(high-schoolgraduates)wagesandfractionalsharesofhighskilledtobasecategoryworkers(high-schoolgraduates)inthelabourmarket.

Asnoted inCard (2005), endogeneity is apotential concern if immigrantssystematicallychooseregionswithoverallhigherexpectedwageratestosettlein–aphenomenonwhichcouldresultintheover-statementofwageeffectestimates.Ouranalysisisdifferentinthisrespect,aswedefineunitsofobservationbyoccupationandgeographiclocation,ratherthanbyregionsalone.Sincemovementsacrossoccupationsbythenativebornarepotentiallylesscommon,ourspecificationhasanadvantageinthatweexpectendogeneitytobelessofanissueinourspecification.WedirectlytestedforendogeneityusingtheHausmanandWuTest.Inanumberofourspecificationswecouldnotrejecttheexogeneityofoursupplyexplanatoryvariable.Asnoted,thisislikelytoreflectourspecificationapproachwhichincorporatesbothoccupationalandregionallabourmarketchoicesbyqualification,thereby,reducingconcernsregardingpotentialendogeneityinthistypeofanalysis.Nevertheless,giventheprevalenceofendogeneityconcernsinthis literaturewepursueadjustmentsthroughinstrumentalvariables(IV)asinCard(2005),withtheexpectationthatOLSandIVestimationsmaynotvarysignificantlyinourmodels.

Potentialendogeneityisaddressedherebyusing‘thefractionofimmigrantswithaBachelor’sorhigherdegree’(sbI/sI)asaninstrumentforthesupplyofworkerswith aBachelor’s or higher degree (relative to the supply ofworkerswith a high-schoolqualification (sb / shs)).This instrument isdirectly related to theexplanatoryvariable–therelativesupplyoflabourforcewithaBachelor’sorhigherdegree,butweexpect that it isnotdirectly related to the incomeofmalenatives,partly sinceimmigrants are a small fraction of the regional/occupationmarkets. The result ofthis IVestimation (table3) isan insignificantpositivecoefficientb1.Weverify thesuitability of this instrument statistically.On the question of instrumental variablerelevance,thebatteryoftestsclearlyindicatestherelevanceofourselectedIV.Forexample, theCragg-Donald test significantly rejects theweak identification test ineachspecification(e.g.Cragg-DonaldWaldFstatisticof59.0significantlyexceedstheStock-Yogocriticalvaluefortheearningsmodel).Similarly,theKleibergen-Paaptestofunder-identificationisrejectedatthe0.0001level(Chi-Sq(1)=15.2).14Asimilarsetofresultsarealsoobtainedforthehourlywagemodels.13Assumethat E(Log(wb/whs)ik|log(sb/shs)ik)=a1+b1log(sb/shs)ik E(u1|log(sb/shs)ik)=0andE(log(sb/shs)u1=0.Alsoassumeu1~N(0,1).14WealsoconductedtheHansenJstatisticover-identificationtesttotestthevalidityoftheinstrument.Sinceourbasemodelisexactlyidentified,wetestedthishypothesisbasedonanauxiliaryexpandedspecificationwithourinitialIV(‘thefractionofimmigrantswithaBachelor’sorhigherdegree’(sbI/sI)),andasecondIV(theshareoftheentireworkforcewithaBachelor’sdegreethatareimmigrantsinrelationtotheshareoftheentireworkforcewithhighschoolqualifications(sbI/shs).ThislatterIVspecificationisalsocommonintheliterature).Theover-identificationhypothesiscouldnotberejectedineachofourmodels(e.g.theHansenJstatisticis0.268withaChi-Sq(1)p-valueof0.604fortheearningsmodel,withsimilarresultsinthehourlywageregressions).Inaddition,asexpectedfromthetestsabove,theresultsbasedonthesealternativeIVspecificationswerecompatible.



OurresultsofbothOLSandIVestimationdonotsupportthehypothesisofa negative significant relationship between immigrantswith aBachelor’s or higherdegreeandtheweeklyearningsorhourlywageofnativeswiththesimilareducationalqualifications. This isconsistentwithexplanationsthat immigrantsandthenative-born are (at least for a timeperiod) incomplete substitutes.This effectmay reflectimperfecttransferabilityofskillsbyimmigrants(seeforexample,Grossman,1982;Friedberg,2000;Bauer,et al.,2000;Borjas,2003).15

Table 3 - The effect of high-skilled labour supply on the hourly wage and weekly earnings of high-skilled native-born Log relative Log relative hourly earnings weekly wageExplanatory variable OLS IV* OLS IV*High-skilledrelativesupplyeffect{log(sb/shs)ik} 0.0491 0.0628 0.1124 0.2343(t-value) (0.93) (0.70) (1.62) (1.55)R2 0.0151 0.0133 0.0447 0.0346Notes:Basedonequation(3):Log(wb/whs)ik=a1+b1log(s

b/shs)ik+u1ik.*Instrumentforsb/shs

inIVestimationisfractionofimmigrantswithBachelor’sorhigherdegree(sbI/sI).Sample:48occupationandregionallabourmarketsperskilllevel(basedonasampleof6,166).

Wage Effects for Less-skilled Native-born Workers Oneofthepotentialunintendedconsequencesofahigh-skilledimmigrationpolicyis that some immigrantsmay not find employment in the high-skilled jobmarket.We therefore also inspect thewage effect of increased supply of immigrantswithaBachelor’sorhigherdegreeonnative-bornworkers thatdo not have high school qualifications (d)(equation(4)below).

Log(wd/whs)ik=a1+c1log(s

b/shs)ik+u1ik(4)wherewdisthemeanweeklyearningsorhourlywagesofmalenativeswithlessthanhigh-schoolcompletion(similartoCard’s‘dropout’category).Theimportantchangefrom the previous analysis, is that the dependent variable is now thewage rate ofnative-bornmalehigh school dropoutsrelativetothewagesofhighschoolgraduates(basecategory);whiletheexplanatoryvariableinunchanged.

Whiletheeffectofskilledimmigrantsonunskillednative-bornworkersisnotcommonlyexamined,weexpectthat,duetotheexperienceofsomeskilledimmigrantstobeengagedinemploymentbelowtheirskilllevel,highskilledimmigrantsmayinfactcompetemorewithunskilledthanskillednative-bornworkers.Evidenceofthis15Ourfocusinthispaperisontheeffectsofhigh-skilledimmigration. However,forabroaderpictureofpotentialwageeffects,wealsoexamined theeffectof less-skilled immigrantson thewagesofthenative-bornwithsimilar(lessthanhigh-schoolcompletion)qualification.Wefoundthattheassumptionoffactorpriceequalizationisalsorejectedfortheless-skilledsample,andtherearenosignificanteffectsofless-skilledimmigrantsonthewagesorearningsofthenative-bornwithsimilarqualifications.Theseresults(availablefromtheauthors),combinedwithourearlierresults,shownowageimpactsfromimmigrationforthenative-bornofsimilarqualificationlevels.


isprovidedintherawdata:inexaminingthemeanqualificationsofimmigrantsandnative-bornworkerswithhigherdegreesinoursample,wefindthatadisproportionatenumber of highly skilled immigrants are engaged in elementary occupations. Forexample,lessthan0.73percentofthenative-bornmalepopulationwithhigherdegreesisengagedinPlantandMachineOperatoroccupations,ascomparedto4.29percentofimmigrantswithhigherdegrees.Likewise,whilelessthan1.61percentoftheNewZealand-bornmalepopulation inour samplewith aBachelor’sdegreeorhigher isengagedinTradesOccupations,3.75percentofimmigrantswithsimilareducationlevelsareemployedintrades.

We offer a number of potential explanations for these observations. First,languagebarriersandinstitutionaldegreerequirementstendtoresultinanimperfecttransferofimmigrants’humancapital.Thisresultsinincompletesubstitutionofhighhuman capital immigrants and high human capital native workers. Furthermore,immigrantsoftenhavelessinformationandlimitedaccesstolabourmarketnetworkscomparedtonativeworkers.Additionally,employers’misperceptionsthatimmigrantshave lowhuman capital can result in similar outcomes (see for example,Bauer,et al.,2000).Arelatedemergingliteratureshowsthatskilledimmigrantswhoareover-educated,asreflectedbyemploymentinoccupationsthatrequirelessskillthantheireducationlevelpermits,receiveawagepenaltycomparedtootherswiththesamelevelofeducation,whichaffectstheirwageassimilationovertime(seeforexample,Greenet al.,2007).Theuseofoccupationaldataforhigh-skilledimmigrantsandnative-bornprovidesrealisticavenuesforanalysisoftheeffectofskilledimmigrantsonthewagesofunskillednatives.16

Furthermore,theseresultspointtotheattractivenessofauxiliarysettlementpolicies aimed at improving immigrant language proficiency, labour marketintegrationandknowledgeofemploymentnetworks.Itisexpectedthatsuchpolicychangeswouldeffectivelymitigatethisdownwardeffectonlow-skilledwagesfromhighly-skilledimmigration.

Theresultsofregression(3)arepresentedintable4.TheOLSandIVresultsindicateasmallnegativeeffectofskilled immigrationon therelativewagesofmalenativeswithnoqualification(lessthanhigh-schooldegree).17Therelativehourlywageofmalenativeswithnoqualificationis0.15percentlowerwithaonepercentincreaseintherelativesupplyofoverallmanuallabourerswithaBachelor’sdegreeorhigher.16Wealsoestimatedwageandearningseffectsforeachoccupationalgroupseparately,todeterminewhethertheresultsarebeingdrivenbyparticulargroups.Wedofind,despitesmallsamplesfortheseregressions,anegativeandsignificantimpactofhighlyeducatedimmigrantsontheweeklyearnings and the hourlywages of the groups of lower educated Plant&machine operators&assemblers.This indicates that a disproportionate number of immigrants are competing in jobmarkets significantly below their human capital category. One subcategorywithin the Plan&machineoperators&assemblersgroupsis“Taxidrivers”,whichisknownforemployingoverlyskilledimmigrants.Incontrast,theeffectofimmigrantswithaBachelororhigherdegreeontheearningsofthegroupsofProfessionalsandtradeworkerswithNoQualificationwasfoundtobepositive.Thereforethenegativeandsignificantimpact,aswehaveshown,ismorepronouncedinsomeoccupations.(Thisfullsetofresultsisavailablefromtheauthors).17Again,westatisticallyverifiedthesuitabilityofourinstrumentforthesemodelsbasedontheCragg-DonaldFstatisticforweakidentification,theKleibergen-Paaptestforunder-identification(at p values better than 0.001 in every case). We also conducted the Hansen J test for over-identificationasnotedinfootnote14,andtheover-identificationhypothesiscouldnotberejected.



Furthermore, the relative weekly earnings of unskilled locals will be reduced byapproximately0.17percentwithonepercentincreaseintherelativesupplyofoveralllabourerswithaBachelor’sdegreeorhigher.Again,forinstrumentalvariableestimation,the fraction of immigrants with a Bachelor’s or higher degree in the occupation inquestionwasalsousedhere.TheIVestimationprocessprovidedsimilarresultstotheOLSestimationprocesssuggestingthattheendogeneityproblemislimited.Figures1-2showtheinsignificantwageeffectscorrespondingtotables3and4.

Table 4 - The effect of high-skilled labour supply on the hourly wage and weekly earnings of less-skilled native-born

Log relative Log relative hourly earnings weekly wageExplanatory variable OLS IV* OLS IV*High-skilledrelativesupplyeffect -0.1459 -0.167 -0.1706 -0.1942{log(sb/shs)ik}(t-value) (-3.07)* (-2.72)* (-2.42)* (-2.68)*R2 0.2134 0.1897 0.1808 0.1737Notes:Basedonequation(4):Log(wd/whs)ik=a1+c1log(s

b/shs)ik+u1ik.Instrumentforsb/shsinIVestimationisfractionofimmigrantswithBachelor’sorhigherdegree(sbI/sI).Sample: 48occupationandregionallabourmarketsperskilllevel(basedonasampleof6,166).*:significantatthe1%level.t-statisticsinbrackets.

Asshownabove(table4),wefoundthatskilled immigrantshaveasmallereffect on the hourlywage rate than theweekly earnings of unskilledmale native-bornworkers.Thispotentiallyimpliesthataninfluxofimmigrantsreducesthehoursworkedbynativeswithnoqualification.Alternatively,thisimpliesthathigh-skilledimmigrantsemployedinunskilledjobshavehigherequilibriumhoursofworkthandonativeworkersinthesamejob.Thismaybeduetofactorssuchasaspirationsforhigherearningsorotherpersonalpreferencesamongimmigrants.

5. Sensitivity Analyses Alternative Direct Specification (Immigrant Labour Supply) Weestimatedsupplementaryregressionstothosereportedintables3and4,withanalternativeandmoredirectspecificationoftheexplanatoryvariable,asinsomeoftheliterature(seeforexample,Dustmann,et al.,2005).InsteadofusingtheratiooftheshareoftheentireworkforcewithBachelor’sdegreesinrelationtotheshareoftheentireworkforcewithhighschoolqualifications(sb/shs)asourexplanatoryvariable,wenowuse the ratioof theshareof theentireworkforcewithaBachelor’sdegreethatareimmigrantsinrelationtotheshareoftheentireworkforcewithhighschoolqualifications(sbI/shs).

Thissensitivityanalysisshowsthatitmakeslittledifferencewhetheryouusethe total share of theworkforcewithBachelor’s degrees, or just the sectionof theworkforcewithBachelor’sdegrees thatare immigrants.This, in turn, suggests thatanyincreaseinsupplyofskilledrelativetohigh-schooldegreelabourisinproportionto increases in skilled immigrants, rather than being disproportionately caused byincrease in the supply of New Zealand-born skilled workers (such as a surge indomesticuniversitygraduates.)


Interestingly,wefind littledifference in thecoefficientsor standarderrors.For example, with this alternative specification, the estimated OLS coefficient fortheweeklyearningsequationforhigh-skillednatives is0.16witha t-valueof1.23,comparedtoitsequivalentcoefficientvalueof0.11withat-valueof1.62intable3,column 3.We also repeated this alternative specification for the effects of skilledimmigration on less skilled nativeworkers (equivalent to table 4) and again foundresultsthatleadtosimilarconclusions.18

Figure 1 - Wage Effects: The effect of high-skilled immigrant supply on the weekly wage of high-skilled native-born

Explanatory variable: Overall Labour Supply with Bachelor’s of Higher Degree(sb/shs)

Figure 2 - Wage Effects: The effect of high-skilled immigrant supply on the weekly wage of high-skilled native-born

Instrumental Variable: Fraction of Immigrants with Bachelor’s or higher degree (sbI/sI)

18Wealsoestimatedregressionsequivalenttothosereportedintable4fortheless-skillednative-born,with the equivalent alternative specification of the explanatory variable (sbI / shs). TheseresultswerealsocompatiblewithourOLSandIVresultsintable4.TheOLScoefficientfortheweeklyearningsequationis–0.142forless-skillednativeswithat-valueof1.37,comparedtoitsequivalentcoefficientvalueof–0.171withat-valueof–2.42intable4,column3.

Wag

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Wag

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f Hig

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Nat

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1.5

-1

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Relative Share of Workforce with Bachelor’s or Higher Degree0 .2 .4 .6

Wag

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Fraction of Immigrants with Bachelor’s or Higher Degree (Instrumental Variable (IV))0 .2 .4 .8.6



Expanded Age Group (25-64) In thispaper theagegroup includes theagegroup25-54.Weestimatedadditionalmodels with the expanded age group 25-64 years. There is greater variation inemploymentandhoursofworkofthe55-64agegroup.Nevertheless, theexpandedagegroupallowstoincorporatepotentialeffectsofskilledimmigrationonthewagesofmorematurenativeworkers.Thenewestimatessignifythatthepreviousresultsarerobustwiththeexpandedagegroup.Forexample,theoriginalOLSestimateofthecoefficientb (theeffectofchangesinimmigrantsupplytotheoveralllabourforceintable2)is1.66withat-valueof9.61.Usingasamplewiththeexpandedagegroup,thenewestimateis1.70withacorrespondingt-valueof9.98.Similarlycloseestimatesresultfortheotheranalysesinthepaper.Forinstance,theOLScoefficientis0.112incolumn3oftable3,and0.102inthenewestimates(andstatisticallyinsignificantinbothcases).Broadeningtheagespecificationfrom25-54to25-64doesnotchangetheresultsinanysignificantway.

Change in Migration In order to determine whether the results for 2004 are robust, we estimatedsupplementary difference-in-differences (DID) estimations based on 2003 and2004 data. This DID analysis is based on the assumption that themain shock ordifference across localities over the twoyearswas the labour supply shock due toincreasedimmigrationinflow.19Theoverallfractionofthepopulationthatconsistedof immigrants increased significantly (1.3 per cent) between the years 2003 and2004.Thischangeintheshareofpopulationduetoimmigrationisrelativelylargeandequivalenttochangesacrossfive-yearcensusintervalsinmanyothercountries.However,increasesinimmigrationoverthisyearwerenotuniformacrossregions.Thegreatesteffectoverthetwoyearperiod(2003-2004)wasforthelargestmetropolitanarea(Aucklandregion),withanincreaseintheshareofimmigrantsby2.9percent.Inaddition,theyears2003and2004representaperiodwhenrealGDPgrowthwaspositiveandstable(theaveragerealpercapitagrowthfortheperiodwas2.2percent).Therefore, these two years represent similarly active economic conditions, whichsupportstheassumptionthatthemainshockacrossthetwoyearsineachregionfortheDIDanalysisistheshockcausedbytheimmigrantinflow.Theestimationscloselysupportourearlierresultsintable3(thathighskilledimmigrantshaveaninsignificantimpactonthewagesofhigh-skilledNewZealand-bornworkers)andtable4(thatthecoefficientforless-skillednativeshasanegativesign).TheDIDcoefficientforhourlywageeffectsis–0.056comparedto–0.145intable4,whichindicatesthatpotentialeffectsofhigh-skilledimmigrantsupplyonless-skilledwageissmallerimmediatelyaftermigration,comparedtotheeffectsoftheoverallpoolofhigh-skilledimmigrants,asinourmaindiscussions.

19Seeforexample,Woodridge(2010)ontheDifference-in-Differences(DID)method.


Variation of Migrant Definition (10 years since Migration) Ouranalysisdefinesimmigrantsasallforeignbornworkers.Thisspecificationreflectsbothshortandlongtermimpactsofimmigration.Weestimatedfurthersupplementaryregressionsinwhichwerestricttheanalysistoimmigrantswhohavemigratedwithinthelast10years.Thenewestimatesremainconsistentwiththeresultswhenthereisnorestrictiononyearssincemigrationofimmigrants.Forexample,incolumn1oftable3inthepaper,thecoefficientonrelativesupplyis0.049withat-valueof0.93.Therespectiveestimatewhenweconsideredimmigrantsthathavearrivedinthelastdecadeis0.028withat-valueof0.51.Bothoftheseestimatesareinsignificant.LookingattheIVestimate,therelevantcoefficientis0.063andinsignificant(table3,column2).Thecomparableestimatewiththenewspecificationis0.03andinsignificant.Theseresultssupportour earlierfindings. More specifically, they show thathigh-skillednative-bornworkersarenotadverselyaffectedbyeitherthemorerecent(withinadecade)orearlierskilledimmigrants.

We observe similar effects on the relative earnings of workers with noschoolingfromvariationintherelativesupplyofworkerswithBachelor’sorhigherdegree.For example, theoriginal estimate in column3of table4 is –0.171with at-valueof–2.42.Thenewestimateis–0.173withat-valueof–2.49.Wefindthatthereispracticallynochangeintheresultsforsupplyeffectsonworkerswithlessthanhighschooleducationwhenweuseayearssincemigrationrestriction.Ontheotherhand,thecoefficientsdecreasealittlewhenweestimatethesupplyeffectsonhighlyskillednatives, while insignificant. Nevertheless, the estimates based on these alternativevariabledefinitionsaremostcomparable,andindicatethattheresultsinthispaperarerobustacrossthesespecifications.

6. Conclusion In this paper we have investigated the effect of high-skilled immigration on thewagesofbothhigh-skilledandless-skillednative-bornworkersacrossregionalandoccupationallabourmarketgroupsinNewZealand.

The recent literature on the impact of immigrants on the wages of nativeworkershasfocussedonlow-skilledworkersintheUS.Ithasproducedresultsrangingfromnoimpacttonegativeimpactsonthewagesandemploymentopportunitiesofnative-bornworkers.Withatrendofincreasinginternationalhigh-skilledmigration,ourstudy’sfocusonhigh-skilledimmigrationrepresentsaless-studiedbutimportantaspectofinternationallabourmarketflows.Afurtherphenomenonstudiedhereisthetendencyofskilledimmigrantstofindemploymentinsectorsbelowtheirskilllevel.

First,theresultofourlaboursupplyanalysisdoesnotsupportthehypothesisof factor price equalization: New Zealand-born workers do not move to new jobmarketswhenimmigrantsarrive.ThisindicatesthatimmigrantsandNewZealand-bornworkersofcertainskill(qualification)levelstendtosettleinsimilargeographic-occupationalmarkets.Apossibleexplanationisthatskilledworkersliketocongregateincertainareastoenjoythepositiveexternalitiesofworkingalongsideotherhighlyskilledworkers.Inaddition,changingoccupationispotentiallylesscommonamongthe native-bornworkforce than immigrantswhomay face downward occupationalmovement.Ourspecificationwhichincorporatesoccupationallabourmarketchoices



inadditionaltoregionalchoicesistheoreticallyrelevantandempiricallyusefulfortheestimationofdomesticwageeffects.Importantly,theseresultsrejectthehypothesisthatthewageeffectsofanincreasedsupplyofimmigrantsmaybebiasedtowardzeroorunderestimated.

Second,inresponsetothemainquestionaddressedinthispaper,wedonotfindevidenceofanadverseimpactofhighlyeducatedimmigrantsonthewagesorearningsofhighlyeducatednative-bornworkers.However,wedofindasmallnegativeeffectofanincreaseintherelativesupplyofimmigrantswithhighereducationaldegreesfornative-bornworkerswithouthigh-schooldegrees.Weestimatea1.4to1.9percentagedecreaseintheweeklyearningsoftheNZ-bornworkerswithnoqualifications,fora10percentagepointincreaseintherelativeshareofworkerswithaBachelor’sdegreeorhigher.ThisresultisrobustacrossOLSandIVestimations.

These results are consistent with the hypothesis that there is incompletesubstitutionof immigrantandnative-bornworkersatsimilareducation levels.Thisincomplete substitution may be due to immigrants’ lack of language proficiency,difficultiesingainingrecognitionforeducationattainedoverseas,alackofaccesstoemploymentnetworks,andemployermisperceptionsofimmigrants’skilllevels.

Finally,ouranalysisseparatedthetraditionallycombinedgroupingsofworkerskillandoccupation,therebyallowingustostudythemindependently.Forexample,thisapproachallowsustorealisticallyexaminethemovementbysomeimmigrantstooccupationsthatrequirelessskill.Wefindevidencethatthisgreaterdetailinourapproachlendsitselftoandisworthyofwiderconsideration.

Overall, theuseofadetaileddata setonNewZealand labourmarketshasallowedustoexaminetheeffectsofskilledimmigrationonthewagesofnative-bornworkers,inacontrolledenvironment.Ourstudyshowedthatskilledimmigrantshavelittle effect on thewages of locally-born skilledworkers – suggesting that skilledimmigrantsarenotperfect substitutes forskilled locallybornworkers. Given thatour analysis showed thatmost highly-skilled domestic and immigrantworkers areemployed in similar occupations, this is a significant finding, indicating that theimmigrationpolicyhasbeeneffectiveinattractinghighlyskilledimmigrants,withoutimposingnegativewageeffectsonthedomesticskilledlabourmarket.Alsoofinterestistheresultthatskilledmigrationisassociatedwithlowerwagesofunskillednativeworkers. This further adds to the literature on the effect of immigration onwagerateof locals:previous literatureon theUShas found that lowskillednative-bornworkers experiencedwage reductionswith increased competition from low skilledimmigrant workers; while this study showed that low skilled native-born workersexperience wage reductions from the high-skilled immigrant workers who facelanguageandskill-transferbarriers,andthusendupcompetingwithnative-bornlessskilledworkers for jobsbelowtheirskill level.Thishas implications foranalyticaldesignrelatingtoskilledimmigrationeffects.Inaddition,ithighlightstheimportanceoffine-tuningauxiliary settlementpolicies toaccompanyhigh-skilled immigrationpolicies. Improving immigrant languageproficiency, labourmarket integration andknowledge of employment networks would enhance the success of high-skilledimmigrationpolicies.


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