In this paper, we provide new explanations for the puzzling findings in the literature that migrants

do not decrease natives’ wages, and that skilled immigration can actually increase them. We

develop a model with regional labor markets and heterogeneous firms in which workers of

different skill levels are imperfect substitutes, but for a given skill level, natives and migrants are

perfect substitutes within a firm. In this setting, a skilled labor supply shock due to immigration

has two consequences. First, it induces skill-intensive firms and skill-abundant regions to expand.

These across-firm and across-region reallocations reduce the within-firm and within-region

substitution between skilled and unskilled workers, thus limiting relative wage adjustments.

Second, the average native’s wage can be partially sheltered from the negative effect of

immigration depending on the geographical settlement patterns of immigrants. Both mechanisms

make natives and migrants appear as imperfect substitutes at the aggregate level. Quantitatively,

our simulations show that the negative impact of immigration on natives' wage is halved when the

across-firm and across-region reallocation mechanisms are at work. Finally, both theory and

simulations show that when these mechanisms are coupled with human-capital externalities that

are skill-neutral at the firm level but skill-biased on aggregate, skilled immigration can increase

absolute and relative skilled wages. Therefore, firm heterogeneity, local labor markets, and

human-capital externalities are crucial for understanding the impact of immigration on natives’

wages.

Title	Year	Views	Downloads

Immigration and the Slope of the Labor Demand Curve: The Role of Firm Heterogeneity in a Model of Regional Labor Markets	2023	35	5
Three essays on the economics of immigration	2018	893	23

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Nguyen, Tuan