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Abstract
Immigrants are always accused of stealing people’s jobs. Yet, by assumption, standard immigration models rule out such displacement of native workers by immigrants. Indeed, in neoclassical model of the labor market, there are jobs for everybody and no jobs to steal—there is no unemployment, so anybody who wants to work can work. In standard matching models, there is some unemployment, but labor demand is perfectly elastic. Thus, when immigrants enter the labor force, they are absorbed without affecting native jobseekers’ prospects. This paper shows that in a matching model with job rationing, in contrast, the entry of immigrants reduces increases the unemployment rate of native workers. Moreover, the reduction in employment rate is sharper when the labor market is depressed, because jobs are scarcer then. Because immigration reduces labor-market tightness, it makes it easier for firms to recruit and improves firm profits. The overall effect of immigration on native welfare depends on the state of the labor market. It is always negative when the labor market is inefficiently slack, but some immigration improves welfare when the labor market is inefficiently tight. The proposed model features a downward-sloping labor demand and rigid wages, so it reconciles the Borjasian and Cardian views of immigration. The novelty is that the adjustment to immigration does not happen through wages but through labor market tightness, which itself determines workers’ job-finding rate.
Figure 2: Impact of immigration on the labor market
Citation
Michaillat, Pascal. 2023. “Modeling the Displacement of Native Workers by Immigrants.” arXiv:2303.13319v1. https://doi.org/10.48550/arXiv.2303.13319 .