published in: Economic Journal, 2003, 113 (488), F302-F331
We estimate the effect of immigrant flows on native employment in Western Europe, and
then ask whether the employment consequences of immigration vary with institutions that
affect labor market flexibility. Reduced flexibility may protect natives from immigrant
competition in the near term, but our theoretical framework suggests that reduced flexibility is
likely to increase the negative impact of immigration on equilibrium employment. In models
without interactions, OLS estimates for a panel of European countries in the 1980s and
1990s show small, mostly negative immigration effects. To reduce bias from the possible
endogeneity of immigration flows, we use the fact that many immigrants arriving after 1991
were refugees from the Balkan wars. An IV strategy based on variation in the number of
immigrants from former Yugoslavia generates larger though mostly insignificant negative
estimates. We then estimate models allowing interactions between the employment response
to immigration and institutional characteristics including business entry costs. These results,
limited to the sample of native men, generally suggest that reduced flexibility increases the
negative impact of immigration. Many of the estimated interaction terms are significant, and
imply a significant negative effect on employment in countries with restrictive institutions.We estimate the effect of immigrant flows on native employment in Western Europe, and
then ask whether the employment consequences of immigration vary with institutions that
affect labor market flexibility. Reduced flexibility may protect natives from immigrant
competition in the near term, but our theoretical framework suggests that reduced flexibility is
likely to increase the negative impact of immigration on equilibrium employment. In models
without interactions, OLS estimates for a panel of European countries in the 1980s and
1990s show small, mostly negative immigration effects. To reduce bias from the possible
endogeneity of immigration flows, we use the fact that many immigrants arriving after 1991
were refugees from the Balkan wars. An IV strategy based on variation in the number of
immigrants from former Yugoslavia generates larger though mostly insignificant negative
estimates. We then estimate models allowing interactions between the employment response
to immigration and institutional characteristics including business entry costs. These results,
limited to the sample of native men, generally suggest that reduced flexibility increases the
negative impact of immigration. Many of the estimated interaction terms are significant, and
imply a significant negative effect on employment in countries with restrictive institutions.
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