Remittances and the Wage Impact of Immigration

Abstract

This paper examines how the outflow of remittances affect the wages of native workers. The model shows that the wage impact of immigration depends on the competing effects of an increase in labor market competition and an increase in the consumer base. Immigrant remittances provide a unique way of isolating this latter effect because they reduce the consumer base but not the workforce. The predictions of the model are tested using an unusually rich German data set that has detailed information on remittances and wages. As expected, the results indicate that a 1 percent increase in remittances depress the wages of native workers by 0.06 percent. Furthermore, remittances predominantly affect workers in nontraded industries that are more reliant on domestic consumption.