The Effect of Immigration on Wages: Exploiting Exogenous Variation at the National Level

Abstract

I estimate the effect of immigration on wages of native male workers correcting for endogenous allocation of immigrants across education-experience cells. Exogenous variation is obtained from interactions of push factors, distance, and skill-cell dummies: distance mitigates the effect of push factors more severely for some skill groups. I propose a two-stage approach (Sub-Sample 2SLS) that estimates the first stage regression with an augmented sample of destination countries, and the second stage with a restricted sub-sample of interest. Asymptotic properties are discussed. Results show important OLS biases. For U.S. and Canada, Sub-Sample 2SLS elasticities average around minus one, very stable across alternative specifications and different instruments.