What is the Effect of Immigration on Wages in the United States? A Reexamination of Borjas' Education-Experience Fixed-Effects Model
This paper adds to the debate on the effect of immigration on native wages in the United States over the past 50 years by critiquing a prominent study in this field. The debate on this topic is an old one with a large body of literature behind it through which researchers have argued the merits and pitfalls of different methods of econometric analysis. One of the most influential studies of the past two decades, Borjas (2003), divides the national labor force into skill groups based on a combination of education and experience. The effects of immigration on native male wages are then analyzed using these cells as the unit of analysis for a fixed effects model spanning 1960 to 2000. The study shows a strong negative effect of immigration on native wages, earnings, and time worked along the entirety of the skill spectrum.However, the partial equilibrium model of Borjas (2003) cannot account for dramatic shifts in labor demand taking place in the US during this time period. To illustrate this, I replicate the model and analyze its results for another, simultaneous labor supply shock taking place, that is the influx of women into the US labor force. I frame this analysis as a search for omitted variable bias in the original model. I first insert data from the 2010 US Census and then a variable for the share of women in each skill cell. As expected, the results of this analysis do not show omitted variable bias in the model. Yet a close comparison of the differences in the entrance of women and immigrants into the labor market over the past 50 years, and the resulting differences in the correlation with native male wages, exposes weaknesses in the model of Borjas (2003) that explain why the results of that study show such a dramatic wage effect of immigration.
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