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The Dynamics of Migration and Economic Adjustment

Final Report Summary - DMEA (The Dynamics of Migration and Economic Adjustment)

The project consists of two sub-projects

Part 1: Dynamic Behaviour of Immigrants over Migration Cycle
The project develops and estimates a life-cycle model of immigrants' labor market and consumption decisions, taking explicitly account of the possibility of return migration. Individuals differ in ability and location preference and decide on investment in human capital, labor force participation, savings and the optimal migration duration. The model is estimated combining several survey and register data sets that provide unique repeated information on immigrants’ return intentions and realized return migrations. The analysis highlights a form of selective outmigration where those who plan to stay longer invest more into skills, and have thus steeper career paths, which has important implications for assessment of immigrants’ career paths and the estimation of their earnings profiles. The research has important implications (i) for the estimation of immigrants’ earnings profiles; (ii) for the relation between immigrants and natives; (iii) for assessment of migration policies.

Part 2: Immediate and Dynamic Adjustments of Native Workers
The project addresses the question how a large and unforeseen labor supply shock to a particular region or country affects native workers. It first exploits a rare commuting policy that led to a sharp, sudden, and unexpected inflow of Czech workers to areas along the German-Czech border to examine the impact of a pure labor supply shock on native wages and employment. This “natural experiment” in conjunction with excellent register based longitudinal data covering the entire population of both natives and immigrants allows exploring mechanisms of adjustment in much more detail than most previous work.

In a second part, we provide a thorough classification of the empirical literature on the wage impact of immigration, structuring it into three groups, where studies in the first two estimate different relative effects, and the third the total effect of immigration on wages. The analysis interprets the estimates obtained from the different approaches through the lens of a canonical model to demonstrate that they are not comparable, which explains partly why the many papers in this literature come to different conclusions. The research provides important insights into the estimation of the effect immigration has no native wages. It shows that heterogeneous labor supply elasticities, if ignored, may complicate the interpretation of wage estimates, in particular of relative wage effects. Moreover, “downgrading” (where immigrants work in lower segments of the labor market than natives with the same age and experience) may lead to biased estimates in those approaches that estimate relative effects of immigration, but not in approaches that estimate total effects. The research shows further that empirical models that estimate total effects not only answer important policy questions, but are also more robust to alternative assumptions than models that estimate relative effects. This has important implications for the research on the effects of immigration on native wages and employment.