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occupations that require little schooling: tailors, graders and sorters of agricultural products, and private household service workers.
Impact of Immigrants on Native Earnings and Employment
To this point, we have talked mostly about the economic impacts of immigration on immigrants themselves. But do immigrants alter the earnings and employment opportunities of natives? If so, how much? Are all native groups equally affected by the entry of immigrants into the labor market?
In this section, we summarize the empirical evidence about the impacts that immigrants have on the wage structure of natives. Again, this summary is guided by the first principles discussion in the previous chapter. Although immigration yields a positive net economic gain to the native-born, there may be some winners and losers among native-born workers. In general, we should expect that the wages of native-born workers who are complements (the more skilled) should rise, and the wages of those who are substitutes (the less skilled) for immigrants should fall.
What determines the magnitude of these potential effects? Recall the example presented in Chapter 4 in which we drew the demand curve for domestic unskilled labor (Figure 4.1). An increase in the number of immigrants lowered the wage of substitute labor by W0 - W01 while the wages of skilled labor rose. One critical parameter that will determine how much wages may change is the steepness of this demand curve for labor. If this curve is very steep, wages of unskilled domestic labor will fall a lot. If it is very flat, wages will hardly change at all. The technical term used to describe this steepness is the elasticity of the demand for labor. Demand curves will be very elastic (flat in Figure 4.1) when there are good substitutes for this type of labor, and relatively inelastic (steep in Figure 4.1) when good substitutes are unavailable.
What does the literature on labor demand suggest that we would expect to find empirically? According to Hamermesh's extensive review (1993), the best point estimate is an elasticity of demand for labor of about 0.3. That is, the empirical evidence suggests that a 10 percent increase in the size of the labor force will reduce the wage of competing workers by about 3 percent of that change. During the 1980s, immigration increased the supply of all workers by about 4 percent. Therefore, immigration may reduce the wage of competing native workers by only about 1.2 percent.34
The theoretical discussion in Hamermesh (1993:22-28) allows us to construct an exact expression relating two relevant elasticities. In particular, the output-constant elasticity of labor demand, which we denote by e, and which gives the percentage change in the number of workers hired for a given percentage change in the wage, is equal to -(1 - s)σ, where s is the share of income that accrues to workers, and σ, is the elasticity of substitution. The elasticity of factor price (defined as the