We estimate the effect of immigrant flows on native employment in Western
Europe, and then ask whether the employment consequences of immigration
vary with institutions that affect labor market flexibility. Reduced
flexibility may protect natives from immigrant competition in the near
term, but our theoretical framework suggests that reduced flexibility is
likely to increase the negative impact of immigration on equilibrium
employment. In models without interactions, OLS estimates for a panel ...
We estimate the effect of immigrant flows on native employment in Western
Europe, and then ask whether the employment consequences of immigration
vary with institutions that affect labor market flexibility. Reduced
flexibility may protect natives from immigrant competition in the near
term, but our theoretical framework suggests that reduced flexibility is
likely to increase the negative impact of immigration on equilibrium
employment. In models without interactions, OLS estimates for a panel of
European countries in the 1980s and 1990s show small, mostly negative
immigration effects. To reduce bias from the possible endogeneity of
immigration flows, we use the fact that many immigrants arriving after
1991 were refugees from the Balkan wars. An IV strategy based on
variation in the number of immigrants from former Yugoslavia generates
larger though mostly insignificant negative estimates. We then estimate
models allowing interactions between the employment response to
immigration and institutional characteristics including business entry
costs. These results, limited to the sample of native men, generally
suggest that reduced flexibility increases the negative impact of
immigration. Many of the estimated interaction terms are significant,
and imply a significant negative effect on employment in countries
with restrictive institutions.
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