This essay is based on the working paper “Modeling Migration-Induced Unemployment” by Pascal Michaillat.
Public anxieties about migration often focus on the idea that migrant workers "steal jobs" from local workers. This sentiment is reflected in the rise of anti-immigration political parties and policies in Western democracies. While economists have generally downplayed these concerns, available evidence suggests that a more nuanced theory of migration is required to help clarify its full impact on local labor outcomes, especially unemployment. In a new paper, I show that by incorporating the concept of labor-market tightness—how many jobs are available relative to how many workers are seeking jobs—it is possible to understand better how migration may impact the availability of jobs for local workers.
Numerous studies find that in-migration impacts local unemployment
There is substantial empirical evidence for migration-induced unemployment. Numerous studies across different countries and historical periods paint a consistent pattern: an influx of new workers, whether through international or domestic migration, raises the unemployment rate among local workers. This observation points to a competitive relationship between migrant and local workers within the labor market.
A few of these studies are worth noting. An example of domestic, rather than international, migration was the internal migration during the US Great Depression. Researchers found that for every hundred new workers arriving in a city during the Great Depression, twenty-one residents became unemployed, and nineteen locals left the city altogether. In fact, to keep migrants out, Californians had the following sign posted in other states: “NO JOBS in California / If YOU are looking for work—KEEP OUT / Six men for every job / No state relief available for non-residents.”
Similar effects have been observed with international migration. For instance, after the Algerian War of Independence in the 1960s, France experienced a large influx of French repatriates. Researchers who studied this event found that the arrival of one hundred repatriates into the French labor force resulted in twenty local workers becoming unemployed. France also received a significant number of Algerian refugees. This refugee influx had a slightly stronger impact on local unemployment: for every hundred Algerian refugees entering the labor force, twenty-seven local workers became unemployed.
A natural question that arises is whether local employment falls because locals are fired at a higher rate or because they are hired at a slower rate. By studying the entry of Czech commuters into German border towns after the fall of the Iron Curtain, researchers have found that the increase in unemployment among German workers was not due to German workers being fired from existing jobs. Instead, firms began hiring a mix of Czech commuters and German workers for new positions, making access to jobs more difficult for German workers. Through this mechanism, when one hundred commuters became employed, seventy-one Germans were pushed into unemployment.
Broadening economic theory to account for migration-induced unemployment
Despite evidence of migration-induced unemployment in various studies, the phenomenon is not discussed much in the academic literature, perhaps because existing theoretical models do not offer a way to think about it. In these models, either there is no unemployment at all or firms absorb all new workers seamlessly.
To formulate a theory that makes sense of existing evidence, I develop a model of migration that centers on labor market tightness. Technically, tightness is the number of job vacancies per jobseeker. In a tighter labor market, it is easier for workers to find jobs, so unemployment is lower. Conversely, in a slacker labor market, it is harder for workers to find jobs, resulting in higher unemployment. On the firm side, it is harder to hire workers in a tighter labor market but easier in a slacker labor market.
The model explains how in-migration, by increasing the labor supply, reduces labor market tightness. With fewer jobs available per jobseeker, the job-finding rate for local workers declines, leading to an increase in local unemployment. This mechanism, consistent with evidence from the German border towns, explains why immigration, even without direct job displacement, still leads to higher unemployment among locals.
The model goes beyond traditional economic approaches that solely focus on the wage effects of migration. By incorporating tightness, the model provides a more complete picture of how migration affects the labor market. It also resolves the long-standing Borjas-Card controversy regarding immigration’s impact on the wages of native workers by demonstrating that even if wages do not adjust downward in response to immigration, the influx of immigrants can still negatively affect local workers through reduced job-finding rates. Economists have long emphasized the positive long-run effects of immigration for the economy at large through mechanisms such as increased innovation. However, political backlash is typically generated by short-run and local effects. My paper helps to understand how immigration can generate unemployment in the short run in local labor markets.
Different impacts under varying economic conditions
The model also reveals that the impact of migration on unemployment is not uniform across all economic conditions. The severity of the impact depends on the health of the labor market. In good times, characterized by high labor demand and a tight labor market, the negative impact of in-migration on local unemployment is less severe. With abundant job opportunities, firms absorb many new workers, mitigating the resulting increase in unemployment. In bad times, characterized by low labor demand and a slack labor market, the negative impact of immigration on local unemployment is more pronounced. With fewer job openings, the competition for existing jobs intensifies, and the influx of new workers leads to a more substantial decrease in employment for locals.
Winners and losers from migration
Next, the model reveals winners and losers from migration. Local workers, facing increased competition for jobs and potentially lower wages, experience a decline in labor income. On the other hand, firms benefit from in-migration due to easier recruitment and potentially lower labor costs. Thus, the benefits from migration accrue to firms while the costs are borne by local workers.
Implications for immigration policy
Lastly, the model has implications for immigration policy. The model suggests that a procyclical immigration policy, aligned with the business cycle, may be optimal. This would involve encouraging immigration during periods when labor markets are tight and limiting immigration when unemployment is high. Such a policy balances the benefits of immigration, such as increased labor supply that makes it easier for firms to fill vacant jobs, with the need to protect local workers from job competition, particularly during times of economic hardship.
Read the full paper here.
Pascal Michaillat is an associate professor of economics at the University of California, Santa Cruz.
This essay is part of the Immigration Research Brief Series. Research briefs highlight the economic effects of immigration and enhance our understanding of today’s immigration systems.
