Nber Working Paper Series Imperfect Substitution between Immigrants and Natives: a Reappraisal

In a recent paper, Ottaviano and Peri (2007a) report evidence that immigrant and native workers are not perfect substitutes within narrowly defined skill groups. The resulting complementarities have important policy implications because immigration may then raise the wage of many native-born workers. We examine the Ottaviano-Peri empirical exercise and show that their finding of imperfect substitution is fragile and depends on the way the sample of working persons is constructed. There is a great deal of heterogeneity in labor market attachment among workers and the finding of imperfect substitution disappears once the analysis adjusts for such heterogeneity. As an example, the finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies. George J. Borjas Kennedy School of Government Harvard University 79 JFK Street Cambridge, MA 02138 and NBER [email protected] Jeffrey Grogger Irving B. Harris Professor of Urban Policy Harris School of Public Policy University of Chicago 1155 E. 60th Street Chicago, IL 60637 and NBER [email protected] Gordon H. Hanson IR/PS 0519 University of California, San Diego 9500 Gilman Drive La Jolla, CA 92093-0519 and NBER [email protected]