Wages, Rents and Prices: the Effects of Immigration on U.S. Natives

In this paper we document a strong positive association between immigration and average wages and price of houses of native individuals across U.S. states and metropolitan areas over the period 1970-2005. Most of the existing literature, focussed on relative wage effects of immigration, missed these strong correlations. By constructing an instrumental variable that proxies the supply-driven component of immigration at the state level we show that the positive wage and housing price effects seem genuinely caused by immigration and not by unobserved demand shocks. Then, using parameters estimated on the aggregate U.S. economy and a simple model, we are able to simulate quantitatively most of the estimated effects of immigration on wages and housing prices, for the average native. We also calculate the distributional effects on highly, medium and less educated natives and we find that all these groups in the average U.S. state experienced increases in their total real income (wage plus housing income) as a consequence of the 1990-2005 immigration. This is due to the combination of two facts: foreign-born workers do not perfectly substitute natives in production and immigrants have lower house ownership rates than natives, so that house price increases act as a transfer from immigrants to natives.