The Immigration Surplus and the Substitutability of Immigrant and Native Labor: Evidence from Spain

How immigration affects the labor market of the host country is a topic of major concern for many immigrant-receiving nations. Spain is no exception following the rapid increase in immigrant flows experienced over the past decades. We assess the impact of immigration on Spanish natives’ incomes by estimating the net immigration surplus under the assumption of perfect and imperfect substitutability of immigrant and native labor of similar educational attainment. To address the imperfect substitutability of immigrant and native labor, we use information on the occupational distribution of immigrants and natives of similar educational attainment to learn about the equivalency of skilled immigrants to skilled and unskilled natives. The results show that the magnitude of the immigration surplus significantly rises with the degree of imperfect substitutability between immigrant and native labor. JEL codes: J61, F22