The Effect of Immigration on Native Earnings

This study investigates the extent of labour market competition among native Dutch workers and ethnic minorities, using national survey of the SEO and the Population statistics of the CBS. Firstly, the direct e¤ect of immigrants on local labour markets is considered. It is shown that ethnic minorities from developing countries have a positive e¤ect on the earnings of high skilled natives and an adverse e¤ect on the earning of low skilled native workers. On the other hand, ethnic minorities from EU-countries may have a negative e¤ect on the earnings of high skilled natives and a positive e¤ect on the earnings of low skilled natives. Secondly, the e¤ect of an immigration ‡ow by 5% of the total labour force on native earnings is examined along three scenarios using a general equilibrium model. It is found that immigration has a large negative e¤ect on the wages of less skilled natives and a small positive e¤ect on the wages of high skilled workers as new immigrants are less skilled than natives. In the case that immigration ‡ow is mainly composed of high skilled workers, immigration has a relative large adverse e¤ect on high skilled natives and a small negative e¤ect on low skilled natives. In all cases, medium skilled natives are a little adversely a¤ected by immigrants. Valuable comments by Paul Frijters are gratefully acknowledged. The Authors would like to thank participants in seminars at the Tinbergen Institute Amsterdam and Faculty of Economics and Econometrics, University of Amsterdam.