Immigration and the Slope of the Labour Demand Curve: The Role of Firm Heterogeneity in a Model of Regional Labour Markets

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ID: 332514
2026
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Abstract
Abstract In this paper, we provide new explanations for the puzzling findings that migrants do not decrease natives’ wages and that skilled immigration can increase them. We develop a model with regional labour markets and heterogeneous firms in which workers of different skill levels are imperfect substitutes, but for a given skill level, natives and migrants are perfect substitutes within a firm. In this setting, a skilled labour supply shock due to immigration induces skill-intensive firms to expand. These across-firm reallocations reduce the within-firm substitution between skilled and unskilled workers, thus limiting relative wage adjustments. When this mechanism is coupled with human capital externalities that are skill-neutral at the firm level but skill-biased on aggregate, the same skilled immigration shock can increase absolute and relative skilled wages. These two mechanisms are quantitatively important: the negative impact of immigration on natives’ wages is reduced by at least one-third when the across-firm reallocation mechanism is at work, and human-capital externalities can revert the sign of this relation.
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Authors Andrea Ariu, Tobias Müller, Tuan Nguyen
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Journal the economic journal
Year 2026
DOI
10.1093/ej/ueag130
URL
https://doi.org/10.1093/ej/ueag130
Keywords Keywords not found

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