The Role of Institutions in the Labor Market Impact of Immigration

Mette Foged | Linea Hasager | Vasil I. Yasenov

We study the role of labor market institutions and policies in affecting the wage impact of immigration using a cross-country meta-analysis approach. We gather information on 1,548 previously reported semi-elasticities from 66 academic studies covering 20 developed countries. We supplement this dataset with country-level institutional structure and coverage data from the OECD. These include employment and wage rigidities, labor mobility, active labor market programs spending, and product market regulation. We relate estimated wage effects and institutional coverage while controlling for local economic conditions, immigrant skill composition, time and region fixed effects, and study characteristics. Higher labor market rigidity, as brought about by more widespread institutions, regulations and policies, mitigates the effects on relative wages of high- versus low-skilled natives but exacerbates the impacts on average earnings. Overall, our results suggest that labor market institutions and policies may be effective tools in the economic absorption of foreign workers.