The impact of immigration on the domestic labor market. A review of the literature

According to the 1951 Geneva Convention “the term "refugee" shall apply to any person who [...] owing to well-founded fear of being persecuted for reasons of race, religion, nationality, membership of particular social group or political opinion, is outside the country of his nationality [...]”. In 2015 there were about 21 millions refugees all over the world, meaning that at least 21 millions forced migrants lived in a country different of that of birth. These figures are the highest from the Second World War and the European refugee crisis is drawing large attention from all the social sciences. Economics is giving new insight to the current situation, as witnessed by the increasing literature on the effect of refugees and immigrants on welfare and on political preferences. Furthermore, economics can give its contribution by analyzing and explaining the reaction of the market to this shock. Indeed, the economic literature has been giving attention to the effects of immigration on the receiving country from long time, motivated by the great importance that the phenomenon has always had for the American society. Among others, most of the studies have concerned with the impacts of immigration on the economic growth, on the international trade and on the domestic labor market. Regarding this last point, the main concern of labor economists has been the effects of immigrant workers on the labor market outcomes of natives, especially on wages. Clearly the answer to the question “Do immigrants worsen the labor market conditions of natives?” is not unique neither in theory nor in the data. We review here some seminal papers that in various ways have tried to answer to the previous question. As will be more clear in the following, these contributions can be split into three streams – the competition between natives and immigrants, the location decisions of natives, and the reaction of firms. Each of them deserves to be analyzed separately. Nonetheless, they are mutually related and their results contribute to draw a general framework within which we can understand the reaction of the domestic economy to a migration flow. The paper is organized as follows. Section 2 reviews the early economic studies on the effect of immigration on native workers, which have started the ongoing debate. Section 3 analyzes researches that have measured the competition between immigrants and natives in the labor market. Section 4 and section 5 present respectively the empirical studies on the natives location decisions and on the firms reaction following a migration shock. Section 6 concludes.