Monopsony and the wage effects of migration
In a generalization of the well-known “immigration surplus” result, we show immigration must always increase the average native worker’s marginal product, in any long-run constant returns economy. But in a monopsonistic labor market, immigration may also affect native wages through the mark-downs imposed by firms. Using standard US census data, we reject the restrictions implied by the traditional competitive model. We find that immigration increases mark-downs, and this effect quantitatively dominates the improvements in natives’ marginal products. The capture of migrants’ rents significantly expands the total surplus going to natives, but redistributes income among them (from workers to firms).
7 May 2020 Paper Number CEPDP1690
This CEP discussion paper is published under the centre's Labour markets programme.