Immigration and Wages Inequality in France

Over 232 million people now reside in a country where they were not born. Immigrants thus account for 3.2% of the world's population. In the past two decades, the fraction of the population in developed countries that is foreign-born increased from 7% in 1990 to 10% in 2010. The rise in the demographic importance of international migration led to a parallel increase in the amount of time and effort that economists devote to studying the consequences of immigration. One of the main questions raised by economists is related to the labor impact of migration in receiving economies.

What impact do immigrants have on the wages of native workers? Economic theory has straightforward and intuitive implications about what we should expect: immigration should reduce the wage of competing workers (who have skills similar to those of the migrants), and increase the wage of complementary workers (who have skills that complement those of immigrants). If immigrants are assumed to be less skilled than the average native worker,immigration should increase the average earnings of skilled native workers and decrease the average earnings of low-skilled native workers. If the skill distribution of immigrants is similar to that of natives, immigration should not affect the relative supply of skills and thus should not change the structure of wages.

As a result, immigration should produce losers and winners depending on the skill composition of migrants -- i.e. immigration redistributes wealth in the economy. In order to investigate how the skill composition of immigrants affects the wage distribution of native workers, we study the case of France.

France is an interesting case because immigration has disproportionately increased the number of high educated workers in that country. As illustrated in Figure 1 the immigrant contribution to the supply of skills has become increasingly concentrated in the higher educational categories in France.1

While 10% of the immigrant labor force was highly educated (with a college education) in 1990, this share increased to 28% in 2010. By contrast, the share of low educated immigrants (below high school) in the immigrant labor force declined substantially from 67% in 1990 to 38% in 2010. Within this specific context, we examine how immigration has affected the native wage distribution.

Figure 1: The Educational Distribution of Immigrants over Time

The Educational Distribution of Immigrants over Time Note: The Figure reports the shares of high, medium and low educated immigrants in the immigrant labor force between 1990 and 2010. The population used to compute these shares includes all immigrants participating in the labor force aged from 16 to 64, not enrolled at school and having between 1 and 40 years of labor market experience. Self-employed people are excluded from the sample.

We quantify the impact of immigration on the French wage structure by using a structural method called the ``structural skill-cell approach''.2 3 Structural methods impose a structure on the technology of the local labor market -- i.e., they assume a specific functional form for the aggregate production function. Such assumption allows for the estimation of the complete set of factor price elasticities that determine how immigration affects the entire wage structure. Because wages in France should not adjust perfectly to immigrant-induced labor supply shifts,4 we allow the structural model to account for wage rigidities.

Table 1 shows our simulation results.5 Our simulations indicate that immigration has, on average, no impact on the wage of natives. The table also reports the distributional effects of immigration by education. We show that the skill mix of immigrants matters in determining their impact on the wages of native workers. Since immigrants to France has been disproportionately high educated in the past two decades, the simulations indicate a drop of 1.1% in the relative wage of highly educated native workers, a 0.2% gain in the relative wage of workers in the middle of the education distribution, and an increase in the wage of low educated natives by 0.5%.6

Because the supply shock of immigrant labor to France has been greater for high educated workers, immigration has served to reduce wage inequality between low educated and high educated workers. This result is consistent with the labor market trend to lower wage inequality experiencing by France since 1970.7

Table 1: Simulated Wage Impact of 1990-2010 Immigrant Influx on the Wages of Natives

All Natives High Education Medium Education Low Education
French Wages 0.0 % –1.1 % 0.3 % 0.5 %
Flexible Wages 0.0 % –2.4 % 0.6 % 1.2 %

Our results suggest that immigration has been a crucial factor in accounting for the drop in the relative wage of high educated workers in France -- immigration has contributed to the reduction of wages inequality in France. By using our structural model, we quantify the contribution of immigration to the reduction of wage inequality. We find that immigration accounts for about 18% of the reduction of wage inequality between high and low educated workers in France since 1990.

The last row of Table 1 underlines the role played by wage rigidities in reducing the impact of immigration on wage inequalities. If wages in France were perfectly flexible, the positive and negative effects induced by immigration on wages would have been larger: the negative impact of immigration on the relative wage of high educated natives would have been more detrimental.

In order to offer some guidance with respect to immigration policy, we simulate the impact of different policies with respect to migration. Our simulations show, in particular, that selective migration policies in favor of highly educated immigrants reduce wage inequality by far less than when they promote low educated immigration. We also find that these effects are larger under a scenario when I assume wages to be perfectly flexible.

  1. In France, the share of immigrants in the labor force climbed from 7% in 1990 to 10% in 2010.

  2. Borjas, G. J., “The labor demand curve is downward sloping: reexamining the impact of immigration on the labor market,” The quarterly journal of economics 118 (2003), 1335–1374.

  3. Ottaviano, G. I. and G. Peri, “Rethinking the effects of immigration on wages,” Journal of the European Economic Association 10 (2012), 152–197.

  4. Edo, A., “The Impact of Immigration on Native Wages and Employment,” CES working paper No. 13-64 (2013).

  5. We provide the long-run simulation results. They assume that capital has fully adjusted to immigration.

  6. The simulated results have a ceteris paribus interpretation. The simulations yield the change in wages due to immigration only, without accounting for the other factors that may affect native wages.

  7. Verdugo, G., “The great compression of the French wage structure, 1969–2008,” Labour Economics 28 (2014), 131–144.

The paper "Selective Migration Policies and Wages Inequality" is forthcoming in the Review of International Economics