Labor Supply Shocks, Native Wages, and the Adjustment of Local Employment

87 Pages Posted: 16 Aug 2016

See all articles by Christian Dustmann

Christian Dustmann

University College London; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Uta Schönberg

University of Rochester; IZA Institute of Labor Economics

Jan Stuhler

University College London

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By exploiting a commuting policy that led to a sharp and unexpected inflow of Czech workers to areas along the German-Czech border, we examine the impact of an exogenous immigration-induced labor supply shock on local wages and employment of natives. On average, the supply shock leads to a moderate decline in local native wages and a sharp decline in local native employment. These average effects mask considerable heterogeneity across groups: while younger natives experience larger wage effects, employment responses are particularly pronounced for older natives. This pattern is inconsistent with standard models of immigration but can be accounted for by a model that allows for a larger labor supply elasticity or a higher degree of wage rigidity for older than for young workers.We further show that the employment response is almost entirely driven by diminished inflows of natives into work rather than outflows into other areas or non-employment, suggesting that "outsiders" shield "insiders" from the increased competition.

Keywords: immigration, wage effects, labor supply elasticity, internal migration

JEL Classification: J21, J22, J61, R23

Suggested Citation

Dustmann, Christian and Schönberg, Uta and Stuhler, Jan, Labor Supply Shocks, Native Wages, and the Adjustment of Local Employment. IZA Discussion Paper No. 10114, Available at SSRN: or

Christian Dustmann (Contact Author)

University College London ( email )

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Institute for Fiscal Studies (IFS)

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Centre for Economic Policy Research (CEPR)

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Uta Schönberg

University of Rochester ( email )

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United States

IZA Institute of Labor Economics

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Bonn, D-53072

Jan Stuhler

University College London ( email )

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