Immigration, wages, and education: A labour market equilibrium structural model

© The Author 2017. Published by Oxford University Press on behalf of The Review of Economic Studies Limited. Recent literature analysing wage effects of immigration assumes labour supply is fixed across education-experience cells. This article departs from this assumption estimating a labour market equilibrium dynamic discrete choice model on U.S. micro-data for 1967-2007. Individuals adjust to immigration by changing education, participation, and/or occupation. Adjustments are heterogeneous: 4.2-26.2% of prime-aged native males change their careers; of them, some switch to white-collar careers and increase education by about three years; others reduce labour market attachment and reduce education also by about three years. These adjustments mitigate initial effects on wages and inequality. Natives that are more similar to immigrants are the most affected on impact, but also have a larger margin to adjust and differentiate. Adjustments also produce a self-selection bias in the estimation of wage effects at the lower tail of the distribution, which the model corrects.