How Do Very Open Economies Adjust to Large Immigration Flows? Recent Evidence from Spanish Regions

Libertad Gonzalez, Columbia University
Francesc Ortega, Universitat Pompeu Fabra

We study the labor market effects of the large immigration wave in Spain between 2001 and 2006. In this period the foreign-born share increased from 6% to 13%, with a total inflow exceeding three million immigrants. We exploit the large heterogeneity in immigration flows across the different regions. To identify causal effects, we take advantage of the fact that immigrants’ location choices were strongly driven by earlier migrant settlements for the main countries of origin. We find that the relatively unskilled migration inflows did not affect the wages or employment rates of unskilled workers in the receiving regions. The increase in the unskilled labor force was absorbed mostly through increases in total employment. This increase did not originate in changes in the output mix, but was instead driven by changes in skill intensity. The key industries responsible for this absorption were retail, construction, hotels and restaurants and domestic services.