Local Adjustment to Immigrant-Driven Labor Supply Shocks

When comparing high- to low-immigrant locations, a large literature documents small effects of immigration on labor market outcomes over 10-year horizons. The literature also documents short-run negative effects of immigrant-driven labor supply shocks, at least for some groups of native workers. Taken together, these results suggest that there are mechanisms in place that help local economies recover from the short-run effects of immigrant shocks. This paper introduces a small-open-city spatial equilibrium model that allows, with simple reduced-form estimates of the effects of immigrant shocks on the outcomes of interest, the local adjustment to be decomposed through various channels.