The Labor Supply Curve is Upward Sloping: The Effects of Immigrant-Induced Demand Shocks

• Authors: Jonathan Vogel, Andreas Kostøl, Sigurd Galaasen and Joan Monràs.
• BSE Working Paper: 1496 | June 25
• Keywords: immigration
• JEL codes: J2 J61, F22

What is the effect of immigration on native labor-market outcomes? An extensive literature identifies the differential impact of immigration on natives employed in jobs that are more exposed to immigrant labor (supply exposure). But immigrants consume in addition to producing output. Despite this, no literature identifies the impact on natives employed in jobs that are more exposed to immigrant consumption (demand exposure). We study native labor-market effects of supply and demand exposures to immigration. Theoretically, we formalize both measures of exposure and solve for their effects on native wages. Empirically, we combine employer-employee data with a newly collected dataset covering electronic payments for the universe of residents in Norway to measure supply and demand exposures of all native workers to immigration induced by EU expansions in 2004 and 2007. We find large, positive, and persistent effects of demand exposure to EU expansion on native worker income.