DP71 | Immigration and the Real Wage: Time Series Evidence from the United States, 1820-1977

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How migration affects economic welfare in sending and receiving countries is an important issue. This paper deals mainly with one aspect, the relation between immigration and the real wage in the host country. Theory is ambivalent on the outcome. While it is plausible to see immigration depressing the real wage consequent on increased labour supply, consideration of scale economies and migrant selection bias argue for a rise, at least in the medium term. The hypothesis that immigration affects the real wage implies that the former "precedes" or "leads" the latter. This can be expressed in terms of the Granger-causal ordering of the series. We present bivariate and trivariate evidence on the ordering for United States immigration 1820-1977, and find that Granger-causality runs mainly from immigration to real wages, and not the reverse. Similar analysis of the relationship between immigration and GNP produced weak and inconclusive results. Investigation of the direction and magnitude of the immigration-real wage effect shows that it is negative, but modest.