Title page

Contents

Executive summary 4

Acknowledgements 5

1. Introduction 8

2. Literature 10

3. Data and descriptive correlations 12

Data and the sample 12

Descriptive evidence: The relevance of migrants in Australia 13

4. Empirical strategy 18

Main econometric equation 18

Endogeneity of the regional migrant share 19

Validity of the instrumental variable approach 20

5. Results 21

Average effect across regions and workers 21

Uneven effects across workers 23

Uneven effects across sectors 24

Robustness checks 26

6. Mechanisms 31

Margins of the employment effect 31

Digging deeper into wage effects 34

7. Concluding remarks 36

References 37

Annex A. Data 40

Annex B. Construction of variables 44

Annex C. Construction and validity of the instrumental variable strategy 45

Annex D. Alternative instrumental variables 49

Annex E. First stage regression results 51

Annex F. Alternative instruments 52

Annex G. Alternative weights 54

Annex H. Margins of the employment effects - 2SLS and OLS estimates 55

Table 1. Average effect of migration on native wages and employment 22

Table 2. Uneven effects of migration by native characteristics 24

Table 3. Uneven effects of migration by sector 25

Table 4. Alternative measures for migrant inflows 26

Table 5. Alternative instrumental variables 28

Table 6. Netting out workforce and regional characteristics 29

Table 7. Alternative geographical units of analysis 30

Table 8. Margins of the wage effect 35

Figure 1. Share of migrants across Australian regions 14

Figure 2. Share of tertiary-educated natives and migrants across Australian regions 15

Figure 3. Correlation between migration and native employment or native wages 16

Figure 4. The regional innovation effects of migration in Australia 17

Figure 5. Subflows of the net change in native employment 32

Figure 6. The regional impact of migration on the inflows and outflows of employed natives 33

Figure 7. The regional impact of migration on the subflows of employed natives 34

Boxes

Box 1. The geographical distribution of migrants 13

Box 2. Migration and regional innovation in Australia 16

Box 3. The drivers of native employment growth in the region 32

Annex Tables

Table A.1. Migrant decomposition in terms of country of origins 42

Table A.2. Baseline variables 44

Table A.3. Alternative measures of the migrant inflow 44

Table A.4. Explanatory variables in 1981 46

Table A.5. Controlling for lagged migration flows 47

Table A.6. Reduced form impact on lagged wages and employment changes 48

Table A.7. Alternative instruments 49

Table A.8. First stage regression results 51

Table A.9. Five-year changes using alternative instrumental variables 52

Table A.10. Triannual changes using alternative instrumental variables 53

Table A.11. Employment effects 54

Table A.12. The impact of migration on inflow and outflows in the labour market (OLS) 55

Table A.13. The regional impact of migration on the inflows and outflows of employed natives (2SLS) 56