A study released this week by NBER measures the elasticity of substitution between American workers and their immigrant counterparts — in non-economic speak, the study asks whether immigrants are good substitutes for equally skilled native workers. While some comparisons remain murky, it appears that non-native workers are actually “perfect substitutes” for equally skilled native workers. The authors write:
In terms of the elasticity of substitution between equally skilled immigrants and natives, we conclude that the OP data, correctly analyzed, imply that the two groups are perfect substitutes. In fact, by using a statistically valid set of regression weights and by defining the earnings of a skill group as the mean log wage of the group (rather than the unconventional log mean wage used by OP), we find that the OP data reveal an effectively infinite substitution elasticity. The evidence thus implies that native workers are exposed to adverse effects from immigration-induced increases in labor supply.
The study sheds some light on the thinking behind (and backlash against) Alabama’s court-upheld crackdown on illegal immigrants.