Effect of in-migration on labor demand

In-migration is seen as causing as a shift in the supply curve of labor along a constant demand curve for labor, leading to a decline in wages. The “textbook model” is summarized by Samuelson (1964): “By keeping labor supply down, immigration policy tends to keep wages high.” But the new residents stimulate the building of new housing in the moderate run and purchase non-tradeable current goods and services in all runs. These purchases shift the demand curve for labor to the right. In some U.S. metropolitan areas the increase in the demand for labor in the moderate run, as the housing market equilibrates, is larger than the quantity of labor the inmigrants supply. This shift is clearly evident in historical episodes from the 1630s in the Massachusetts Bay Colony to the 1920s in Mandatory Palestine, in which migration is clearly the exogenous causal factor. Unlike Howard (2017) and Hong and McLaren (2015), we include in the incremental demand for labor both the labor used to produce current non-tradables as well as the local construction activity spurred on by the migrants’ arrival. We use the Saiz (2010) estimate of the regionally varying price elasticity of construction as well as data on the weight of non-tradables in total consumption to predict the increase in labor demand that would be generated by in-migration for a number of large US metropolitan areas. We predict that in cities with highly elastic building supplies, a wave of in-migration can generate demand for a quantity of local labor that is twice as large as the initial inflow. We use the Saiz (2010) estimate of the regionally varying price elasticity of construction as well as Census and Consumer Expenditure Survey data on the weight of non-tradables in total consumption to predict the increase in labor demand that would be generated by in-migration for a number of large U.S. metropolitan areas.