The Effect of Labor Migration on Native Wages : An Empirical Analysis of the Norwegian Construction Sector

Abstract

Immigration and the effects thereof, is an important economic and political issue. It constitutes an important part of the complex phenomenon widely referred to as globalization. Immigration results in stronger competition in the labor market, and may affect the development of wages. As more and more immigrants choose to move from one country to another, the lives of the residents in the destination countries often undertake unanticipated changes. The scope, composition and impacts of immigration on “receiving” countries, their labor markets and how it affects native workers may differ on the basis of the degree of substitutability. Labor migration increases the supply of workers, and in selected industries, immigration can be an advantage for native workers who work in the same sector, through the complementarities of labor as a production input. This thesis examines the recent development in the Norwegian construction sector, with a particular focus on the evolution of wages of native workers following an unprecedented large influx of immigrant workers. There are many reasons why Norway has become attractive and is considered as one of the top destinations for migrant workers. In recent years most immigrant workers entering the Norwegian labor market originate from Central and Eastern Europe. This can in large parts be seen as consequences of the eastward enlargement of the European Union, which occurred in 2004 and 2007. An important determination for the labor market responses and adjustments will depend on the skill composition and background of the migrants. In this thesis, I investigate the Norwegian construction sector with registry data from 1998 to 2011. The thesis builds on and is inspired by the theoretical and empirical framework established in Bratsberg and Raaum (2012). My focus in the empirical analysis is on the wages of native workers employed in construction-sector firms during this period. I divide the construction sector into 15 main activity groups, and examine the development in the immigrant employment share within these activities as well as for the sector as a whole. The empirical analysis is based on registry data, where I use the variation in immigrant inflows over time and within groups defined at the national level. An important finding in my study is that there is a negative correlation between increases in the immigrant share in the construction sector and the growth in native wages – a result that corroborates the main findings of Bratsberg and Raaum (2012). When controlling for individual fixed effects, I correct for the bias created by systematic native attrition. This causes the estimated effects of an increase in the immigrant employment share on wages to become more negative. In particular, it indicates that systematic attrition of low-wage native workers from activities with growth in immigrant employment creates a positive correlation which biases estimates that overlook native attrition towards zero. In addition, I find that citizens of the new EU countries dominate the recent immigrant inflow and account for most of the downward pressure on the wage growth of native workers in the construction sector.