Immigrants-natives complementarities in production: evidence from Italy

This paper studies the impact of immigration on the Italian labor market using administrative data on Italian private-sector employees during the period 1987-2004. The analysis adopts a structural model based on a three level CES production function extending the model in Card (2001) in order to allow for imperfect substitution both between immigrants and natives within the same area-skill cell, and between females and males within the same area-skill-immigration status cell. The endogeneity of labor supply is controlled for by using an instrument based on the past immigrants' settlement as in Card (2001). The results, robust to the offsetting role of natives out-migration, provide evidence of a small but detectable degree of imperfect substitution between immigrants and natives, whereas female and male workers turn out to be perfect substitutes. Despite immigrants not having any effect on natives' employment, the simulation based on the estimated parameters suggests that a flow of low-skilled immigrants reduces mostly the wages of similarly skilled immigrants (-3.5%), and to a lesser extent those of natives (-1%).