Immigration, Education and Wage Inequality

In this paper we analyse the effect of immigration on the labour market prospects of different skill groups among natives. We develop a model of endogenous labour supply in which immigration affects educational decisions of natives. We argue that the distributional consequences of immigration with respect to between-skill group inequality are ambiguous in general and crucially depend on the host country’s level of educational attainment. We show that this result is robust irrespective of labour market institutions as e.g., with a rigid wage regime featuring unemployment. Additionally, the model is applied to assess the impact on within-skill group wage inequality.