Skilled Immigration and Wages in Australia*

This paper addresses the implications of the increasing skill intensity of cross-border migration flows for labour market outcomes in host countries. Specifically, we investigate the impact of the relative growth of skilled migrants on domestic wages in Australia over the last quarter century (1980-2006). We use instrumental variable (IV) estimation techniques to deal with the potential endogeneity of immigration. Unlike most of the previous literature, we use macro data to allow for the adjustment of wages and aggregate demand to immigration flows. However, the limited time span of such data raises problems of small sample bias. We address the small sample bias problem by using Jackknife IV estimation. Our basic finding challenges popular presumptions about the adverse wage implications of immigration. However, our examination of the skill composition of migration flows supports the many prevailing empirical findings that immigration need not cause labour market outcomes to deteriorate. Specifically, we do not find any robust evidence that a relative increase in arrivals of skilled immigrants exerts discernible adverse consequences on wages in Australia.