Wage Effects of Immigration in a Bargaining Economy

Most empirical studies on wage effects of immigration disregard common labour market institutions like the requirement of job offer before entry to the host country and wage bargaining. The model presented here accounts for these institutions and finds a rationale for the empirical studies’ treatment of the migrant share as a determinant of natives’ wages. A higher migrant share is shown to lower the native’s wage but only temporarily. After assimilation the wage subsequently returns to its original level. The results suggest that empirical studies of wage effects of immigration should focus on unassimilated immigrants having low reservation wages.