| Osborne Jackson
University of Michigan
The returns to skill and skill demand: Evidence from immigration and native educational attaiinment
FINAL REPORT
This study investigates the impact of immigration on market prices and how natives respond by examining how inflows of immigrant students and immigrant labor affect the postsecondary enrollment of natives. Existing studies have focused on the effect of increased immigrant demand for schooling on native enrollment, omitting the effect that changes in immigrant labor supply also have on prices relevant to native enrollment decisions. I propose, in a unified framework, that immigration-induced price movements in both education and labor markets that change the private return to higher education are mechanisms that can motivate native enrollment responses.
Using U.S. Census microdata from 1970 to 2000, I find that a 1 percent increase in relatively unskilled immigrant labor raises the rate of native college enrollment by 0.33 percent, while a 1 percent increase in immigrant college students does not significantly lower enrollment. The positive, crowd-in effect of immigrant labor inflows is driven primarily by natives ages 18-24, consistent with younger natives having college demand that is more sensitive to returns than the demand of older natives. The results imply that the rise in the average college enrollment rate of young natives between 1970 and 2000 would have been 18 percentage points higher if the skill composition of immigrant labor inflows had remained constant over this period.
With the identification of a crowd-in effect and, contrary to prior studies, the lack of a significant crowd-out effect, these findings are suggestive of college demand that is fairly wage-sensitive and college slots that are flexibly supplied over a decadal time horizon. The study shows that while immigrants do indeed affect market prices, this impact need not be particularly large to result in the crowding effects observed due to such native sensitivity to those market price changes. This implies that labor market policies altering the relative unskilled wage can have significant effects on long-run college enrollment. Moreover, higher education policies increasing the availability of local institutions can help individuals to raise their skill level in response to changes in market conditions.
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