THE EFFECTS OF WORKING-AGED FOREIGN RESIDENTS ON NATIVE UNEMPLOYMENT: THE CASE OF ITALY

Abstract

An increase in the foreign labor supply can create an opportunity for firms in the receiving country to reduce costs and increase productivity. If immigrants are willing and able to perform the same jobs as natives, but at a wage that is below the current market equilibrium, they may displace native laborers. In modern times, this has become a fear of utmost concern in Italy where the migrant crisis has scaled to over 150,000 annual arrivals between 2014 and 2016. This study investigates the impact of the quantity of working-aged foreign nationals on native unemployment rates. Data from the Italian Minister of the Interior on municipal resident populations contains information on the quantities, ages, and genders of foreign nationals in all 110 provinces of Italy (NUTS-3). By combining this data with descriptive provincial statistics on education, health, local economy, and business, a dynamic panel model is employed to estimate the marginal effect on native unemployment rates. I begin with a standard ordinary least squares and fixed effects models and vary the explanatory variable to include a variety of different migrant groups. Then, by exploiting migration into Italy from the Balkan Wars as an instrument, I conclude with an IV regression. Results from the OLS model indicate a small positive elasticity between most foreign migrant groups and native unemployment rates. The magnitude of these elasticities is larger when fixed effects are added. The IV model estimates are even slightly larger than in the FE model although with proportionally larger standard errors. However, it should be noted that the described effects are strongest for native males, particularly male youths (15-29), but not statistically significant for native females.