Native-migrant labour substitution by industry and wage effects: evidence from the UK

Unlike previous studies, we estimate the native-migrant substitution elasticity (NME) differentiated by sector. To do so, we employ a straightforward estimation strategy that consists of adding slope-shifters to the reduced form of the labour demand equation to allow for sectoral differentiation and adjusting the restrictions on the efficiency parameters consequently. Our study contributes to the literature in three ways. First, this is the first example that estimates NME differentiated by industry. Second, previous studies assessed the effect of the past migration on wages. In contrast, we assess the impact of potential restrictions to unskilled EU labour in the UK and this can useful to design future immigration policies in the country. Third, our results contribute to understand the dynamics between migration and the domestic labour market in the UK and provide a lesson for other developed economies.