We propose and test a novel effect of immigration on wages. Existing studies have focused on the wage effects that result from changes in the aggregate labour supply in a competitive labour market. We argue that if labour markets are not fully competitive, immigrants might also affect wage formation at the most disaggregate level – the workplace. Using linked employer−employee data, we find that an increased use of low-skilled immigrant workers has a significantly negative effect on the wages of native workers at the workplace – also when controlling for potential endogeneity of the immigrant share using both fixed effects and instrumental variables.
- Imperfect labour markets
- Wage formation