Are Immigrants and Natives Perfect Substitutes in Production? 1

Abstract

It is hypothesized that immigrant and native labor are less than perfect substitutes in production. Natives are relatively more intensive in country-specific knowledge and skills. Immigrants are relatively more intensive in the characteristics that influence self-selection for migration, including innate ability, ambition, entrepreneurship, and aggressiveness. The hypothesis is tested by comparing, for five major immigrant receiving countries, the ratio of immigrant to native labor and the ratio of immigrant (and second-generation) to native earnings, other variables held constant. A significant negative relation emerges, although the implied elasticity is high. The data for each country are from household surveys and censuses.