Migration and labour markets in OECD countries: a panel cointegration approach

Abstract

This article examines the interaction between immigration and the host labour market of 14 Organization for Economic Co-operation and Development (OECD) countries using nonstationary panel data methodology. We estimate a trivariate Vector Error Correction Model (VECM) and derive causality tests to simultaneously assess the long- and short-term macroeconomic impact of newcomers on wages and unemployment levels in the host country. The results suggest that an increase of migrants is likely to increase wages in the destination countries in the short run but to increase them in the long run. There is no evidence of adverse effects on unemployment due to immigration in short and long-term except for Anglo-Saxon countries in the short term. Our findings also show that immigration is conditioned by levels of unemployment and wages especially in Anglo-Saxon countries.

Keywords:

• immigration
• unemployment
• cointegration
• panel
• causality

JEL Classification::

• C1
• J6
• F2

Notes

¹ Only DOLS(1,1) results are reported, because the inclusion of further leads and lags changed the point estimates only marginally.

² We choose one lag for having the most parsimonious specification but results are robust to the use of alternative lags.