The Impact of Immigration on Natives' Wages
Heterogeneity resulting from Product and Labor Market Regulation
Does regulation of product and labor markets alter the impact of immigration on wages of competing native workers? Exploiting the unique historical event of the German reunification, we compare the wage consequences of East Germans migrating into different segments of the West German labor market: one segment without product and labor market regulation, to which standard immigration models best apply, one segment in which product and labor market regulation interact, and one segment covering intermediate groups of workers. We find a negative effect of the large influx of close substitutes in production on the wage growth of competing native West Germans in the segment with almost free firm entry into product markets and weak worker influence on the decision-making of firms. Competing native workers were shielded from such pressure if firm entry regulation interacted with labor market institutions, implying a strong influence of workers on the decision-making of profit-making firms.