Debunking the myths on the effect of immigration on labour market

Labour market is a platform that acts as an intermediary between the employers and workers, where workers strive to earn the best-possible job and employers employ the worker with all the necessary qualifications.

The ‘napkin theory’ of the simplified demand and supply curve, according to which the immigration of labour would lead to a rightward shift in the supply of labour in the market, and would result in lower equilibrium wages, fails to come into play. There is a fundamental difference between the goods sold in the producer and consumer markets, and the workers of the labour market. The inability of firms to fire workers due to the presence of labour laws, market rigidities and authority of trade unions results in a longer relationship between the worker and the employer. Firms are concerned about labour turnover and productivity among other factors that compels firms to be more careful while hiring farmers. Thus, the supply created by immigration would not readily induce its demand. The heterogeneity of labour skills and the information asymmtery in the labour market about the skills and requirements undermines the Marxist beleif that ‘labor power’ is similar to any other commodity of market. It has also been seen that the a huge influx of low-skilled immigrants hurts the incomes and employment of natives in a very minimal way in the long-run. Although the surplus of labour would initially decrease the wages in the economy, but these migrants would induce a greater demand for labour through an increased consumption of goods and services, fuelling an increase in the aggreagte demand in the economy, thus bringing down unemployment.

The case of low-skilled workers has shown that when there is a suplus of these labourers in the market, businesses tend to make lesser capital expenditure on technology and hire low-wage workers. The workers, involved in agriculture, in different countries shows that adoption rate of technology increased drastically after the eviction of these workers. In addition, some farmers changed their cropping pattern, switching to less labour-intensive crops.This can be seen from the stong co-relation between these variables in Israel and Germany. In some other cases, the arrival of immigrants may influence the firms to reorganize their workforce, leading to occupational upgrading, increase in work complexity, and task specialissation. Giovanni Peri and Chad Sparber have found that immigrants occupy the lower hierachy of the labour maket and provide an incentive to natives to alter their roles. The econometric analysis of local case studies has stronly suggested the proposition that migration might disrupt wages and employment in the short-run, however these discrepancies diappear in the long-run. The entry of these workers has also seen to motivate women to work outside their homes and has been marked by the entry of high-skilled women in the labour market due to an increased freedom from domestic repsonsibilties.

The increase in immigration laws and regulations prevents low-skilled workers with mere incomes to migrate into other countries.It can be seen that in the case of ‘Fortune 500 companies’, 43 % of them were either founded or co-founded by immigrants. Therefore, the pool skilled migrants would bring with them exceptional skills, abilties and talents, creating huge positive externalities on the economy. In addition , many Indians who had wanted to have white-collar jobs have ended up doing blue-collar jobs in many European coutries and other parts of the world. The impact of skilled labourers on the labour market is higher and it actually creates unemplyment for native workers. This is more likely to occur because the theory of efficiency wages is limited in its effect to skilled jobs. In addition, firms try to employ workers with the required skill set, which might be fufilled by immigrants. However, this issue has received mixed repsonses because it has been seen that migrant workers have been able to provide cheaper services to the low-income natives at the costs of declining employment oppurtutnties for the natives at the same time.

It is commonly assumed that the higher wages of developed countries attract immigrants, but they actually have a little effect on it. The example of Delhi and Uttar Pradesh has shown that although some people migrate but a large proportion of population choose to stay back in the countryside. A very samll proportion of Greek citizens migrated from Greece when the nation was reeling under the predicament of the economic crisis.


  1. BANERJEE, ABHIJIT V. DUFLO ESTHER. GOOD ECONOMICS FOR HARD TIMES: Better Answers to Our Biggest Problems. PENGUIN Books, 2020.
  2. Sumption, Madeleine, and Will Somerville. Immigration and the Labour Market: Theory, Evidence and Policy. Migration Policy Institute, 2009, Immigration and the Labour Market: Theory, Evidence and Policy,



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Saatwik Panigrahi

Saatwik Panigrahi

Economics and Mathematics @ New York University