The effect of immigration on the wage of natives, combining intensive and extensive labour supply margins

Abstract We incorporate positive labour supply elasticities on the intensive and extensive margins into a standard model looking at the impact of immigration on hourly and weekly wages in the host region. When natives and migrants are perfect substitutes, a higher labour supply elasticity on the extensive margin reduces the magnitude of the negative hourly and weekly wage elasticity resulting from immigration. Conversely, a higher labour supply elasticity on the intensive margin is very likely to amplify the negative impact of immigration on the weekly wage, due to a reduction in weekly working hours. Simulations suggest that incorporating labour supply effects offsets negative wage effects, especially for parameter values that would otherwise imply a relatively large negative wage elasticity from immigration. The change in the wage elasticity of migration from incorporating labour supply effects is often small, but for special cases where labour supply elasticities are substantial the effects can be important.