Abstract

While immigration of unskilled workers often generates controversy in the political arena, there is often more consensus in favor of selective immigration policies. This paper studies the effects of selective immigration policies on the labor market. High skilled immigration introduces two potentially confronting forces on labor market prospects of native workers: first, it increases the competition for skilled jobs, reducing labor market opportunities, and, as a result, reducing native incentives to invest in human capital; second, it increases productivity through spillovers and technological progress. I pose and estimate a labor market equilibrium dynamic discrete choice model that can account for these effects. The estimated model is used to evaluate the labor market consequences of the two most important skill-biased immigration policies in recent U.S. history: the introduction of H-1B visa program in 1990, and the elimination of the National Origins Formula in 1965. I also use the model to simulate the level of selectivity of immigration policy that maximizes native workers’ wellbeing.