The Labor Supply Curve is Upward Sloping: The Effects of Immigrant-Induced Demand Shocks

What is the effect of immigration on native labor-market outcomes? An extensive literature identifies the differential impact of immigration on natives employed in jobs that are more exposed to immigrant labor (supply exposure). But immigrants consume in addition to producing output. Despite this, no literature identifies the impact on natives employed in jobs that are more exposed to immigrant consumption (demand exposure). We study native labor-market effects of supply and demand exposures to immigration. Theoretically, we formalize both measures of exposure and solve for their effects on native wages. Empirically, we combine employer-employee data with a newly collected dataset covering electronic payments for the universe of residents in Norway to measure supply and demand exposures of native workers to immigration over the period 2000-2015, surrounding EU expansions that begin in 2004. We find large, positive, and persistent differential effects of demand exposure on native worker income. Finally, we embed our qualitative theory into a quantitative framework, choose model elasticities to match our empirical estimates, and measure real wage changes for natives.