The Impact of Immigration on the Labor Market: Evidence from Scandinavian Countries

Erdal Tanas KARAGÖL, Önder ÖZGÜR, Muhammed Şehid GÖRÜŞ

Abstract


The macroeconomic effects of net migration to host countries have been investigating by both scholars and experts for a long time. However, there is no consensus about its effects on the host economies in the literature.

This paper investigates the impact of immigration on the labor market in three Scandinavian countries (Denmark, Norway, and Sweden) from 1990 to 2014 through using a Panel Vector Autoregression (PVAR) model. We use the PVAR model because of investigating dynamic interlinkages between net migration, income per capita, unemployment rate, and average wages. In this study, we perform Granger causality test, variance decomposition analysis, and impulse-response functions but we mainly focus on the results of impulse-response functions.

Empirical results indicate that net migration flow gives positive responses to shock in average wage while gives negative responses to shock in the unemployment rate. Moreover, a standard deviation shock in net migration has a positive impact on its future values. In short, a positive shock in average wage in Scandinavian countries attract immigrants from abroad. Besides, a positive shock in unemployment rate leads to decrease in net migration in following years because employment opportunities in the host country deteriorate, and it becomes harder for immigrants to find a job. Lastly, a positive shock in net migration causes an increase in the number incomers in following periods. This result may be due to the fact that immigrants bring their kith and kin to the host country with time.

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