Natives Sorting and the Impact of Immigration on European Labor Markets

We analyze the implications of non-EU immigration for wage distribution and inequality among European workers, by focusing on their migration across local labor markets and within- and across-occupational mobility. To quantify the role of each channel, we build a multi-region, multi-occupation and multi-sector model of labor markets that replicates the regularities of labor mobility across spatial and occupational cells in Europe observed in the data. We find that non-EU immigration increases wages of the majority of European workers, while generating significant sorting across occupations (job upgrading) and inducing negative self-selection of natives into inactivity. The overall level of income inequality rises (especially the between-occupation component), fueled by natives’ mobility across jobs. The sorting of native workers across regions induced by immigration is of lesser importance for welfare and inequality, but shapes the spatial distribution of overall effects.