The Impact of Immigration on Workers’ Protection

Even though the existing literature investigating the labor market impact of immigration assumes, implicitly or explicitly, that the law or labor market regulation is exogenous to immigration (in terms of both size and composition), this is not necessarily the case. To examine this link, we build a novel workers’ protection measure based on 36 labor law variables over a sample of 70 developed and developing countries from 1970 to 2010. Exploiting a dynamic panel setting using both internal and external instruments, we establish a new result: immigration impacts workers’ protection in the direction of the origin country workers’ protection (composition channel), while we find a small negative or null effect for the immigrant population (size channel). The composition channel, or the law transfer effect, is particularly strong for two components of the workers’ protection measure: worker representation laws and employment forms laws. Our results are consistent with suggestive evidence on transmission of preferences from migrants to their offspring (vertical transmission), and from migrants to natives or local political parties (horizontal transmission). Finally, calculations based on the estimated coefficients suggest that immigration, on average, contributes to a reduction in workers’ protection, particularly in OECD high-income countries.