The effect of immigration on the regional labor market outcome

Abstract: The effect of immigration on labor-market performance is the subject of various studies; most of those studies focus on the effect of immigrants on wages. The characteristics of the Nordics labor-market cause a shift in the focus to another labor-market outcome. The primary goal of this paper is to study the effect of immigration on the employment rate on a regional level. Two hypotheses are developed to study the correlation between immigration and the employment rate. By utilizing the autoregressive distributed lag technic for panel data, we find a positive association between immigration and the overall employment rate, as well as for immigrants' employment rate. Unit-root tests using both Levin–Lin–Chu and Harris–Tsavalis to test for time trend and cross-sectional dependence, the results show that most of the variables are integrated after the first difference I(1). Following, I perform a Westerlund cointegration test; the results for the two models show a cointegration among the variables. The two estimations developed by Pesaran PMG and DFE show different results for the two hypotheses. For the first hypothesis, Both estimators show a positive impact with the same magnitude of the share of immigrants to the total population on the employment rate, which contradict the hypothesis, and the estimators fail to capture the effect of education on the employment rate. Also, the density tends to affect the employment rate positively. A post estimation diagnostic, namely, the Hausman test, shows that the PMG estimator is both efficient and consistent. The second hypothesis of the correlation between the immigrants’ employment rate and their share of the population produces less clear results. Here the PMG estimators show no association with the share of immigrants, while the human capital coefficient is significant, the density coefficient is in both estimations. The DFE methods for the second hypothesis is similar in results for the first hypothesis, which implies a positive relationship between the share of immigrants and the immigrants' employment rate.