The effect of immigration on natives’ incomes in Finland

Abstract

I study the impact of immigration on natives’ earnings along their income distribution in Finland. By exploiting spatial and temporal variation in inflows of foreign-background migrants combined with a shift-share instrument I find that immigration has a negative and statistically significant effect on natives below the 40th income percentile, near zero effects on those between the 40th and 85th percentiles, and slightly positive but statistically insignificant effects on the those in and above the 90th percentile. The effects are largely more intense further away from the median. The implication is that immigrants are more substitutable with low-skill Finnish labor and more complementary to high-skilled natives which results in immigration increasing income inequality at least in the short-run.