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Venezuelan Exodus: the Effect of Mass Migration on Labor Market Outcomes

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Venezuelan Exodus: the Effect of Mass Migration on Labor Market Outcomes Venezuelan exodus: the effect of mass migration on labor market outcomes Julieth Santamaria∗ February 1, 2019 Abstract Unexpected and massive immigration flows are the subject of public debate in many countries that host forcibly displaced migrants. Policymakers worry about the ef- fects that free entry has on local labor markets. In addition, forced displacement adds a moral dimension to the agenda when making economic and social policy decisions. In August 2015, the Venezuelan government decided unilaterally to close the border. In mid-2016 and as a consequence of national and international pres- sure, the border re-opened. This decision along with the political instability in Venezuela caused an unprecedented increase in migration to Colombia and other countries in Latin America. Using a difference-in-differences approach, I exploit the massive immigration flow of Venezuelans to Colombia in recent years and the timing of the events to evaluate its effects on wages and employment. I use two measures of immigration flows: first, the number of registered immigrants; and second, the Internet search intensity of keywords that only Venezuelans would Google. Graph- ical analysis of both measures as well as anecdotal evidence suggests that Internet search is better than migrant counts at identifying where most of the immigrant communities are located. Concerning the effects on labor markets, I find negligible reductions in wages in the informal sector. Among the less educated, there is also a small reduction in wages in the formal sector. Employment regressions suggest mild reductions on employment in the formal sector mostly explained by a transi- tion of Colombians from the formal to the informal sector. All in all, if a Colombian worker earns 10 dollars per hour, the reduction in her salary would be of 2-7 cents of a dollar. According to these calculations, my results suggest a loss of well-being close to zero for Colombians. Keywords: Migration, Employment, Wages ∗University of Minnesota, Department of Applied Economics, PhD Student. E-mail: [email protected] 1 1 Introduction The United Nations High Commissioner for Refugees (UNHCR) reported that by the end of 2017 there were 68.5 million forcibly displaced people, 85% of whom were in developing countries. In Latin America, the unprecedented number of the Venezuelan population fleeing to neighboring countries has been the center of attention in the media and political debate in recent years. Figures reported by the International Labor Organization (ILO) and UNHCR suggest that about 3 million Venezuelans have fled the country, 80% of whom have chosen Latin American countries as their main destination. The effects that massive and instantaneous migratory flows have in host countries has been the subject of debate. Yet the literature on forced displacement is small, mainly due to the lack of data on the location and size of the migrant population in the host country. Latin America is currently witnessing an unprecedented phenomenon for the region: the so-called `Venezuelan exodus'. After years of bad government administration, high levels of inflation have generated a food crisis in Venezuela. In 2015, political frictions between Colombia and Venezuela led the Venezuelan president to order the permanent closure of the border points. It was not until a year later, in July 2016, that due to protests and international pressure the border was reopened. From this date, millions of Venezuelans have crossed the border with Colombia either to stay there or to continue on their way to other countries in Latin America. In this paper, I exploit the occurrence of the `Venezuelan exodus' and the timing of the events as a natural experiment to evaluate its effects on wages and employment in the formal and informal sector in Colombia. I use a difference-in-differences approach to evaluate the effect of the massive number of immigrants that Colombia has received recently. I focus on wages and employment by comparing regions with a high influx of migrants to those with a lower number of immigrants after the opening of the borders. The results suggest that there are negligible reductions in wages in the informal sector. Among the less educated, there is also a small reduction in wages in the formal sector. Regressions on employment suggest mild reductions on employment in the formal sector mostly explained by a transition of Colombians from the formal to the informal sector. All in all, if a Colombian worker earns 10 dollars per hour, the reduction in her salary would be of 2-7 cents . According to these calculations, my results suggest a loss of financial well-being close to zero for Colombians. Finding the impact of immigration on labor market outcomes is difficult for many 2 reasons. First, migrants are a selected group of people who usually have different demo- graphics compared to the population in their country of origin. Second, migrants choose to migrate to places where labor markets can absorb the additional supply, which causes reverse causality. Finally, inter-city migration of natives as a result of the incoming mi- grants will tend to offset the adverse effects of immigration. For these reasons, using correlations on the number of immigrants on wages and employment will result in biased estimates of the true impact. Card (1990) suggests that one way to get around these problems is to use a natural experiment, which offers an exogenous increase in the supply of immigrants. Thus, he uses the unanticipated and massive arrival of Cuban migrants (Marielitos) to the Miami labor market to assess its effect on wages and employment. As a control group, he esti- mates wages and employment equation on observables in four cities: Atlanta, Houston, LA, and Tampa. He uses the coefficients of those estimations to calculate the predicted wages and employment outcomes in Miami. He found virtually no impact on neither outcome. This result was highly controversial at the time because the black population were afraid and protested against the arrival of new immigrants. Some problems arise from his identification strategy: first, he has only one year of pre-treatment period while he uses four years of post-treatment period; second, there was a recession in the US in the early 1980s, which makes wages and employment even more volatile, third, area studies assume that the labor market is autarkic, i.e., they disregard general equilibrium effects caused by inter-city migration; fourth, there is no way to know that the four cities he selected for the wage equation make a good comparison group. The literature on migration has debated Card's results. The main argument against his study is that general equilibrium effects make identification harder using area studies. Card (2001) takes a step further to provide evidence of whether general equilibrium forces affect his estimates by testing what he calls the \skating rink mobility model," i.e., \one migrant who stakes into an area knocks one native off the ice." His results suggest that between 1980-1990, one immigrant increase in the low-skill population increases the total low-skill population by about one. In other words, inter-city migration is unlikely. Friedberg (2001) and Borjas (2003) have used country studies to account for general equilibrium effects. Friedberg (2001) used the elimination of emmigration restrictions in the Soviet Union to estimate the impact of the substantial increase of the labor supply on Israeli labor outcomes. He does not have a comparison group. Thus, under the assump- tion that workers cannot move across occupations, he uses the change of immigrants in 3 occupation j to identify the effect on wage growth. He instruments occupation of Soviet immigrants in Israel using a self-reported measure of their occupation in the Soviet Union. He found negative effects of immigration on wages using OLS estimations and positive effects using IV. Unemployment effects are also negative using the OLS estimation and positive for the IV estimation. There are two salient problems of this identification strat- egy. First, he founds a weak relationship between the occupation of immigrants in their source and host countries. This suggests that using occupation in the Soviet Union is not a good instrument for the occupation of immigrants in Israel. Second, it is possible that the reason why IV estimates show positive results is that the trend of wages and employ- ment was rising. However, he does not have enough pre-treatment data to control for that. In turn, Borjas (2003) acknowledges the improvement of Friedberg to account for general equilibrium effects. However, he argues that occupations are not labor markets and that an increase in the labor supply on certain occupations can have mixed results depending on the substitutability or complementarity of the new supply on the existing one. He argues that immigrants will compete with those natives who have the same level of education and experience. Thus, he runs and analysis on the impact of immigration on native earnings using 20 school-experience cells (4 groups of schooling, and 5 groups of experience) by decade from 1960-2000. He finds that immigration reduces wages. One of the problems in his identification strategy is that he ignores the geographical variation of the labor markets. Another problem is that his regressions have a tiny sample. A recent set of studies on this literature used exogenous immigration shocks of refugees on native labor markets. On the one hand, using refugees has the advantage that they ar- rive at their host countries on precarious conditions, usually without the ability to work on their past occupations. Their past credentials are generally not valid in their host country; therefore, they only increase competition on only the low-skill native labor mar- kets. On the other hand, the main drawback of working using refugee shocks as natural experiments is that refugees are difficult to track and, to the best of my knowledge, there is no publicly available data with information on the location and quantity of refugee population.
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