Abstract

In this paper, we reconsider the link between immigration and labor income inequality
using detailed micro and macro-data for Norway. The macro-data are needed to
control for the fact that immigration responds to the state of the economy. The microdata are crucial to identify the heterogeneous effects of migration along the earnings distribution. We estimate a Factor Augmented Vector Autoregression (FAVAR) model tailored to include cross-sectional data to disentangle three immigration shocks (job-related, family reunifications and refugees). We find that immigration increases inequality not because workers at the bottom are more negatively affected but because workers at the top are benefiting disproportionately. This is clearly the case in response to job-related migration and to some extent also to family reunifications. Yet, results are clearly different in response to a refugee inflow. Thus, disentangling the reason for migration is of paramount importance.