Labour market power, firm productivity, and the immigrant-native pay gap

Stephen Tino

No 88, CLEF Working Paper Series from Canadian Labour Economics Forum (CLEF), University of Waterloo

Abstract: This paper examines the importance of labor market power and firm productivity for understanding the immigrant-native pay gap. Using matched employer-employee data from Canada, I estimate a wage-posting model that incorporates two-sided heterogeneity and strategic interactions in wage setting. In the model, firms mark down wages below the marginal revenue product of labor (MRPL), and the equilibrium immigrantnative pay gap arises from differences in wage markdowns and MRPL. The findings suggest that immigrants earn 77% of their MRPL on average, compared to 84% for natives. I also decompose the immigrant-native pay gap using counterfactual exercises that account for general equilibrium responses of workers and firms. The results of the counterfactuals suggest that (i) differences in labor supply curves contribute significantly to earnings inequality between immigrants and natives; (ii) immigrants tend to work at more productive firms, driven by their tendency to work in cities where firms are more productive on average; and (iii) heterogeneity in firm productivity magnifies the contribution of labor supply differences to the immigrant-native pay gap, highlighting the importance of interaction effects.

Keywords: Immigration; inequality; monopsony; firm productivity; immigrant-native earnings differential (search for similar items in EconPapers)
JEL-codes: J01 J15 J23 J31 J42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:clefwp:327118

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