Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/327118 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
Working Paper Series No. 88
Publisher: 
University of Waterloo, Canadian Labour Economics Forum (CLEF), Waterloo (Ontario)
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.
Subjects: 
Immigration
inequality
monopsony
firm productivity
immigrant-native earnings differential
JEL: 
J01
J15
J23
J31
J42
Document Type: 
Working Paper

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