Between 2015 and 2019, political and economic turmoil in Venezuela forced about 1.8 million people to migrate to Colombia, increasing the country’s population by almost 4 percent. Venezuelan migrants disproportionately found employment in occupations that employ less educated Colombian workers, a process known as ‘occupational downgrading’.
The author exploits the geographic variation in the arrival of Venezuelan migrants across metropolitan areas to estimate the effect of migrant occupational downgrading on native labor market outcomes in Colombia. The analysis is based on data from the nationally representative Colombian National Integrated Household Survey (GEIH), collected by the National Department of Statistics (DANE).
The data shows that Venezuelan migration increased the overall population in the sample of urban workers aged 15-64 by 6.2 percent, with the largest increases in labor supply occurring in occupations employing less-educated workers (7.9 percent, 6.2 percent and 3.9 percent for occupations employing workers with less than a secondary education, secondary education, and post-secondary education, respectively). The author constructs a counterfactual in which there is no occupational downgrading by reallocating migrants to compete with natives in their observed education group. In the counterfactual scenario, workers with secondary and post-secondary education would experience greater increases in the labor supply (5.2 percent, 8.2 percent, and 5.6 percent for occupations employing workers with less than a secondary education, secondary education, and post-secondary education, respectively).
Main results:
- The arrival of Venezuelan migrants decreased wages for Colombian workers, with the largest decreases for Colombian workers without a completed secondary education, but these effects diminish in the long term as capital adjusts. Between 2014 and 2019, Venezuelan migration decreased wages by 4.1 percent, 3.4 percent, and 0.2 percent respectively for natives without completed secondary, with completed secondary, and with post-secondary education, respectively. In the long term as capital adjusts to the increase in the labor supply, the decline in wages for workers without completed secondary and with completed secondary wage becomes 2.5 percent and 1.8 percent, respectively, while wages for workers with post-secondary education increase by 1.3 percent.
- Venezuelan migration affected the wages of existing migrants more than Colombian natives. Consistent with previous literature, the author finds that migration affects wages of existing migrants more negatively than native wages, due to the imperfect substitutability between migrants and natives.
- Occupational downgrading by migrants amplifies adverse effects on wages for natives without a completed secondary education by 30 percent, and this increases to 80 percent after capital adjusts in the long term. In the counterfactual scenario with no occupational downgrading, the increase in labor supply faced by workers without completed secondary falls from 7.9 percent to 5.2 percent, and their reduction in wages falls from -4.1 percent to -3.1 percent. As capital adjusts in the long term, the aggregate wage effect of migration is zero. However, the distributional consequences persist and the returns to undoing migrant downgrading for wage equality increase even further.
- Migrant downgrading has little effect on the wages of more educated Colombian workers, who benefit from reduced competition but are harmed by reductions in aggregate productivity. In the counterfactual scenario with no occupational downgrading, natives with secondary and post-secondary education face increased competition from natives but experience little change in their wages. Wages of natives with completed secondary are unchanged, and wages of natives with post-secondary are only slightly negatively affected, falling from -0.2 percent to -0.6 percent.
- Migrant downgrading has adverse effects on aggregate productivity. There are increases in total output from ‘undoing’ occupational downgrading, i.e., from moving migrants into more productive and relatively under-supplied jobs. In the short term, migration increases total output by 1.5 percent and 1.7 percent with and without migrant downgrading respectively. In the long term as capital adjusts, migration increases total output by 3.1 percent and 3.5 percent with and without migrant downgrading. Increases in total output increases the marginal product for all workers and offsets the greater competition faced by more educated native workers.
- The effects of migrant downgrading are more severe in developing country settings. The low substitutability across education groups, a common characteristic of labor markets in developing countries, severely amplifies the consequences of occupational downgrading for less educated Colombian workers, by segmenting the economy such that wage effects remain concentrated within education groups.
The results demonstrate how migrant downgrading can have adverse consequences for low-wage workers in developing countries, where low substitutability across education groups shields more educated natives from increases in low-wage competition. The results also highlight the importance of policies to reduce occupational downgrading among the forcibly displaced to mitigate negative wage effects for the most vulnerable natives and to maximize the economic gains from migration. Such policies would also benefit migrants. Policies to reduce occupational downgrading could include addressing remaining gaps in legal status, fast-tracking educational recognition and occupational licensing, facilitating migrant-employer networks, and reducing employer discrimination.