This paper estimates the short-term consequences of Venezuelan immigration on the labor and poverty outcomes of native Colombians. The analysis is based on monthly migration and labor market data from the Colombian Department of Statistics over the period 2013-17. The authors employ an instrumental variables approach to account for the selection by immigrants of locations with more desirable employment conditions and/or amenities (with distance between all Venezuelan and Colombian locations and pre-crisis enclaves as the instrumental variable).
The author highlights several characteristics of the situation in Colombia relevant to the analysis:
- The influx of Venezuelan migrants followed repeated supply shocks to the labor market due to large-scale internal displacement (2.5 million IDPs between 2000 and 2006).
- Venezuelan migrants speak the same language as native workers in Colombia, permitting substitution between immigrant and native workers with similar skills.
- Binding minimum wages in the formal sector in Colombia effectively restrict the number of people employed in the formal sector to below the equilibrium level, and consequently workers unable to obtain a job in the formal sector move to the informal sector.
- During the period under investigation (2013-2017), there were fewer opportunities for Venezuelans to obtain visas permitting their participation in formal sector employment.
- Compared to Colombian citizens, Venezuelan migrants are generally younger, less likely to have a basic education, and can be characterized as unskilled.
Key results:
- Inflows of Venezuelan migrants produced a negative welfare effect in the short term. A one percentage point increase in the share of Venezuelan immigrants reduces wages by 8 percentage points. Considering only Venezuelan migrants who arrived in the last five years, a one percentage point increase in immigration rates decreases hourly wages by 3 percentage points.
- The wage effects are mainly attributable to occupational downgrading, whereby high-productivity workers potentially become inactive or seek jobs that do not match their qualifications.
- The wage effects are more pronounced for young people. Youth (15–24 years) experience exceptional wage declines in the order of 10 percentage points.
- The wage effects are largely concentrated in urban areas. In urban areas, a one percentage point increase in immigration results in a 9 percentage point decrease in wages. There are no statistically significant effects on the wages of workers in rural areas. The geographic disparity in wage effects may be due to the greater presence of informal activities and commerce in urban zones.
- Men bear the brunt of the labor supply shocks in urban settings, particularly men who are low-skilled. The wage losses for men are in the order of 10 percentage points per one percentage point increase in immigration, while the losses for women are 7 percentage points. The shocks also are much larger for low-skilled workers. There are no significant differences in urban wage losses by worker age.
- Returning Colombian migrants reduce the average wage effect. A one percentage point increase in the immigration rate of only the Venezuelan-born leads to a 12 percentage point reduction in urban hourly wages, compared to an average effect of 9 percentage points when returning Colombian migrants are included.
- The urban wage losses are largely concentrated in the informal sector. A one percentage point increase in the share of Venezuelan immigrants in the department on average leads to an 11 percentage point loss in urban wages using the national definition of informal sector and a 10 percentage point loss in urban wages when defining informal workers as those who receive partial benefits.
- Estimated wage losses coincided with increases in poverty rates. A one percentage point increase in the share of Venezuelan immigrants has increased the rate of poverty by 2 percentage points.
Overall, the estimates indicate that a one percentage point increase in Venezuelan immigration causes a 10 percentage point wage decline among informal sector workers living in urban areas in the short term. The authors conclude that, given the immediate effects of immigration on poverty, a dual-pronged approach is warranted to promote the economic assimilation of Venezuelans while protecting the job security of Colombians.