How do very open economies adjust to large immigration flows? Recent evidence from Spanish regions

In recent years, Spain has received unprecedented immigration flows. Between 2001 and 2006 the fraction of the population born abroad more than doubled, increasing from 4.8% to 10.8%. For Spanish provinces with above-median inflows (relative to population), immigration increased by 24% the number of high school dropouts while only increasing college graduates by 11%. We study different channels by which regional labor markets have absorbed the large increase in relative supply of low educated workers. We identify the exogenous supply shock using historical immigrant settlement patterns by country of origin. Using data from the Labor Force Survey and the decennial Census, we find a large expansion of employment in high immigration regions. Disaggregating by industry, the absorption operated through large increases in the share of low-educated workers, compared to the same industry in low-immigration regions. We do not find changes in sectoral specialization. Overall, and perhaps surprisingly, the pattern of absorption is very similar to the one found in the US.