Migration and Increasing Wage Inequality: Can Imperfect Competition Explain the Link?

In this paper, we test two hypotheses as regarding potential effects of domestic and international migration on wage inequality. One related to the possibility of wage competition, and another alternative hypothesis related to fixed set-up costs and indivisibilities for different types of industries within the local labour market. Using detailed information on Swedish local labour markets, derived from Swedish full population data, for 1993 and 2003, a panel model of percent changes in inequality is estimated. Thereby controlling for local level fixed effects as well as other competing explanations, the results suggest that positive net migration may affect income dispersion regardless of possible negative wage competition.