Protective or counter-productive? labour market institutions and the effect of immigration on eu natives

Reduced labour market flexibility may protect some native workers from immigrant competition but can increase negative effects on equilibrium employment. This motivates an analysis of immigration effects interacted with institutions. OLS estimates for European countries show small, mostly negative immigration effects while an IV strategy based on immigrants from former Yugoslavia generates larger though mostly insignificant negative estimates. Specifications allowing interactions between immigration and measures of labour and product market rigidity are consistent with the view that reduced flexibility increases negative immigration effects. The estimates typically imply more native job losses in countries with restrictive institutions, especially restricted product markets. Copyright 2003 Royal Economic Society.