ABSTRACT This paper assesses the effects of immigration on the increasing residual wage inequality in the USA and UK from 1994 to 2008. It does so by using an extension of the Lemieux (2006) methodology, whereby counterfactual residual variances are constructed to account not only for composition effects (changes in education-experience of the workforce), but also for increasing immigration in the labour force. The empirical analysis reveals that residual wage inequality is higher among immigrants than among natives. However, increase in immigration does not seem to represent the major force behind the increase in residual wage inequality for the USA and for the UK.
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