This paper investigates the impact of Venezuelan migration on the Colombian labor market, focusing on the phenomenon of occupational downgrading. Between 2015 and 2019, political and economic turmoil in Venezuela forced about 1.8 million people to migrate to Colombia, increasing the country’s population by almost 4 percent. Despite having similar educational attainment as Colombian natives, and despite sharing a common language and similar cultural background, Venezuelan migrants are highly concentrated in occupations that typically employ less-educated workers, a phenomenon known as ‘occupational downgrading’.
The author exploits the geographic variation in the arrival of Venezuelan migrants across metropolitan areas. The primary data source is the Colombian National Integrated Household Survey (GEIH). This includes a migration module that allows for tracking both migration rates and labor market outcomes for migrants and natives across locations and over time. The study focuses on 79 metropolitan areas in Colombia, representing around 80 percent of the Colombian population and 90 percent of Venezuelan migrants.
The data reveals that Venezuelan migration increased the overall population of urban workers aged 15-64 in the sample by 6.2 percent. This influx disproportionately affected occupations employing less-educated workers, with labor supply rising by 7.9%, 6.2%, and 3.9% for those with less than a secondary education, secondary education, and post-secondary education, respectively.
To assess the impact of occupational downgrading, the author constructs a counterfactual scenario where migrants are reallocated to compete with natives in their observed education group, eliminating downgrading. This counterfactual shows that, without downgrading, the labor supply increases would be more evenly distributed across education levels, rising by 5.2 percent, 8.2 percent, and 5.6 percent for occupations employing workers with less than a secondary education, secondary education, and post-secondary education, respectively.
Main results:
- Migrant downgrading reduced wages for less educated Colombians. Venezuelan migration decreased wages for Colombian workers, with the largest decreases for Colombian workers without a completed secondary education. Between 2014 and 2019, Venezuelan migration decreased wages by 4.1 percent, 3.4 percent, and 0.3 percent respectively for Colombian workers without completed secondary, with completed secondary, and with post-secondary education, respectively. These effects diminish in the long term as capital adjusts. The decline in wages for workers without completed secondary and with completed secondary wage becomes 2.5 percent and 1.8 percent, respectively, while wages for workers with post-secondary education increase by 1.3 percent.
- Venezuelan migration affected the wages of existing migrants more than Colombian natives. Migration has a more negative impact on the wages of existing migrants than on native Colombian wages, due to the imperfect substitutability between migrant and native labor.
- Migrant occupational downgrading amplifies adverse wage effect for Colombians without a completed secondary education by 30 percent in the short term, increasing to 80 percent in the long term. In the counterfactual scenario without occupational downgrading, the increase in labor supply faced by workers without completed secondary falls from 7.9 percent to 5.2 percent, and their reduction in wages falls from -4.1 percent to -3.1 percent. In the long term, the aggregate wage effect of migration is zero. However, the distributional consequences persist and the returns to undoing migrant downgrading for wage equality increase even further.
- Migrant downgrading has little effect on the wages of more educated Colombian workers, who benefit from reduced competition but are harmed by reductions in aggregate productivity. In the counterfactual scenario with no occupational downgrading, natives with secondary and post-secondary education face increased competition from natives but experience little change in their wages. Wages of natives with completed secondary are unchanged, and wages of natives with post-secondary are only slightly negatively affected, falling from -0.2 percent to -0.6 percent.
- Migrant downgrading has adverse effects on aggregate productivity, leaving educated Colombians no better off. There are increases in total output from ‘undoing’ occupational downgrading, i.e., from moving migrants into more productive and relatively under-supplied jobs. In the short term, migration increases total output by 1.5 percent and 1.7 percent with and without migrant downgrading respectively. In the long term as capital adjusts, migration increases total output by 3.2 percent and 3.6 percent with and without migrant downgrading. Increases in total output increases the marginal product for all workers and offsets the greater competition faced by more educated native workers.
- The effects of migrant downgrading are more severe in developing country settings. The low substitutability across education groups, a common characteristic of labor markets in developing countries, amplifies the consequences of occupational downgrading for less educated Colombian workers, by segmenting the economy such that wage effects remain concentrated within education groups.
The results demonstrate how migrant downgrading can have adverse consequences for low-wage workers in developing countries, where low substitutability across education groups shields more educated natives from increases in low-wage competition. The results also highlight the importance of policies to reduce occupational downgrading among the forcibly displaced to mitigate negative wage effects for the most vulnerable natives and to maximize the economic gains from migration. Such policies would also benefit migrants. Policies to reduce occupational downgrading could include addressing remaining gaps in legal status, fast-tracking educational recognition and occupational licensing, facilitating migrant-employer networks, and reducing employer discrimination.