Immigration and occupational downgrading in Colombia

Between 2015-2019, approximately 1.8 million Venezuelans fled an economic and political crisis into neighboring Colombia. Despite being well-educated on average, these migrants disproportionately entered occupations that typically employ less-educated Colombians. I use a model of labor demand with imperfect substitutability between migrants and natives to study the effect of migrant occupational downgrading on native wages and inequality. Counterfactual scenarios reveal that migrant downgrading amplifies the negative wage effect of migration for natives without completed secondary schooling by 30%, and this increases to 80% after allowing for full capital adjustment in the long term. At the same time, migrant downgrading has little consequence for the wages of more-educated natives, who benefit from reduced competition but are harmed by reductions in aggregate productivity. The results highlight the consequences of migrant downgrading for wage inequality and productivity. In developing countries, these consequences are amplified by low imperfect substitutability across education groups.