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Estimating the Relationship between Immigrant and Native Workers in Australia: A Production Theory Approach

The impact of immigration on labour markets depends, among other factors, on the substitutability or complementarity between immigrants and natives. This relationship is examined by treating migrant and native labour, along with capital, as inputs in production process. Estimated price elasticities of substitution between immigrants and native labour suggest that in Australian context, an increase in the wage rate of one group of workers leads to an increased demand for the other. The estimated elasticities of substitution between immigrant and native workers and the complementary relationship between immigrants and capital provide an insight into the complex effects of immigration.