The Impact of Immigration on Average Income in Sweden

The economic impact of immigration has been one of the most salient issues for many countries in Europe. Does the increase of immigration lead to negative economic outcomes for the local population? We study the effect of the rise in immigration density on the local income levels in all 290 municipalities in Sweden. We utilise the panel data of the average income in the region as well as the average income of identified ethnic groups to study the heterogeneous impact of immigration on the labour market. By using the internal instrument of immigration density level in 2011, we address the issue of reverse causality present between immigration density and local income levels. Moreover, we exploit the variation in immigration policy between Denmark and Sweden to conduct a Difference in Differences estimation on the impact of immigration. Our study shows that there was a negative impact of immigration on the average income level in Sweden. However, marginal income estimates provided evidence that immigrant labour acts as a complement to the native population, displaying a positive impact of 0.8% on the income of Swedish citizens for every 1% increase in immigration density in our two stage least squares estimation. Despite this positive economic impact on the native population, we find that having a 1% increase in immigration density in the previous year correlates to 2-3% increase in the vote of the far-right political party, Sweden Democrats.