Does Economic Performance in Home Countries Impact Immigrants' Labour Market Outcomes? Evidence from Australia*

Abstract

This paper provides causal evidence that persistent changes in macroeconomic conditions in immigrants' countries of origin shape their labour market behaviour in the host country. We develop and empirically test a reference‐dependent framework in the spirit of Kőszegi and Rabin (2006), in which immigrants evaluate their material well‐being in the host country relative to a reference standard anchored in home‐country economic development. Utilising Australian longitudinal data from 2001 to 2017, we find that increases in home‐country GDP (Gross Domestic Product) raise immigrants' labour force participation, employment, hours worked and annual labour earnings, with little effect on hourly wages. These responses are stronger among immigrants with closer economic or cultural ties to their countries of origin and do not attenuate with time spent in the host country. Our findings suggest that immigrants' labour supply decisions remain shaped by transnational reference standards and provide new evidence that economic developments abroad can influence labour market outcomes in destination countries.