We show that a production-function-based approach with skill differentiation and integrated national
markets has predictions for the employment effect of immigrants at the local level. The model predicts
that if we look at the employment (rather than wage) response by skill to immigration in a state, we can
estimate the substitutability-complementarity between natives and immigrants. This allows us to infer,
other things constant, how immigrants stimulate or depress the demand for native labor. We also use
a novel instrument based on demographic characteristics of total Central American migrants or Mexican
Population to predict immigration by skill level within California. Looking at immigration to California
between 1960 and 2005 our estimates support the assumption of a nationally integrated labor market by
skill and they support the hypothesis that natives and immigrants in the same education-experience group are
not perfectly substitutable. This, in turn, explains the counter-intuitive fact that there is a zero correlation
between immigration and native wages and employment outcomes.