Welcome to the Machine: Firms' Reaction to Low-Skilled Immigration

49 Pages Posted: 29 Feb 2012

Date Written: January 26, 2012

Abstract

We assess the impact of low-skilled immigration on capital intensity. We first present a model characterized by frictions in the labor market and firms' asymmetric information on workers' skills and show that firms can react to the immigration-induced reduction of their workforce's skill level by increasing the capital-labor ratio. We test the predictions of the model on a sample of Italian manufacturing firms over the period 1996-2007, finding that increased immigration of low-skilled workers from developing countries, measured at the provincial level and instrumented with pre-existing enclaves of immigrants and network effects, raises capital intensity. In line with the predictions of the theoretical model, the impact of immigration, which is quite robust across empirical specifications, is stronger for larger firms and in skill-intensive sectors.

Keywords: capital intensity, low-skilled migration, firm heterogeneity

JEL Classification: E22, J61, O33

Suggested Citation

Accetturo, Antonio and Bugamelli, Matteo and Lamorgese, Andrea Roberto, Welcome to the Machine: Firms' Reaction to Low-Skilled Immigration (January 26, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 846, Available at SSRN: https://ssrn.com/abstract=2012473 or http://dx.doi.org/10.2139/ssrn.2012473

Antonio Accetturo

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Matteo Bugamelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Roberto Lamorgese

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy
+39 06 4792 3441 (Phone)
+39 06 4792 2601 (Fax)

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