The Effects of Immigration on the Economy: Lessons from the 1920s Border Closure

Abstract

In the 1920s, the United States substantially reduced immigrant entry by imposing country specific quotas. We compare local labor markets with more or less exposure to the national quotas due to differences in initial immigrant settlement. A puzzle emerges: the earnings of existing US-born workers declined after the border closure, despite the loss of immigrant labor supply. We find that more skilled US-born workers – along with unrestricted immigrants from Mexico and Canada – moved into affected urban areas, completely replacing European immigrants. By contrast, the loss of immigrant workers encouraged farmers to shift toward capital-intensive agriculture and discouraged entry from unrestricted workers.

JEL Classification: J6, J61, N21