Immigration and Business Dynamics: Evidence from U.S. Firms

Abstract

Prior literature on the economic impact of immigration has largely ignored changes to the composition of labor demand. In contrast, this paper uses a comprehensive collection of survey and administrative data to show that heterogeneous establishment entry and exit drive immigrant-induced job creation and a rightward shift of the productivity distribution in U.S. local industries. High-productivity establishments are more likely to enter and less likely to exit in high immigration environments, whereas low-productivity establishments are more likely to exit. These dynamics result in productivity growth. A general equilibrium model proposes a mechanism that ties immigrant workers to high-productivity firms and shows how accounting for changes to the employer distribution can yield substantially larger estimates of immigrant-generated economic surplus than canonical models of labor demand.

Keywords: immigration, business dynamics, productivity, firm heterogeneity

JEL Classification: J230, J610, L110, F220