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The Effect of Immigration on Business Dynamics and Employment

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Abstract

Immigration, like any positive labor supply shock, should increase the return to capital and spur business investment. These changes should have a positive impact on business creation and expansion, particularly in areas that receive large immigrant inflows. Despite this clear prediction, there is sparse empirical evidence on the effect of immigration on business dynamics. One reason may be data unavailability since public-access firm-level data are rare. This study examines the impact of immigration on business dynamics and employment by combining U.S. data on immigrant inflows from the Current Population Survey with data on business formation and survival and job creation and destruction from the National Establishment Time Series (NETS) database for the period 1997 to 2013. The results indicate that immigration increases the business growth rate by boosting business survival and raises employment by reducing job destruction. The effects are largely driven by less-educated immigrants.

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  • Alexander T. Abraham & Pia M. Orrenius & Madeline Zavodny, 2020. "The Effect of Immigration on Business Dynamics and Employment," Working Papers 2004, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:87560
    DOI: 10.24149/wp2004
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    1. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January.
    2. Raven Molloy & Christopher L. Smith & Riccardo Trezzi & Abigail Wozniak, 2016. "Understanding Declining Fluidity in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 183-259.
    3. Justin Wolfers, 2006. "Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results," American Economic Review, American Economic Association, vol. 96(5), pages 1802-1820, December.
    4. Keith Barnatchez & Leland D. Crane & Ryan A. Decker, 2017. "An Assessment of the National Establishment Time Series (NETS) Database," Finance and Economics Discussion Series 2017-110, Board of Governors of the Federal Reserve System (U.S.).
    5. Wozniak, Abigail & Murray, Thomas J., 2012. "Timing is everything: Short-run population impacts of immigration in US cities," Journal of Urban Economics, Elsevier, vol. 72(1), pages 60-78.
    6. Gihoon Hong & John McLaren, 2015. "Are Immigrants a Shot in the Arm for the Local Economy?," NBER Working Papers 21123, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Parag Mahajan, 2021. "Immigration and Local Business Dynamics: Evidence from U.S. Firms," Working Papers 21-18, Center for Economic Studies, U.S. Census Bureau.
    2. Federico S. Mandelman & Mehra dup Mishita & Hewei Shen, 2024. "Skilled Immigration Frictions as a Barrier for Young Firms," FRB Atlanta Working Paper 2024-2, Federal Reserve Bank of Atlanta.

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    More about this item

    Keywords

    immigration; business dynamics; firm entry; firm exit; job creation; job destruction;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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