Firm Heterogeneity and the Impact of Immigration: Evidence from German Establishments

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Abstract/Contents

Abstract: We revisit the old question of how immigration affects the welfare of native workers. As opposed to most of the previous literature, we look at this question through the lens of firms, as they play a crucial role in immigration and are massively heterogeneous even within sectors. We use a novel establishment-level dataset from Germany to document a new dimension of rm heterogeneity: Large firms spend a higher share of their wage bill on immigrants than small firms. We show analytically and quantitatively that ignoring this heterogeneity in immigrant share leads to biased estimates of the welfare gains from immigration. To do so, we set up and estimate a quantitative model where heterogeneous firms choose their immigrant share, and we validate the model using an instrumental variables strategy. We then use the model to quantify the welfare effects of a 20% increase in the number of immigrants in Germany as observed between 2011 and 2017. The welfare of natives increases both through higher wages and profits, and lower prices, with aggregate welfare gains of $4 billion for native workers and $15 billion for rm owners. A new adjustment mechanism that arises under heterogeneity in the immigrant-share is that native workers reallocate across firms, which mitigates the competition effect between immigrants and natives in the labor market. If we ignore the heterogeneity across firms in immigrant share, we would underestimate the welfare gains of native workers by 11%.

Type of resource	text
Date created	August 27, 2021

DOI	https://doi.org/10.25740/hm550mn0137
Location	https://purl.stanford.edu/hm550mn0137

Use and reproduction: User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
License: This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).

Preferred citation: Brinatti, A. and Morales, N. (2022). Firm Heterogeneity and the Impact of Immigration: Evidence from German Establishments. Stanford Digital Repository. Available at https://purl.stanford.edu/hm550mn0137

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