The Effect of Immigration on Productivity: Evidence from US States

Giovanni Peri (University of California, Davis, NBER) has a new paper that looks at the effect of immigration on productivity in the United States:

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technological change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

‘A Picture Is Worth $300 Billion’

Below is a chart from Andrew J. Coulson illustrating education spending versus achievment:

Coulson makes a good point: “If public schools had merely maintained the level of productivity they exhibited in 1970, Americans would enjoy a permanent $300 billion annual tax cut. Now THAT would stimulate economic growth.”

Are workers more productive in highly populated areas?

A new paper by Matthew G. Resseger and Ed Glaeser, from Harvard University, shows a “strong connection between per worker productivity and metropolitan area population, which is commonly interpreted as evidence for the existence of agglomeration economies. According to the paper, the correlation is…

…particularly strong in cities with higher levels of skill and virtually non-existent in less skilled metropolitan areas. This fact is particularly compatible with the view that urban density is important because proximity spreads knowledge, either making workers more skilled or entrepreneurs more productive. Bigger cities certainly attract more skilled workers, and there is some evidence suggesting that human capital accumulates more quickly in urban areas.

(Click to enlarge)