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Welcome to the machine: firms' reaction to low-skilled immigration

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  • Antonio Accetturo

    ()
    (Bank of Italy)

  • Matteo Bugamelli

    ()
    (Bank of Italy)

  • Andrea Lamorgese

    ()
    (Bank of Italy)

Abstract

We assess the impact of low-skilled immigration on capital intensity. We first present a model characterized by frictions in the labor market and firms' asymmetric information on workers' skills and show that firms can react to the immigration-induced reduction of their workforce's skill level by increasing the capital-labor ratio. We test the predictions of the model on a sample of Italian manufacturing firms over the period 1996-2007, finding that increased immigration of low-skilled workers from developing countries, measured at the provincial level and instrumented with pre-existing enclaves of immigrants and network effects, raises capital intensity. In line with the predictions of the theoretical model, the impact of immigration, which is quite robust across empirical specifications, is stronger for larger firms and in skill-intensive sectors.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 846.

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Date of creation: Jan 2012
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Handle: RePEc:bdi:wptemi:td_846_12

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Keywords: capital intensity; low-skilled migration; firm heterogeneity;

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References

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  1. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  2. Elena Bontempi & Roberto Golinelli & Giuseppe Parigi, 2007. "Why demand uncertainty curbs investment: Evidence froma a panel of Italian manufacturing firms," Temi di discussione (Economic working papers) 621, Bank of Italy, Economic Research and International Relations Area.
  3. Ethan Lewis, 2005. "Immigration, Skill Mix, and the Choice of Technique," Working Papers 05-04, Center for Economic Studies, U.S. Census Bureau.
  4. David Card & Ethan G. Lewis, 2005. "The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts," NBER Working Papers 11552, National Bureau of Economic Research, Inc.
  5. Christian Dustmann & Albrecht Glitz, 2012. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," Norface Discussion Paper Series 2012002, Norface Research Programme on Migration, Department of Economics, University College London.
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  7. Matteo Bugamelli & Fabiano Schivardi & Roberta Zizza, 2010. "The Euro and Firm Restructuring," NBER Chapters, in: Europe and the Euro, pages 99-138 National Bureau of Economic Research, Inc.
  8. Bianco, Madga & Golinelli, Roberto & Parigi, Giuseppe, 2009. "Family firms and investments," MPRA Paper 19247, University Library of Munich, Germany.
  9. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February.
  10. Ethan Lewis, 2003. "Local, open economies within the U.S.: how do industries respond to immigration?," Working Papers 04-1, Federal Reserve Bank of Philadelphia.
  11. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  12. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  13. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  14. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
  15. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
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Cited by:
  1. Guglielmo Barone & Sauro Mocetti, 2010. "With a little help from abroad: the effect of low-skilled immigration on the female labor supply," Temi di discussione (Economic working papers) 766, Bank of Italy, Economic Research and International Relations Area.
  2. Strom, Steinar & Venturini, Alessandra & Villosio, Claudia, 2013. "Wage Assimilation: Migrants versus Natives and Foreign Migrants versus Internal Migrants," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201341, University of Turin.

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