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

Listed author(s):
  • Antonio Accetturo

    ()

    (Bank of Italy)

  • Matteo Bugamelli

    ()

    (Bank of Italy)

  • Andrea Lamorgese

    ()

    (Bank of Italy)

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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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
Handle: RePEc:bdi:wptemi:td_846_12
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  1. Ethan Lewis, 2005. "Immigration, Skill Mix, and the Choice of Technique," Working Papers 05-04, Center for Economic Studies, U.S. Census Bureau.
  2. David Card & Ethan G. Lewis, 2007. "The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts," NBER Chapters, in: Mexican Immigration to the United States, pages 193-228 National Bureau of Economic Research, Inc.
  3. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 185-227.
  4. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  5. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
  6. Christian Dustmann & Albrecht Glitz, 2015. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 711-750.
  7. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
  8. 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.
  9. Susana Iranzo & Fabiano Schivardi & Elisa Tosetti, 2008. "Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 247-285, 04.
  10. 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.
  11. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
  12. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
  13. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  14. Bianco, Madga & Golinelli, Roberto & Parigi, Giuseppe, 2009. "Family firms and investments," MPRA Paper 19247, University Library of Munich, Germany.
  15. 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.
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