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

  • 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
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Handle: RePEc:bdi:wptemi:td_846_12
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