Immigration and Productivity: Unpacking the Role of Spatial Sorting

Foreign-born and US-born workers sort differently across space. This paper examines how spatial sorting affects US productivity by disentangling the roles of worker productivity and local amenities. Using data on labor market outcomes and new measures of user cost of capital across regions, we identify spatial distributions of local amenities and productivity by worker birthplace, including birth state for US-born workers, in a general form under minimal assumptions. We use a productivity decomposition as a diagnostic tool to isolate channels through which immigration contributes to aggregate TFP. The decomposition applied to US Census data from 1980 to 2018 reveals that amenity-induced spatial sorting is the primary driver of TFP gains from immigration, with the largest share coming from foreign-born workers mitigating the birth-state bias of US-born workers. Counterfactual exercises show that the birth-state-bias-mitigation channel accounts for at least 90% of TFP gains from immigration.