Immigrant Misallocation

We quantify the barriers that impede the integration of immigrants into foreign la-bor markets and investigate their aggregate implications. We develop a model of occupational choice with natives and immigrants of multiple types whose decisions are subject to wedges which distort their allocation across occupations. We esti-mate the model to match salient features of U.S. and cross-country individual-level data. We find that there are sizable GDP gains from removing the wedges faced by immigrants in U.S. labor markets, accounting for approximately one-fifth of the overall economic contribution of immigrants to the U.S. economy. These e↵ects arise from both increased flows from non-participation to predominantly manual jobs as well as from reallocation within the market sector that raises productivity in non-routine cognitive jobs. We contrast our findings for the U.S. with estimates for 11 high-income countries and document substantial di↵erences in the magnitude of im-migrant wedges across countries. Importantly, we find di↵erences in the distribution of immigrant wedges across occupations lead to substantial variation in the gains from removing immigrant misallocation, even among countries with similar average degrees of distortions.