The Effect of Immigration on Productivity: Evidence from US States

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technologial change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.