Immigration, bottlenecks, and wage pressure in post-pandemic America
In this paper, Federico Mandelman, Yang Yu, and Francesco Zanetti, combine new empirical evidence on U.S. post‑pandemic labor markets with a structural search‑and‑matching model to show that immigration alleviates labor shortages by filling vacancies and dampening wage growth, contrary to the predictions of a textbook Diamond–Mortensen–Pissarides (DMP) model.
The authors use U.S. CPS and BLS sectoral data for 2019–2024 to construct measures of sector‑level labor shortages (low employment share combined with high vacancy posting) and relate these to immigration inflows, vacancy growth, and wage growth. Empirically, they estimate that sectors receiving more immigrants subsequently experience weaker vacancy growth and that measured shortages predict both vacancies and wage growth. To interpret these facts, they extend a standard DMP search‑and‑matching model with a Leontief production technology and segmented labor supply (immigrants as low‑skill, natives as high‑skill), generating labor shortages and showing how immigration can resolve them by filling vacancies and dampening wage pressures.
Findings
- In the data, sectors with larger immigrant inflows experience slower vacancy growth afterwards, consistent with immigration relieving rather than intensifying labor shortages.
- Labor shortages (as defined by low employment share plus high vacancies) predict stronger wage growth, indicating that bottlenecks generate upward wage pressure in the absence of adequate labor supply.
- The baseline DMP model cannot reproduce the observed negative relationship between immigration and vacancies; it incorrectly predicts higher vacancy posting and little change in tightness or wages following an immigration shock.
- In the extended model with complementarities and segmented labor supply, immigration reduces effective labor shortages by supplying the constrained low‑skill input, which lowers vacancies and moderates wage growth,aligning the theoretical dynamics with the empirical facts documented for 2021–2024.
Immigration, Labor Shortages, and Labor Market Dynamics
Authors: Federico Mandelman, Yang Yu, Francesco Zanetti
From: Federal Reserve Bank of Atlanta, Shanghai Jiao Tong University, University of Oxford
Immigration and productivity in OECD economies
Gaetano Basso, Mitali R. Mathur, and Giovanni Peri, in this paper, build a new cross‑country panel to estimate how immigration from non‑OECD countries affects population, productivity, investment and TFP in OECD economies, using local‑projection regressions over 5‑ and 10‑year horizons.
Methodology
- The authors compile a harmonized dataset of net immigration by origin and skill for 38 OECD countries, during 1990 to 2024, based on census‑style stocks of foreign‑born (UN, OECD, EU‑LFS) rather than gross inflow data, and match this to Penn World Tables data on GDP per worker, capital per worker, human‑capital intensity, TFP and prices.
- They then estimate local‑projection regressions (à la Jordà) of medium‑run changes in macro outcomes (population, GDP per worker, capital per worker, human capital, TFP, inflation) on immigration rates and on various immigration “shocks”: high‑ vs low‑skilled inflows, policy‑driven changes in entry restrictiveness (IMPIC index), and large immigration surges, controlling for native demographic change, lags of the outcome, country fixed effects and year fixed effects.
Findings
- Net immigration from non‑OECD countries is a strong positive predictor of GDP per worker, capital per worker, human‑capital intensity and TFP growth over 5–10 year horizons, especially in EU‑14‑plus destinations. The effects are notably larger for high‑skilled immigrants.
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In contrast, increases in the native‑born population are only weakly, and sometimes negatively, related to productivity and TFP. Moreover, the data show no sign of diminishing returns: even countries that already have large immigrant shares or receive big inflows still experience positive gains in productivity and investment when immigration rises further.
- Loosening external immigration regulations and experiencing immigration “surges” are both followed by higher labor productivity, investment and TFP, without adverse effects on inflation, implying that immigration has been an important macro driver of growth rather than a drag.
The immigration impact on population, labor productivity, investments and TFP in OECD countries
Authors: Gaetano Basso, Mitali R. Mathur, Giovanni Peri
From: Banca d’Italia, University of California, Davis
