Macroeconomic effects of immigration in the U.S.
Mandelman et al., in this paper, examine the relationship between declining low-skilled immigration to the United States, labor shortages, and changes in the skill premium since the Great Recession of 2007. They develop a stochastic growth model with endogenous immigration, training, and offshoring choices and document empirical facts using regional data from the American Community Survey, establishing relationships between low-skill immigration, skill premiums, immigration policies, and native workers’ education attainment across states, metropolitan areas, and commuting zones.
Main findings:
- The recent decline in the skill premium is largely explained by the slowdown in low-skill immigration after the 2007 Great Recession. This reverses a decades-long trend of rising skill premiums.
- Increasing restrictions on U.S. immigration policy and the associated decline in low-skill immigration since the mid-2000s have reduced the welfare of the representative U.S. household. While reduced immigration raises wages for low-skilled native workers, it also leads to more expensive non-tradable services and discourages skill acquisition by native-born workers, ultimately hampering labor productivity and reducing aggregate income and welfare.
- The surge in undocumented immigration in 2021-2023 helped partially alleviate labor shortages of low-skilled workers and mitigate some of the welfare losses that had accrued since 2007.
- The model demonstrates that the decline in the skill premium discourages investment in skill acquisition by native-born workers, which is a key factor in reducing aggregate productivity and welfare.
Slowdown in Immigration, Labor Shortages, and Declining Skill Premia
Authors: Federico S. Mandelman, Yang Yu, Francesco Zanetti, Andrei Zlate
From: Federal Reserve Bank of Atlanta, Shanghai Jiao Tong University, University of Oxford, Federal Reserve Board
Macroeconomic effects of immigration in the EU
Caselli et al. analyze the macroeconomic implications of the recent surge in immigration to the EU. They used statistical data from Eurostat and other sources to examine immigration trends, employment patterns, and demographic changes. In particular, the authors used a semi-structural general equilibrium model to simulate the impact of increased immigration on potential output in the euro area under five different scenarios based on varying assumptions on: a) the size of the working age population shock; b) productivity differentials between migrants and natives; and c) length of migrants’ stay in the host country.
Main findings:
- Immigration surge: The EU saw a historic high of around 6.5 million immigrants in 2022, including approximately 4 million refugees from Ukraine.
- Demographic impact: Immigration allowed the EU’s population to grow at the fastest rate in many years, slowing the rise of the old-age dependency ratio.
- Labor market effects:
– Non-EU citizens filled about 2.7 million of the 4.2 million jobs created in the EU between 2019 and 2023.
– Ukrainian refugees were absorbed into employment faster than previous refugee waves. - Impact on potential output: The authors estimate that the immigration surge will increase the level of potential output in the euro area by 0.2-0.7% by 2030, with a central estimate of 0.5%.
- GDP per capita effects: The impact on GDP per capita depends crucially on productivity developments. A permanent productivity gap between migrants and natives could lead to a negative effect, but this would fade as capital stock catches up.
- Fiscal implications: Initial fiscal costs were around 0.2% of EU GDP, rising to 1% of GDP in countries with the largest per capita inflow of refugees.
- Local impacts: Some regions experienced congestion in public services and amenities due to large local population increases.
Macroeconomic implications of the recent surge of immigration to the EU
Authors: Francesca Caselli, Allan Gloe Dizioli, Frederik Toscani
From: IMF
