Firm Heterogeneity and the Impact of Immigration: Evidence from German Establishments

Agostina Brinatti () and Nicolas Morales

No 21-16, Working Paper from Federal Reserve Bank of Richmond

Abstract: We use a detailed establishment-level dataset from Germany to document a new dimension of firm heterogeneity: large firms spend a higher share of their wage bill on immigrants than small firms. We show analytically that ignoring this heterogeneity in the immigrant share leads to biased estimates of the welfare gains from immigration. To do so, we set up and estimate a model where heterogeneous firms choose their immigrant share and then use it to quantify the welfare effects of an increase in the number of immigrants in Germany. Two new adjustment mechanisms arise under firm heterogeneity. First, native workers reallocate across firms, which mitigates the competition effect between immigrants and natives in the labor market. Second, the gains are largely concentrated among the largest and most productive employers, which induces an additional aggregate productivity gain. If we ignore the heterogeneity in the immigrant share across firms, we would underestimate the welfare gains of native workers by 11%.

Keywords: Heterogeneous Firms; Migration; International Trade (search for similar items in EconPapers)
JEL-codes: F16 F22 J24 J61 (search for similar items in EconPapers)
Pages: 60
Date: 2021-12
New Economics Papers: this item is included in nep-eur, nep-int, nep-mig and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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DOI: 10.21144/wp21-16

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