Does Immigration Help or Hurt Local Economies?
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Economics Policy Jun 6, 2017

Does Immigration Help or Hurt Local Economies?

Historically, where immigrants cluster in the U.S., prosperity follows.

The economic effects of immigration include the spread of prosperity across America.

Yevgenia Nayberg

Based on the research of

Nathan Nunn

Nancy Qian

Sandra Sequeira

Despite often celebrating our past as a nation of immigrants, Americans are deeply divided about immigration policy. Indeed, 38 percent of Americans said in a recent Gallup poll that they would like to see the level of immigration decrease in the United States, 38 percent said it should remain the same, and just 21 percent favor an increase.

Nancy Qian, a professor of managerial economics and decision sciences at the Kellogg School, was intrigued by this seeming disconnect. Even within her own field, research on economic history suggests that immigrants to the US were crucial to the country’s prosperity. Yet more contemporary research focuses on the detrimental economic effects of immigrants.

Qian suspected these more recent papers were missing something important. “A lot of the policy debate and current debate in economics literature, for good reason, focuses on the here and now,” she says. “But on some level, if we want to know whether immigration is good for a country, we want to know what the effects are in 50 years or 100 years.”

Qian decided the best way to predict the future was to look to the past. So she and coauthors examined the effects of immigration to the United States during the age of mass migration from 1860 to 1920. In the long run, the researchers wondered, did areas with more immigration end up better off?

The answer was an emphatic “yes.” Counties that were hubs of historical immigration a century ago now have higher incomes, less poverty, and lower unemployment, among other perks.

“It’s not just about today. We have to think about what things are going to be like in 30 years, 50 years, 100 years.”

The team also observed several short-term boons of immigration during the age of mass migration, including greater industrialization, increased agricultural productivity, and more innovation. Educational attainment dipped briefly but ultimately increased.

“It’s entirely understandable why any population, any community, would be concerned by a large influx of people who are very different from them. That’s a legitimate and understandable concern,” Qian says. “But at least in the United States, we have no evidence of adverse effects, either economically or socially.”

Measuring the Effects of Immigration

During the late nineteenth and early twentieth centuries, millions of European immigrants poured into the United States. Many arrived at Ellis Island and then headed west to start their new life.

To evaluate the long-term effects of this massive wave of arrivals, Qian teamed up with Sandra Sequeira, at the London School of Economics, and Nathan Nunn, at Harvard University.

In doing the research, it would be tempting to simply examine the relationship between contemporary prosperity and historical immigration. However, that strategy overlooks the reality that immigrants did not choose their new homes at random. Maybe newly arrived immigrants sought out areas with greater growth potential that would have thrived even without them? Or maybe they could only afford to live in less economically desirable areas. Either possibility could skew results.

In an ideal world, the best way to test the outcomes of immigration would be to create something akin to a randomized controlled trial. “We would randomly pick half of American counties and put immigrants in them, and then compare [those] to the half that randomly didn’t get any immigrants,” Qian says. “But we can’t do that, obviously.”

Qian and her coauthors therefore devised the next best thing to a randomized controlled trial, which, she says, is “the main methodological innovation” of their research.

They identified two important characteristics of immigration during this period that served to, in essence, randomize which parts of the country saw lots of immigrants and which saw few.

First, weather shocks in Europe had a significant impact on the number of immigrants heading to the United States each decade. A bad year for the potato crop in Ireland or a drought in Ukraine increased emigration from those countries. Second, immigrants often traveled to their new homes using the rapidly expanding US rail network.

Combined, this meant that a US county that got connected to the railway right before a weather shock in Europe would get lots of immigrants; an otherwise similar county that got connected to the railway right before years of good European weather would get many fewer.

“The immigrants don’t choose where the railroads go, and they don’t choose when the weather shocks happen,” Qian explains.

Taking the Long View of Immigration

The researchers compared the present-day prosperity of counties that arbitrarily got many more immigrants and counties that arbitrarily did not. (They controlled for other factors, including the length of time each county had been connected to the rail network.)

Over the long haul, they discovered, the presence of immigrants significantly benefits the economy. Areas with more historical immigration now have higher incomes, lower poverty and unemployment, and greater levels of educational attainment and urbanization.

The magnitude of the results was striking: if a county that experienced no immigration during this period had instead experienced median levels of immigration, residents today would have a 20 percent higher per capita income.

It is also not the case that immigrants benefit the economy in the long term but hurt it in the short term. In fact, immigrants during the age of mass migration increased industrialization and agricultural productivity soon after arriving in the United States. The arrival of these new Americans also spurred innovation—greater levels of immigration, the researchers found, correlated with higher rates of patenting.

However, in the short term, counties with greater levels of immigration did see a dip in average educational attainment. This makes sense, Qian says: like today, immigrants during the age of mass migration were less educated than the locals. They were also eager to take advantage of the increased economic opportunity they found in the United States, and more likely to choose work over school. But this decrease in education did not persist over the long term. Within one generation of the beginning of mass immigration flows, areas with more historical immigration had higher levels of educational attainment.

Understanding the Economic Trends

In future studies Qian hopes to learn more about how and why immigrants spur economic prosperity. Does it help to have homogeneous immigrant enclaves, or does a mix of cultures and languages yield more growth? Did distinctive cultural attributes—for instance, the famed “Protestant work ethic”—contribute to those immigrants’ success in the United States?

As economists, Qian says, “we’re particularly interested in the diaspora of cultural values that would affect economic activity or investment in going to school.”

Today’s immigrants come from different countries and cultures than their predecessors. Still, Qian believes her team’s findings have value for present-day policy discussions.

She argues that, ultimately, the fundamentals of historical and contemporary immigration are the same: “The historical immigrants, like today’s immigrants, were very uneducated, relative to locals. Like today’s immigrants, they come from very different ethnolinguistic and religious backgrounds.”

Qian is careful to emphasize that she is an academic, not a politician. But she thinks it is important for policymakers to recognize that immigration’s long-term positive economic effects far outweigh the more minor short-term downsides the researchers identified.

In any country, she says, it is helpful to remember, “it’s not just about today. We have to think about what things are going to be like in 30 years, 50 years, 100 years.”

Featured Faculty

James J. O'Connor Professor of Managerial Economics & Decision Sciences

About the Writer
Susie Allen is a freelance writer in Chicago.
About the Research
Nunn, Nathan, Nancy Qian, and Sandra Sequeira. 2017. “Migrants and the Making of America: The Short- and Long-Run Effects of Immigration during the Age of Mass Migration.” Working paper.

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