The Effect of Immigration on the Economy: Lessons from Closing the Border in the 1920s

Ran Abramitzky, Stanford University
Philipp Ager, University of Southern Denmark
Leah Boustan, Princeton University
Elior Cohen, University of California, Los Angeles
Casper Worm Hansen, University of Copenhagen

The introduction of immigration quotas in the 1920s fundamentally changed U.S. immigration policy. We develop an empirical model that captures the missing immigrants of this policy change to estimate the economic consequences of immigration restrictions for the U.S. economy. Our analysis starts by documenting that local labor markets with greater exposure to the quota policy experienced larger declines in immigration inflows in the 1920s. We then ask whether native-born workers and immigrants from the Western Hemisphere who were not restricted by the quota responded to the fall in labor supply by moving into the area or moving up (or down) the occupational ladder. We find that in urban areas, there was nearly one-for-one replacement of the decline in workers from quota-affected countries. Low-skilled occupations that lost immigrant workers experienced corresponding gains in Mexican migrants and black migrants from the rural South. Higher-skilled jobs were filled by native-born white workers. Using linked Census datasets for 1900-10 (before the policy) and 1920-30 (after the policy), we confirm that entry into these occupations occurs through new inflows to local areas, rather than through occupational upgrading of the existing workforce. Data from the Census of Manufacturers confirms that the quota laws led to no change in the size of the manufacturing sector (number of establishments) or in the wages of the average manufacturing worker, consistent with the near-complete replacement of lost labor supply. Rural areas, however, did not attract enough workers to replace jobs previously held by immigrants. Instead, we find that areas facing a slowdown in immigrant arrivals also suffered corresponding outflows of native-born workers, thereby losing population. Motivated by contemporary observers, our interpretation of this pattern is that immigration was vital for the establishment of new local centers in sparsely populated areas. Without immigration, these rural areas went into decline.

No extended abstract or paper available

 Presented in Session 153. Effects of Migration Regulation and Restriction