Immigration, native employment, and political backlash

Recent waves of immigration have caused political debate in many western countries. However, this isn't the first time that immigration has had this effect. In a new article published in the journal Review of Economic Studies (ungated earlier version here), Marco Tabellini (Harvard Business School) looks at the period from 1910 to 1930 in the U.S., a period:

...when the massive inflow of European immigrants was abruptly interrupted by two major shocks, World War I (WWI) and the Immigration Acts (1921 and 1924)... Also at that time, anti-immigration sentiments were widespread, and the introduction of immigration restrictions was advocated on both economic and cultural grounds.

The paper is very detailed, and makes use of a combination of Census and other data. Tabellini first finds that:

...cities cut public goods provision and taxes in response to immigration... the reduction in tax revenues was entirely driven by declining tax rates, while the fall in public goods provision was concentrated in categories where either inter-ethnic interactions are likely to be more salient (e.g. education) or poorer immigrants would get larger implicit transfers (e.g. sewerage, garbage collection). These findings suggest that immigrants were perceived as a fiscal burden, and that immigration reduced natives’ demand for redistribution.

So, immigrants were perceived as a burden on the taxpayer. Next, he finds that:

...immigration reduced the pro-immigrant party’s (i.e. Democrats) vote share, and was associated with the election of more conservative representatives... most directly reflecting natives’ demand for anti-immigration policies, members of the House representing cities more exposed to immigration were significantly more likely to support the National Origins Act of 1924, which put an end to the era of unrestricted immigration to the U.S.

So, the immigration backlash was reflected in political outcomes. Tabellini then investigates why there was such a backlash:

I start from the first, and perhaps most obvious possibility: immigrants might have increased labour market competition, lowering wages and raising unemployment among native workers. Yet, in contrast with this idea, I find that immigration had a positive and statically significant effect on natives’ employment. My estimates are quantitatively large, and imply that a 5 percentage points increase in immigration (roughly one standard deviation) increased natives’ employment by 1.4 percentage points, or by 1.6% relative to its 1910 level.

In other words, there was a backlash against immigrants in spite of their positive impact on natives' employment (to be clear, 'natives' here refers to the U.S.-born population, not to Native Americans). Tabellini then goes further, and shows that:

These results were made possible by two mechanisms. First, immigration increased firms’ investment and productivity, generating an outward shift in labour demand. Second, because of complementarity, natives moved away from occupations that were more exposed to immigrants’ competition and specialized in jobs where they had a comparative advantage and, because of discrimination, immigrants did not have access to.

So, immigration increased labour demand, and allowed natives to move into other occupations that had higher status. The last part of the article asks:

...why, if immigration was on average beneficial and had no tangible economic costs, it nonetheless triggered political backlash. I show that natives’ political reactions were increasing in the cultural distance between immigrants and natives, suggesting that backlash may have had, at least in part, non-economic foundations...

Only Catholic and Jewish, but not Protestant, immigrants induced cities to limit redistribution, favoured the election of more conservative legislators, and increased support for the 1924 National Origins Act.

In other words, the backlash against immigrants was driven by cultural, and not economic, reasons. You might think that things are different today (or, maybe you don't). However, a 2016 article published in the journal The World Economy (sorry, I don't see an ungated version online), by Vincent Fromentin, Olivier Damette (both University of Lorraine), and Benteng Zou (University of Luxembourg) looked at the impact of the Global Financial Crisis on native and foreign-born workers in four European countries (France, Germany, Spain, and the UK). They used quarterly data on the numbers of native-born and migrant workers by gender, skill level, and industry sector, covering the period from 2008 to 2012 - like the 1910-1930 period, the Global Financial Crisis was also a period of great migration upheaval. Fromentin et al. find that:

...statistically significant effects of the immigration shock on native-born worker employment rates between 2008 and 2012. 

However, the effect differs by country, and is not in the direction that many people would expect. They conclude that (emphasis mine):

...the empirical results suggest that the immigration shock’s effects on native-born worker employment rates have been persistent and very weak over the business cycle. When making distinctions according to gender and levels of qualification, we find some major differences between the countries examined. It appears that variations among immigrant workers in France, Germany, the UK and Spain affect native workers of all skill levels. We note that this effect is globally positive. 

People might think that immigration is too high, but based on these studies (and consistent with the famous study of the Mariel boatlift in the U.S., by David Card), it would be difficult to do so for economic (especially labour market) reasons. The labour market impacts of immigration on the native-born population appear to be positive, not negative. We should therefore recognise that most political backlash against immigrants is necessarily nativist.