Immigration and Business Dynamics: Evidence from U.S. Firms.

This paper examines the impact of immigration on U.S. local business dynamics, emphasizing how immigrant inflows affect the distribution and productivity of employer establishments. Using comprehensive U.S. Census Bureau data and a shift-share instrumental variable approach, it finds that immigration reduces establishment exit—particularly among higher-productivity firms—while increasing exit among lower-productivity firms, thereby shifting economic activity toward more productive establishments. This reallocation accounts for roughly 40% of immigrant-induced job creation and earnings growth in commuting zones from 2000 to 2018. A general equilibrium model incorporating firm heterogeneity and fixed immigrant recruiting costs explains these patterns and shows that accounting for changes in the employer productivity distribution substantially increases estimates of the economic surplus generated by immigration compared to standard representative firm models.