Immigration and Firm Investment

If physical capital is complementary to labor in production, then immigration-induced increases in the labor supply should lead to an increase in firms' demand for capital, resulting in the expansion of the economy's capital stock. However, there are two reasons why this may not occur. On the one hand, immigrants may generally enter labor-intensive industries that have little use of physical capital in the first place. On the other hand, the capital-intensive industries that at least some immigrants do enter may be too financially constrained to be able to take advantage of the increases in the labor supply. In this project, I will study the effect of immigration-induced labor supply shocks on firms' capital investment decisions, evaluating the heterogeneity of these effects according to the capital-intensiveness and the financial constraints of the firms who hire the immigrants.

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