OCR Event Manager - Master Calendar

Abstract: We document substantial heterogeneity in immigrant shares across employers in Germany, with large firms spending a higher share of their wage bill on immigrants than small firms. We provide evidence that fixed costs of hiring immigrants, partly policy-induced, are a key driver of this heterogeneity. We develop a model in which firms with heterogeneous productivities choose their immigrant share subject to fixed hiring costs, and show analytically how this heterogeneity affects the welfare gains from immigration. Two mechanisms are at play when firms differ in their immigrant shares. First, immigration induces native worker reallocation across firms, which affects the competition between immigrants and natives in the labor market. Second, immigration leads to larger declines in aggregate prices because firms’ marginal costs are more elastic to immigrant wages, and these cost reductions are concentrated among the most productive firms. Quantitatively, ignoring within-sector heterogeneity in immigrant shares understates native welfare gains from immigration by approximately 50%. Moreover, international trade dampens these gains, with 85% of the dampening effect explained by firm heterogeneity.