The Age of Mass Migration: contrasting economic and political effects

Main article

Recent waves of immigration to Europe and the United States have triggered concerns about the economic impact on the native populations, as well as calls for tighter restrictions. This column reports evidence from the mass migration of Europeans to the United States in the early twentieth century showing that despite immigrants generally having a positive economic impact, anti-immigrant sentiment was powerful, particularly in cities where there were significant cultural differences between immigrants and natives. This historical experience offers potential lessons for today’s policy-makers on the value of measures to promote greater cultural integration of immigrants.

Over the past 40 years or so, both Europe and the United States have experienced a dramatic rise in immigration (Frey, 2014; Hanson and McIntosh, 2016). These trends have renewed interest in the effects of diversity on both economic growth and social cohesion.

Despite the potential benefits from diversity typically predicted by economic analysis (Alesina and La Ferrara, 2005; Ottaviano and Peri, 2012), the inflow of immigrants has sparked an intense political debate. In most developed countries, proposals to introduce or tighten immigration restrictions are becoming increasingly common, and support for right-wing populist parties has been on the rise (Dustmann et al, 2019; Halla et al, 2017). Yet although immigration has emerged as one of the most debated topics in the political arena, both the causes and consequences of anti-immigration sentiments are not fully understood.

While evidence suggests that increased immigration leads to greater support for far right, anti-immigrant parties, the actual policies introduced in response to immigration have not been explored in a systematic way. Understanding which policies, if any, are affected by immigration, and why, is of first order importance, since we are ultimately concerned about the actions and reforms undertaken by political actors. Will legislation to regulate the immigration regime be introduced? Will redistribution and taxation be changed to prevent immigrants from having access to public goods?

Moreover, when it comes to explaining why immigration triggers a backlash from natives, economists and political scientists are divided between two alternative hypotheses. The first view – based on economic and redistributional arguments – holds that political discontent emerges from the negative effect of immigration on the wages and employment of natives.

This idea is consistent with findings in Borjas (2003) and Dustmann et al (2017) among others, but it stands in contrast with the results of Card (2001 and 2005), Foged and Peri (2016), and Ottaviano and Peri (2012), who document that immigrants have a negligible, or even positive, impact on the earnings of natives. A related economic explanation for the opposition of natives to immigration is that immigrants are (often incorrectly) perceived as a fiscal burden (for example, Alesina et al, 2018).

The second hypothesis is that cultural differences between immigrants and natives are responsible for rising anti-immigration sentiments (Hainmueller and Hopkins, 2014). Indeed, there are many anecdotal examples of cultural opposition to immigration in the history of both Europe and the United States (Higham, 1955). But there is little systematic evidence on the extent to which culture directly triggers political discontent and leads to policy change.

In a recent study (Tabellini, 2020), I jointly investigate the political and economic effects of immigration across US cities between 1910 and 1930, when mass migration of Europeans was interrupted by two major shocks – the First World War and the Immigration Acts of 1921 and 1924 (see Figure 1).

The Age of Mass Migration

From 1850 to 1915, during the Age of Mass Migration, more than 30 million European immigrants moved to the United States, and the share of immigrants in the US population peaked at 14%, even higher than today’s record of 13.7% (Abramitzky and Boustan, 2017). As today, alongside these large migration flows, anti-immigration sentiments were widespread, and the introduction of immigration restrictions was advocated on both economic and cultural grounds.

This setting offers at least three advantages for research on immigration. First, jointly analyzing economic and political outcomes for the same set of cities over time allows me to test the relationship between economic insecurity and the political reactions of natives, and to shed light on the causes of the backlash.

Second, since cities were independent fiscal units and because the United States went through a major change in its (immigration) policy regime, I not only study the impact of immigration on voting, but I also measure its effects on actual policies, such as taxation, redistribution, and the introduction of immigration restrictions.

Third, in contrast with more recent immigration episodes, where migrants often come from culturally homogeneous groups, during the Age of Mass Migration, there was wide variation in immigrants’ cultural background (for example, in terms of language or religion). I can thus leverage such variation to assess how the political effects of immigration varied with ‘cultural distance’ between immigrants and natives.

My empirical strategy exploits the national shocks to immigration triggered by the First World War and the Immigration Acts to estimate the impact of immigration. These events meet two key conditions: first, they are orthogonal to the evolution of city-specific political and economic conditions; and second, they influenced migration flows from different sending regions to different degrees.

The Emergency Quota Act of 1921 introduced country-specific quotas that were based on the population of each country living in the United States in 1910. With the National Origins Act of 1924, the ‘baseline year’ was moved to 1890, when very few immigrants from Eastern and Southern Europe were living in the United States, with the goal of restricting immigration from those regions even further (Goldin, 1994).

Given that immigrants cluster along ethnic lines in receiving countries (Card, 2001), the differential effect of these shocks across European regions generated variation in the number and in the ‘country-mix’ of immigrants received by US cities over time.

Immigration and anti-immigrant legislation

I begin my analysis by studying the political effects of immigration, which are summarized in Figure 2. Here, I plot the relationship between 1910-1920 immigration across US cities (x-axis) and the probability that a member of the House representing the cities in my sample voted in favor of the 1924 National Origins Act (y-axis).

Given that this legislation eventually shut down European immigration to the United States, and regulated US immigration policy until 1965, one would expect legislators representing citizens who were dissatisfied with and concerned about the rising number of immigrants to vote in favor of the law.

Consistent with this conjecture, there is a positive and strong relationship between immigration and support for anti-immigrant legislation. These effects are quantitatively large: a five percentage points increase in immigration is associated with a ten percentage points higher probability of voting in favor of the National Origins Act.

The political effects of immigration were not confined to national policies: they were felt at the local level too, as cities cut public goods provision and taxes in response to immigrant arrivals. The reduction in tax revenues was entirely driven by declining tax rates, while the fall in public spending was concentrated in categories where either inter-ethnic interactions are likely to be more salient (for example, education) or poorer immigrants would get larger implicit transfers (for example, sewerage and garbage collection).

These patterns suggest that immigrants were perceived as a fiscal burden, and that immigration reduced the demand for redistribution from natives.

Why the political backlash against immigration?

Having documented that immigration led to political discontent among natives, in the second part of my study, I explore the causes of such a backlash. I start from the possibility that immigrants might have increased labor market competition, lowering wages and raising unemployment among native workers.

In fact, the impact on unemployment was the reverse: I find that immigration had a positive and large effect on the employment of natives. My results suggest that a five percentage points increase in immigration raised the employment of natives by 1.4 percentage points – or by 1.6% relative to its 1910 level.

Exploring the mechanisms behind these, perhaps surprising, patterns, I show that immigration increased firms’ productivity and investment as well as establishment size. These findings are consistent with recent work by Sequeira et al (2020) and Ager and Hansen (2017).

Moreover, consistent with other recent findings (Foged and Peri, 2016; Peri and Sparber, 2009), immigration induced natives to move away from occupations that were more exposed to competition from immigrants. Instead, natives tended to specialize in better paying jobs to which immigrants did not have access because of discrimination and language barriers.

But even if the effect of immigration was on average positive for natives, it is possible that economic losses were concentrated among some specific groups, who were able to mobilize and demand political protection. For example, for a more recent period, Monras (2019) provides evidence that Mexican immigration to the United States lowered the wages of unskilled natives.

While I cannot entirely rule out this interpretation, I provide evidence against it. First, I show that immigration did not increase the probability of being unemployed even among natives working in occupations that were highly exposed to competition from immigrants.

Second, I show that in manufacturing – the sector most exposed to immigration – there was no significant reduction in wages. Since manufacturing wages at the time were not reported separately for immigrant and native workers, and new immigrants were closer substitutes for previously arrived migrants than for natives, these findings can be interpreted as a lower bound for the negative effect (if any) of immigration on the earnings of natives.

Contrasting economic and political effects of immigration

The last part of my study seeks to reconcile the seemingly contrasting economic and political effects of immigration. I document that the political reactions of natives were stronger the greater the cultural distance between immigrants and natives, suggests that the backlash had non-economic foundations, at least in part.

As measures of cultural diversity, I use both religion and linguistic distance. The use of religion, in particular, is motivated by historical evidence that, at that time, nativism often resulted in anti-Semitism and anti-Catholicism (Higham, 1955).

Consistent with cultural differences playing a key role in the reactions of natives, I find that while immigrants from Protestant and non-Protestant countries had similar effects on the employment of natives, they triggered very different political reactions. Only Catholic and Jewish immigrants (not Protestant ones) induced cities to limit redistribution, favored the election of more conservative legislators, and increased support for the 1924 National Origins Act.

Implications for today’s policy-makers

My study focuses on a specific context – the mass migration of Europeans to US cities in the early twentieth century. Yet my findings may inform the design of policies aimed at dealing with the economic and political effects of immigration today.

In particular, they suggest that when cultural differences between immigrants and natives are large, opposition to immigration can arise even if immigrants are economically beneficial and do not create economic losers among natives. Hence, promoting the cultural assimilation of immigrants and reducing the (actual or perceived) distance between immigrants and natives may be at least as important as addressing the potential economic effects of immigration.

This article summarizes ‘Gifts of the Immigrants, Woes of the Natives: Lessons from the Age of Mass Migration’ by Marco Tabellini, published in the Review of Economic Studies in January 2020.

Marco Tabellini is at Harvard Business School.