Immigration and Job Creation: Which Comes First?

Abstract

Does immigration leads to more job creation in an MSA, or does employment opportunities entice immigrant inflows to an MSA? Is immigration responsible for higher unemployment in a metro, or does immigration cause increases in self-employment that lead to improvement in labor market conditions? The temporal causal relationship between immigrants, job growth and unemployment is a politically and economically salient subject, but has been statistically untested in the economic literature. Using annual data of 500 MSAs, we use panel Granger causality tests to assess the temporal ordering of immigration and labor market conditions in an MSA. Results demonstrate one-way Granger causality from immigration to rising job growth and lower unemployment. Causality tests further reveal that foreign-born inflows cause higher self-employment rates, which in turn contribute to job creation. Results reject the booming city hypothesis that immigration and labor market outcomes are spuriously correlated due to improving labor market conditions attracting immigration to an MSA.