Beyond Labor: A Missing Piece in the Immigration Debate

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The political debate around immigration reform is intense. According to Wharton School professor Exequiel Hernandez, however, it overlooks two important economic consequences of allowing more people into the United States.

In a policy brief published through the Wharton School’s Public Policy Initiative, Hernandez draws on a number of studies—including some of his own previous work—to find that immigrants boost capital investment and increase entrepreneurship. He argues that public policy fails to take into account these salutary economic benefits. “Immigration policy is primarily driven by labor or job considerations, poorly linked to innovation, and not linked to capital investment at all,” he explains.

Hernandez, the Max and Bernice Garchik Family Presidential Assistant Professor, cites several studies showing that foreign capital investments often follow the establishment of immigrant communities. His favorite example is from the declining Rust Belt community of Hazleton, Pennsylvania. In the 1990s a Mexican diaspora settled there. Initially the town reacted negatively, Hernandez says, but that changed after the Mexican immigrants drew Mexican investment in the form of four factories producing food products and employing American workers. “The general pattern holds: the greater the immigrant population of a certain nationality, the greater the chance that a firm of that nationality invests in that location,” Hernandez says.

The story is similar with entrepreneurship. Hernandez’s analysis finds that immigrants often have different skills and interests than American workers. This leads them to create new businesses that complement, rather than replace, businesses started by US-born entrepreneurs. Overall, Hernandez says, policymakers need a shift in mindset: “The current thinking on immigration policy is that it’s about protecting American workers,” he says. A more complete view requires attending to another potential outcome: “growing the economy.” —Kevin Hartnett

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