Do Interest Groups affect Immigration?

1. Do Interest Groups affect Immigration? Giovanni Facchini University of Illinois and Università degli Studi di Milano Anna Maria Mayda Georgetown University Prachi Mishra Research Department, IMF

2. Motivation • Vast empirical literature on the effects of immigration on outcomes in the US labor market. • Knowledge on the determinants of migration flows limited -- to the supply side (i.e. see Clark, Hatton and Williamson, 2007). • Borjas (1994) “…The literature does not yet provide a systematic analysis of the factors that generate the host country demand for immigrants.”

3. Motivation (contd) • Key factor determining demand for immigrants – migration policy in rich countries • Anecdotal evidence highlights role played by special interest groups • Unions historically supportive of measures restrictive of migration. Eg. Chinese exclusion act (1882), Literacy Test provision (1917), Immigration Control and Reform Act (1986) • Complementarities matter e.g. Silicon Valley excetutives trooped before Congress, warning of a Y2K disaster unless the number of H1-B visas was increased (Goldsborough 2000)

4. Motivation (contd) • Recent theoretical literature has looked at the issue (Facchini and Willmann 2005). • No systematic empirical evidence on the determinants of migration policy and, in particular, on the role played by pressure groups in shaping it. • The purpose of this paper is to help fill this gap.

5. What we do • Develop a simple theoretical model to be used as the basis of our empirical specification. We model migration policy and outcomes as the result of the contributions paid, in each sector, by the pro-migration lobby (the owners of capital) and by the anti-migration lobby (workers). • Evaluate key predictions of the model using a unique, U.S. industry-level dataset that combines information on the number of immigrants with data on the political activities of organized groups, both in favor and against an increase in migration.

6. Main result • Both pro- and anti-immigration interest groups play a statistically significant and economically relevant role in shaping migration across sectors. • Barriers to migration are higher in sectors where (anti-immigration) labor unions are more important, and lower in those sectors in which (pro-immigration) business lobbies are more active.

7. Literature Theoretical Model Empirical strategy Data (CPS and CRP) Empirical results Conclusions Outline of the presentation

8. Related Literature • Theoretical literature: Facchini and Willman (2005): interest-group politics. • Related empirical literature • Hanson and Spilimbergo (2001) – effect of output prices on border enforcement in Mexico-US border states • Works on the political economy of protection in international trade, e.g - Goldberg and Maggi (1999), Gawande and Bandyopadhyay (2000).

11. Empirical specification

12. Data • Newly available dataset from the Center for Responsive Politics (CRP) that allows us to identify lobbying expenditures associated with targeted policy area. 1998 and 2005 - at the firm level, aggregated to industry by CRP industry classification. • Number of immigrants and natives, union membership rates of native workers, from the Current Population Survey (CPS) (March Annual Demographic File and Income Supplement to the CPS) – Census Bureau classification • H1B visas (number of petitions approved) by industry from DHS • Output, price, capital, FDI – BEA, ACES • Various industry concordances to create the final dataset at industry level at the Census Bureau classification – 130 3-digit industries

15. Figure 1. Scatter Plots between Lobbying Expenditures and Campaign Contributions from PACs

37. Endogeneity & reverse causality concerns • Direction of bias – lobbying exp • Sectors with higher number of immigrants close to their optimal level, less incentive to invest in lobbying. • Sectors with higher number of immigrants need to lobby more – to obtain access of immigrant workers and their children to health, education, etc. • Direction of bias – union membership • Higher number of immigrants, increased threat to native workers, raise incentive to join unions. • Higher number of immigrants, reduced bargaining power of unions, lower incentive to join unions

38. Instrumental variables strategy • The IV for lobbying expenditures on immigration is: the sum in a sector of the lobbying expenditures by firms which do not list immigration as an issue in the lobbying report: • Plausible to assume that these are not directly related to immigration policy (exclusion restriction). • Common industry-level variables driving lobbying expenditures on immigration and on any other issue (strong instrument).

39. Instrumental variables strategy (contd) • The IV for union membership rates is: union membership rates in the UK: • Evidence that union membership rates across sectors are correlated across countries. • Assumption – union membership rates in the UK should not be directly related to immigration policy in the US.

41. Does political organization have a greater impact on immigration in skilled-sectors?

42. Systematic empirical evidence on the political economy of migration policy is scarce in the economics literature. To the best of our knowledge we are the first ones to empirically investigate the role played by interest groups politics in shaping migration policy. Main result - barriers to migration are higher in sectors where labor unions are more important, and lower in those sectors in which business lobbies are more active. Result robust to introducing various industry level controls and using an IV strategy. Results on unions are stronger for skilled-intensive sectors, no statistically significant difference in the effectiveness of lobbying expenditures. Conclusions