Flutterby™! : Does immigration lead to lower unemployment?

The Migration Accelerator: Labor Mobility, Housing, and Aggregate Demand Greg Howard, MIT Job Market Paper, October 24, 2016:

Labor mobility affects how local shocks affect labor markets because people move to more prosperous areas. The traditional view, associated with Blanchard and Katz (1992), argues that migration mitigates these shocks, and relies on the assumption that inmigration makes local labor markets slack. In this paper, I empirically test that assumption by constructing an instrument for domestic inmigration based on previous migration patterns and current outmigration in other places. I document that within U.S.-migration causes a large local labor market boom, the opposite prediction of the traditional view. The effect is large: a migration shock equal to one percent of the MSA’s population causes a fall in the unemployment rate of half a percent. This is a surprising result in theory, but I show increased housing demand leads to two additional channels which can explain this finding. First, housing is a durable good, so the labor demand for construction is front-loaded. Second, a house price increase induces additional consumption by non-migrants. I show these channels are present in the data and account for the total effect. Finally, I use these estimates to conclude that migration amplifies local labor demand shocks by 15 percent.