Immigration and Local Inflation

IMF Working Papers, January 10, 2025

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Immigration and Local Inflation

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Bibliographic details

• Authors: Philip Barrett, Brandon Joel Tan
• Published: January 10, 2025
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9798400296635.001

Summary findings

• Methodology: shift-share approach to estimate the impact of inward immigration on local inflation in the United States.
• Aggregate effect: a higher rate of immigration reduces inflation, lowering it by about 0.1 to 0.2 percentage points following a doubling of immigration.
• Sectoral effects:
  • Higher immigration flows lower local goods inflation.
  • Higher immigration flows increase local housing and utilities inflation.
  • No statistically significant impact on inflation in other services.

Heterogeneity by immigrant characteristics

• Working age immigrants: effects are approximately two time larger relative to the baseline effects.
• Low-education immigrants: effects are approximately three time larger relative to the baseline effects.
• More educated immigrants:
  • No statistically significant impact detected on overall inflation.
  • They do increase local housing inflation.

Mechanism and interpretation

• Results can be jointly rationalized by a simple general equilibrium model where:
  • The substitutability of capital and labor varies across industries.
  • Capital is fixed in the short run.

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