Ararat Gocmen

A standard view holds that, in the long run, capital adjusts to absorb immigration, shielding native workers from losses; I show that this adjustment instead depends on capital-market frictions. In a model where firms have monopsony power over workers and can borrow to finance investment, firms with higher initial leverage are riskier borrowers and therefore face steeper financing-cost curves. Consequently, an immigration-induced increase in local labor supply decreases their capital intensity, wages, and native employment by more. I test these predictions using a custom dataset that links enterprises' financial statements to establishments' social security records for Germany during the 2010s. In this setting, a rising immigrant share of employment coincided with declining capital intensity, and initially higher-leverage firms' borrowing costs were more sensitive to additional debt. Using earlier immigrants' settlement patterns to predict later immigration into local labor markets, I find that firms hired newly arriving immigrants regardless of their initial leverage. However, capital intensity, wages, and native employment fell by 1.5–2.5 times as much at the initially highest-leverage firms as at the lowest-leverage ones, consistent with my model's predictions. Native workers' losses from immigration thus fell disproportionately on those at firms with larger initial debt burdens.

This paper examines how expanding private capital markets contribute to rising economic inequalities in the U.S. We show that the share of early-stage financing raised from U.S. high-net-worth individuals (HNWIs) tripled from 2004 to 2022. Exploiting the expansion of the qualified small business stock (QSBS) tax exclusion, we find that HNWIs’ investments made startups 5.6% more likely to stay private. Counterfactual simulations reveal that HNWIs’ excess returns on early-stage investments explain 26% of the growth in the top 0.5% wealth share over 2010-2022. Finally, investor entry increased incumbents’ returns and encouraged further investments, generating a self-reinforcing feedback loop between private capital market growth and inequality.

This paper demonstrates how the effects of immigration on native workers’ employment and wages depend on labor market conditions. Based on a model of the labor market with matching frictions, we first predict that immigration’s effect on native employment is less negative in an initially tighter labor market, while its effect on native wages is more negative. We then test these predictions in the context of Germany during the 2010s, exploiting variation in annual immigration shocks to local labor markets interacted with variation across both space and time in the initial tightness of these markets. We find that tightness attenuated immigration’s negative employment effects more than it amplified immigration’s negative wage effects, evidence that is consistent with our model’s predictions and has important implications for the design and timing of immigration reforms.

This paper reviews the overidentification tests available to applied researchers, offers guidance about which tests are appropriate in which settings, and introduces ways to more easily implement tests, which we show to be more robust, based on the objective function of the continuously updating generalized method of moments (CUE) estimator.