Ararat Gocmen

If an increase in labor supply makes capital more productive, firms respond to immigration by investing—but only if they can finance it. I study how credit-market frictions shape firms’ investment response to immigration-induced labor supply shocks and the implications for native workers’ wages and employment. In a model of immigration’s labor market effects where firms can externally finance capital investment, those with larger existing debt burdens face sharper increases in interest rates when borrowing in response to a labor supply shock, so their capital-labor ratios and their incumbent workers’ earnings fall by more. Immigration to Germany during the 2010s fits this pattern: capital-labor ratios declined more sharply for initially higher-leverage firms, whose borrowing costs were also more sensitive to additional debt. Exploiting variation across commuting zones in the settlement patterns of earlier immigrants, I find that immigration raised capital investment and new borrowing by less, and reduced native wages and employment by more, for firms with higher initial leverage. Firms’ balance sheets are thus an important mediator of the labor market effects of immigration.

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.