Ararat Gocmen

In neoclassical models of immigration's long-run effects, capital adjustment shields incumbent workers from losses by counteracting the decline in the marginal productivity of labor. This paper argues that, by inhibiting this adjustment, credit-market frictions amplify the negative wage and employment effects of immigration. I develop a model in which monopsonistic firms with higher initial debt burdens face endogenously steeper financing-cost curves. As a result, immigrant inflows decrease capital intensity, wages, and native employment by more at initially higher-leverage firms. I test these predictions using a custom link between German firms' financial statements and social security records. I first document that, in Germany during the 2010s, a large immigration shock coincided with a sharp decline in firms' capital intensity, and that the borrowing costs of initially higher-leverage firms were more sensitive to additional debt. Exploiting variation in the settlement patterns of earlier immigrants, I find that firms' immigrant hiring responses did not vary by their initial leverage. However, initially higher-leverage firms experienced sharper declines in their capital intensity, wages, and native employment, consistent with my model's predictions. My results imply that credit-market frictions are an underexplored determinant of how the economy absorbs labor supply shocks.

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.