Immigration and the Stock Market:

How Immigration Policy Affects the Stock Prices of Firms that Employ Low-Skilled Workers

August 25, 2019

Project Summary

Much of the existing research on immigration investigates the effect of immigration on the employment and wages of native workers. However, little attention has been paid to how immigration impacts the performance of firms in financial markets. This study examines the relationship between increases in immigration and the stock prices of firms most likely to be affected by immigration. The researchers examine the effects of the Temporary Protected Status system that grants temporary legal status to individuals who are displaced from their home countries by extraordinary circumstances, such as natural disasters. As of November 29, 2018 the program protects 417,341 individuals in the US.

Labor-intensive industries, such as agriculture, construction, and manufacturing, may benefit from immigrants moving to the US as this change provides more potential workers for them to hire. To learn how increases in immigration affect a company’s performance, the authors analyze the stock prices in periods surrounding two events that granted protected and legal status to immigrants and increased the availability of workers for labor-intensive firms. The research shows that those firms likely to employ more workers significantly outperformed the market as a whole when more immigrants were allowed to come to the US.

How are stock prices in immigrant-heavy industries affected by increases in immigration?

  • Industries that typically attract immigrants — agriculture, construction, and manufacturing — all benefitted in response to increases in immigration.
  • After the Immigration Act of 1990, which granted legal status to immigrants from Latin American countries, stock prices of relevant firms outperformed the market by nearly 70%.
  • During the 1999 Temporary Protected Status order, which followed Hurricane Mitch and protected nearly 90,000 immigrants from Honduras and Nicaragua, labor-intensive firms outperformed the market by over 170%.
  • After the 1999 enactment of Temporary Protected Status, monthly stock returns of observed firms outperformed the entire market for at least six months.

These results suggest that allowing increased immigration to the US has significant positive implications in financial markets. In light of this, policymakers should consider the effect of immigration policy on financial markets. Specifically, increasing the flow of immigrants could increase firm productivity and allow for expansion in industries that require many workers.

Project Authors
Benjamin M. Blau
Jesse Baker

CGO Graduate Research Fellow