The impact of immigrants settlements’ on Italian firms

Immigrants workers differ from natives and their diversity brings opportunity for firms, who can diversify their skills, tasks and products, cut their costs and, in some cases, expand. The chance for firms to expand (e.g. by opening new establishments) can be given by the arrivals of immigrants that, earning lower wages than natives, contribute to reduce the production costs. The recent immigration literature started to investigate how firms respond to the growing availability of immigrants (Ottaviano-Peri, 2013). Olney (2013) highlights how firms’ decisions may respond to low-skilled local labor supplies, he focuses on the extensive margin of adjustment by examining the impact of immigration on the number of establishments in U.S. cities. Following Olney’s contribution, this study investigates the impact of immigration on firms’ using data on the establishments in all sectors excluding agriculture, for 103 Italian provinces and the 2004-2010 time span. There are at least three important reasons to focus on Italy. The first is that, despite being one of the main destination country for low-skilled immigrants, Italy lacks of empirical studies focusing on firms' decision level. The second is that immigrants in Italy keep growing notwithstanding the economic crisis, with an annual average growth rate which was above 10% during the period 2004–2010. Moreover, immigrants growth rates are much higher in the South (i.e., the less developed area) than the Center-North. Third, during the same period, both the number of establishments and employees have increased by approximately 3% and 5%, respectively. Using instrumental variable technique in order to deal with the potential endogeneity of immigrants, this study analyses the impact of an increase in the share of immigrants on both the number of establishments and employment. The results show that an increase in the share of immigrants leads to an increase in both the number of establishments and employment. Interesting differences arise with respect to the macro area (i.e, Center-North and South), sector and establishments’ size.