The Effects of Immigration on the Economy: Lessons from the 1920s Border Closure

In the 1920s, the United States substantially reduced immigrant entry by imposing country-specific quotas. We compare local labor markets with more or less exposure to the national quotas due to differences in initial immigrant settlement. A puzzle emerges: the earnings of existing US-born workers declined after the border closure, despite the loss of immigrant labor supply. We find that more skilled US-born workers – along with unrestricted immigrants from Mexico and Canada – moved into affected urban areas, completely replacing European immigrants. By contrast, the loss of immigrant workers encouraged farmers to shift toward capital-intensive agriculture and discouraged entry from unrestricted workers.