The paper shows that US-born citizens living in metropolitan areas
where the share of foreign-born increased between 1970 and 1990 have experienced a significant average increase in their wage and in the rental price of their housing. Such finding is economically significant and robust to omitted variable bias and endogeneity bias.

It then presents a model in which cultural diversity may have both production and consumption amenity or disamenity effects. As people and firms are mobile across cities in the long run, the model implies that the joint results from the wage and rent regressions are consistent with a dominant production amenity effect of cultural
diversity.

In recent years there has been a resurgence of international migration directed to industrialized countries. As a consequence, the share of foreign-born residents has increased dramatically in the population of traditionally ‘receiving countries’, such as the United States, as well as of several European countries (most notably, France, Germany, and the UK; more recently, Italy, Spain, and Austria). Rising immigrant pressures in industrialized countries have generated an intense policy debate on the opportunity of imposing additional restrictions on legal and illegal migration flows.

The debate has been accompanied by a large empirical literature on the consequences of migration. Such literature has mostly focused on the short-run distributional consequences of migration in terms of lower wages and higher unemployment for unskilled natives, and on the rising costs of social security resulting from the inflow of relatively unskilled labour.

This paper takes a different angle in looking at this issue. Rather than studying the short-run effects of new immigration on the receiving country in a classic model of skill supply and demand, it considers a multi-city model of production and consumption and it asks what is the value of the cultural diversity that foreign-born bring to each city.

Diversity over several dimensions has been praised by economists as valuable in consumption and production.

The paper focuses on cities in the US as a natural laboratory, the reason being that cultural diversity has long been one of the hallmarks of US society. For this reason, the analysis on US cities serves as a benchmark for studies on other developed countries in Europe and Asia that are becoming increasingly diverse due to recent inflows of foreign workers.

As US-born people are highly mobile across US cities, the researchers develop a model of a multicultural system of open cities that allows us to use the observed variations of wages and rents of US-born workers to identify the nature of the externalities associated with cultural diversity.

The main finding is that, on average, US-born citizens attribute a dominant production amenity value to cultural diversity.

Richer diversity caused higher wages or higher rents or both for US-born residents across US cities between 1970 and 1990.

University of Bologna - Department of Economics
Gianmarco I.P. Ottaviano (Researcher), tel. +1 530-752-3033

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01/03/2004

Gianmarco I.P. Ottaviano and Giovanni Peri

research

Urban Policy > Economy knowledge & employment

Urban economy