This essay is based on the working paper “The Impact of the Chinese Exclusion Act on the Economic Development of the Western U.S.” by Joe Long, Carlo Medici, Nancy Qian, and Marco Tabellini.
Immigration is one of the most controversial policy issues around the world. Responding to demand from their voters, many governments are considering a range of policies aimed at restricting immigration, including large-scale deportations. These policies are often presented as a solution to economic competition brought about by immigrants and as strategies to increase the living standards of native-born workers. However, whether immigration restrictions are economically beneficial to native workers and the local economy remains an open question. On the one hand, immigration may depress wages and lower employment of natives if immigrants are close substitutes for natives and there are more workers than jobs available. On the other hand, when immigrant labor complements that of native workers, immigration may not only foster economic growth, it may also make native workers better off.
The Chinese Exclusion Act of 1882
In our recent paper, we examine this question in the context of the Chinese Exclusion Act of 1882. The Act was the first ban on voluntary immigration of an entire group based on the country of origin or ethnicity. It prevented laborers born in China from entering the United States and individuals born in China already residing in the United States from reentering the country. The architects of the Act believed that Chinese workers, who constituted 12 percent of the male working-age population and 21 percent of all immigrants in the Western United States, depressed economic opportunities for White workers. Not everyone agreed, though: business owners opposed the Act, worrying that Chinese labor could not be easily replaced and that the draconian restrictions would lead to large economic losses.
We consider the eight Western states where almost all Chinese immigrants resided at the time (Arizona, California, Idaho, Montana, Nevada, Oregon, Washington, and Wyoming), for the 1850‒1940 period. We compare the evolution of economic outcomes in US counties that were more and less impacted by the Chinese Exclusion Act, before and after the Act. To assess the impact on economic growth, we examine two sources of variation: time variation from the introduction of the Act (i.e., growth before vs. after 1882); and geographic variation in the intensity of the Act, which was stronger in areas where more Chinese were already living in 1880.
This strategy allows us to account for any county-specific factors that might have simultaneously influenced the trajectory of economic growth and determined the location decision of Chinese immigrants (e.g., distance from San Francisco or the urban population share). We also account for state-specific changes over time, such as differential population and economic growth rates, as well as for the possibility that the presence of mines and railroads within a county determined both the size of the Chinese population in 1880 and the evolution of economic growth in the subsequent sixty years.
Impact on labor supply and manufacturing
We find that, as intended, the Act reduced Chinese labor supply. However, and perhaps in contrast with the stated goals of the Act, we also find that the ban on Chinese labor sharply reduced labor supply growth among White workers. This reduction occurred in most sectors of the economy, including railroads, mining, and manufacturing. In addition, our results suggest that the Chinese Exclusion Act slowed down income growth of both remaining Chinese immigrants and White workers, who were less likely to find high-paying jobs.
Next, we investigate the impact of the Act on manufacturing output and productivity. At the time, manufacturing was a key and fast-growing sector. On average, manufacturing output grew from $36,700,000 to $716,000,000, measured in 2020 dollars, between 1880 and 1940. It was also a sector with a large presence of Chinese workers: almost 20 percent of the Chinese labor force was employed in this sector. Our analysis shows that the Act reduced both total manufacturing output and the number of establishments. We also find some evidence that the Chinese Exclusion Act slowed down labor productivity, even though these estimates are imprecise.
How did the Act stifle economic growth?
What explains the large, negative effects of the Chinese Exclusion Act on the economic growth of the American West? Due to travel costs and obstacles to recruiting new workers, it was hard for employers to replace the “missing” Chinese workers. The impact was larger in Western counties that were more remote and were less connected to the rest of the country. Moreover, the negative effects on labor supply were borne by White men born outside of the Western states (either in other parts of the US or in Europe), who might have migrated to the West in larger numbers had the supply of jobs not dropped. Conversely, the Act did not affect men who were born in the West. In fact, the only group of White men for which we find positive effects from the Chinese Exclusion Act were “local” (i.e., born in the same state) White miners.
Loss of immigrant labor can have adverse economic effects
Although the magnitudes of our estimates are specific to our context, the insight that the loss of productive immigrant labor can have adverse economic effects on the remaining workers is generalizable. The results of our paper indicate that this can occur when immigrants are concentrated in key economic sectors (as the Chinese were in the mining, railroad, and manufacturing industries) and when they are not easily replaceable by other workers or technology. The evidence from our study highlights the complexity of economic growth. In a zero-sum framework, immigration increases competition with native workers and reduces wages and economic opportunities. This is the framework underlying the design of many anti-immigration policies, both historically and today. However, our results indicate that a zero-sum framework is often inaccurate to predict the aggregate economic effects of immigration restrictions.
Read the full paper here.
Marco Tabellini is an assistant professor of business administration at Harvard Business School and is affiliated with the National Bureau of Economic Research (NBER).
This essay is part of the Immigration Research Brief Series. Research briefs highlight economic effects of immigration and enhance our understanding of today’s immigration systems.
