Immigration in the Age of Automation

Abstract

This paper identifies endogenous automation as a novel transmission mechanism through which immigration shapes aggregate and distributional outcomes. We develop a dynamic stochastic general equilibrium (DSGE) model with four worker types distinguished by skill and nativity, search and matching frictions, and automation capital that substitutes for low-skilled labor. Applying this quantitative framework to German Socio-Economic Panel (SOEP) microdata, we show that the skill composition of immigration induces an asymmetric automation response, shaping both output and inequality. High-skilled immigration stimulates automation investment through complementarity with skilled labor, generating larger output gains than low-skilled immigration and raising long-run output per capita; low-skilled immigration, by contrast, weakens automation incentives and reduces output per capita. Capital ownership plays a central role in the distribution of gains and losses across worker groups. Evaluating skill-selective immigration policies therefore requires accounting for endogenous automation as a key adjustment margin.