Shift-Share Instruments and the Impact of Immigration

By David A. Jaeger, Joakim Ruist, Jan Stuhler. Social Science Research Network, 2018

370 citations recorded by the source corpus.

A large literature exploits geographic variation in the concentration of immigrants to identify their impact on a variety of outcomes. To address the endogeneity of immigrants' location choices, the most commonly-used instrument interacts national inflows by country of origin with immigrants' past geographic distribution. We present evidence that estimates based on this "shift-share" instrument conflate the short- and long-run responses to immigration shocks. If the spatial distribution of immigrant inflows is stable over time, the instrument is likely to be correlated with ongoing responses to previous supply shocks. Estimates based on the conventional shift-share instrument are therefore unlikely to identify the short-run causal effect. We propose a "multiple instrumentation" procedure that isolates the spatial variation arising from changes in the country-of-origin composition at the national level and permits us to estimate separately the short- and long-run effects. Our results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal inference.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/18f24311b4d0340bf10d9ca63b5053972b46ac10

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Citations in the corpus

Gifts of the Immigrants, Woes of the Natives: Lessons from the Age of Mass Migration (2019, neutral): “Fifth, I present a number of results (Figures D3 and D4; Table D8) to show that, in this setting, the shift-share instrument is unlikely to conflate the long and the short run effects of immigration (Jaeger et al., 2018).”
Do low-skilled workers gain from high-tech employment growth? High-technology multipliers, employment and wages in Britain (2019, background): “However, while the shift-share is relatively standard in the literature, it has recently been criticised by Jaeger et al. (2018) in circumstances where there may be correlation in levels over time.”
The impact of forced displacement on host communities: A review of the empirical literature in economics (2019, background): “Another criticism of this shift-share type of instrument is that if (forced) migrant inflows are stable over time, it conflates the short-run impacts of a new inflow with the long-run impacts of previous inflows (Jaeger, Ruist, and Stuhler 2018).”
Optimal Inflation and the Identification of the Phillips Curve (2019, background): “See Borusyak, Hull, and Jaravel (2018); Goldsmith-Pinkham, Sorkin, and Swift (2018); and Jaeger, Ruist, and Stuhler (2018) for recent critical discussions of the use of these instruments.”