NERA Economists Provide Analysis on the Latino Contribution to US Economic Dynamism

The Situation

The growing importance of Hispanic Americans in the US economy is attracting increasing attention from economists and the business community. Latinos are growing as a proportion of the workforce, and the Latino population is younger, more likely to be employed, and, by many measures, more entrepreneurial than the population overall. Prior studies have assembled a broad array of data and analysis demonstrating the importance of Latinos to America’s current and future prosperity—a phenomenon sometimes referred to as the “Latino effect.”

NERA's Role

NERA was retained by the Latino Donor Collaborative and Wells Fargo to prepare a study that seeks to further advance our understanding of the Latino effect by examining the impacts of growth in the Latino workforce on business dynamism and overall economic performance. Specifically, the study seeks to determine whether and how growth in Latino employment affects economic performance. To test this hypothesis, our analysis applies a widely utilized statistical methodology known as vector auto-regression (VAR) to Metropolitan Statistical Area (MSA) data on labor productivity, new business formation, and economic output.

The Result

The findings provide strong support for the proposition that growth in Latino employment has a statistically significant and economically material effect on overall economic performance. Our analysis may also provide new insight into important aspects of the debate over immigration policy. While about two-thirds are native-born, Latinos have accounted for a significant proportion of total immigration to the US in recent years. More than 40% of all US immigrants have come from Mexico, Central America, and South America. Thus, the economic effects of Latinos and immigration are closely intertwined. To date, the academic and policy debate over immigration has focused largely on the short-term wage and employment consequences for native workers and the tax receipts paid and benefits used by immigrants. This study focuses instead on the impact of Latino participation in the economy on overall economic growth. By demonstrating that Latinos contribute disproportionately to business dynamism, which in turn is closely tied to increased labor productivity and economic output, our research suggests a largely unexplored channel through which immigration may benefit the economy.