Myths and migration
Apr 6th 2006
From The Economist print edition
Do immigrants really hurt American workers' wages?
EVERY now and again America, a nation largely made up of immigrants and their descendants, is gripped by a furious political row over whether and how it should stem the flood of people wanting to enter the country. It is in the midst of just such a quarrel now. Congress is contemplating the erection of a wall along stretches of the Mexican border and a crackdown on illegal workers, as well as softer policies such as a guest-worker programme for illegal immigrants. Some of the arguments are plain silly. Immigration's defenders claim that foreigners come to do jobs that Americans won't?as if cities with few immigrants had no gardeners. Its opponents say that immigrants steal American jobs?succumbing to the fallacy that there are only a fixed number of jobs to go around.
One common argument, though not silly, is often overstated: that immigration pushes down American workers' wages, especially among high-school dropouts. It isn't hard to see why this might be. Over the past 25 years American incomes have become less equally distributed, typical wages have grown surprisingly slowly for such a healthy economy and the real wages of the least skilled have actually fallen. It is plausible that immigration is at least partly to blame, especially because recent arrivals have disproportionately poor skills. In the 2000 census immigrants made up 13% of America's pool of workers, but 28% of those without a high-school education and over half of those with eight years' schooling or less.
In fact, the relationship between immigration and wages is not clear-cut, even in theory. That is because wages depend on the supply of capital as well as labour. Alone, an influx of immigrants raises the supply of workers and hence reduces wages. But cheaper labour increases the potential return to employers of building new factories or opening new valet-parking companies. In so doing, they create extra demand for workers. Once capital has fully adjusted, the final impact on overall wages should be a wash, as long as the immigrants have not changed the productivity of the workforce as a whole.
However, even if wages do not change on average, immigration can still shift the relative pay of workers of different types. A large inflow of low-skilled people could push down the relative wages of low-skilled natives, assuming that they compete for the same jobs. On the other hand, if the immigrants had complementary skills, natives would be relatively better off. To gauge the full effect of immigration on wages, therefore, you need to know how quickly capital adjusts and how far the newcomers are substitutes for local workers.
City to city
Empirical evidence* is as inconclusive as the theory. One method is to compare wage trends in cities with lots of immigrants, such as Los Angeles, with those in places with only a few, such as Indianapolis. If immigration had a big effect on relative pay, you would expect this to be reflected in differences between cities' wage trends. David Card, of the University of California, Berkeley, is one of the leading advocates of this approach. His research suggests that although there are big differences between cities' proportions of immigrants, this has had no significant effect on unskilled workers' pay. Not everyone is convinced by Mr Card's technique. His critics argue that the geographical distribution of immigrants is not random. Perhaps low-skilled natives leave cities with lots of immigrants rather than compete with them for jobs, so that immigration indirectly pushes up the supply of low-skilled workers elsewhere (and pushes down their wages). Mr Card has tested the idea that immigration displaces low-skilled natives and found scant evidence that it does.
An alternative approach, pioneered by George Borjas, of Harvard University, is to tease out the effect of immigration from national wage statistics. Mr Borjas divides people into categories, according to their education and work experience. He assumes that workers of different types are not easily substitutable for each other, but that immigrants and natives within each category are. By comparing wage trends in categories with lots of immigrants against those in groups with only a few, he derives an estimate of immigration's effect. His headline conclusion is that, between 1980 and 2000, immigration caused average wages to be some 3% lower than they would otherwise have been. Wages for high-school drop-outs were dragged down by around 8%.
Immigration's critics therefore count Mr Borjas as an ally. But hold on. These figures take no account of the offsetting impact of extra investment. If the capital stock is assumed to adjust, Mr Borjas reports, overall wages are unaffected and the loss of wages for high-school drop-outs is cut to below 5%.
Gianmarco Ottaviano, of the University of Bologna, and Giovanni Peri, of the University of California, Davis, argue that Mr Borjas's findings should be adjusted further. They think that, even within the same skill category, immigrants and natives need not be perfect substitutes, pointing out that the two groups tend to end up in different jobs. Mexicans are found in gardening, housework and construction, while low-skilled natives dominate other occupations, such as logging. Taking this into account, the authors claim that between 1980 and 2000 immigration pushed down the wages of American high-school drop-outs by at most 0.4%.
None of these studies is decisive, but taken together they suggest that immigration, in the long run, has had only a small negative effect on the pay of America's least skilled and even that is arguable. If Congress wants to reduce wage inequality, building border walls is a bad way of going about it.
). As for wage pressures, inflation is already well ahead of this years wages and just a tad higher than the last two years wages combined. Wages aren't keeping up with inflation, but that's another thread. Are immigrants responsible? Maybe a little but I wouldn't think much.
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