Immigrants Are Making the U.S. Economy Stronger

Immigration is the topic of the day. The political right, after once embracing a laissez-faire policy toward immigration -- President Ronald Reagan signed an amnesty for undocumented immigrants and President George W. Bush tried unsuccessfully to do the same -- appears to want to choke off the inflow of newcomers. Even legal immigration is being targeted for reduction.
Immigration Reform


This would be a big mistake. A continued inflow of immigrants is needed to support the growing ranks of U.S. retirees, and the entrepreneurial dynamism of immigrants is needed to fight the decrease in new-business formation. Immigration’s opponents exaggerate the cultural threat it poses -- the U.S. is still great at integrating newcomers. They also exaggerate the threat to the rule of law -- the population of illegal immigrants has been shrinking for a decade.


But what about the economic threat?
Some Americans who have no visceral fear of outsiders will still worry about wage competition from hard-working newcomers. This is only common sense -- the logic of supply and demand is fixed in our collective consciousness. Flood a market with workers, and the value of labor will go down, right?


Well, maybe. If an increase in population always made wages fall, the Baby Boom would have immiserated the American worker. When new workers come, new businesses often start to take advantage of the sudden abundance. In the U.S., it’s often the immigrants themselves who start those new businesses. If the business expansion rate keeps pace with the immigration rate, native-born wages don’t need to fall.


If newcomers are innovative types, wages for the native-born could even rise. This is because innovation workers like engineers and researchers tend to complement each other. Ideas flow between them, leading to synergies that make all innovation workers more valuable. This is why technology clusters are such powerful drivers of the innovation economy. Also, high-skilled immigrants raise the wages of low-skilled native-born workers, since they raise the demand for the goods and services provided by the working class.


So we should expect to see some negative impact of low-skilled immigration on the wages of low-earning native-born workers without college degrees, but the effect will be smaller than simple intuition might suggest. And we should expect to see high-skilled immigration raise the wages of native workers across the board.


In fact, that’s exactly what the evidence does show. The National Academy of Sciences recently put out a 500-page report about the economic impact of immigration. Edited by Francine Blau and Christopher Mackie, the report surveys extensive empirical evidence and draws on the wisdom of an expert panel. Although the panel includes some notable immigration detractors like Harvard University’s George Borjas, the report finds that influxes of newcomers pose relatively little economic threat:

When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small. … There is little evidence that immigration significantly affects the overall employment levels of native-born workers.

The most convincing studies, which use random influxes of immigrants -- such as the Mariel Boatlift of 1980 -- show no detectable negative influence of low-skilled immigration on native-born wages, even for the working class.


Other studies show a modest negative effect. Suppose the U.S. were to increase its labor force by 7.5 percent by allowing in low-skilled workers. That’s about 12 million new people, which is approximately the number of undocumented immigrants now living in the country. The papers cited in the NAS report estimate that wages for native-born American high school dropouts would fall by anywhere from 0.75 to 12.75 percent.


That’s not a huge impact, but it’s a negative one that falls on the most economically vulnerable Americans. So there’s a case for limiting low-skilled immigration to protect the U.S. working class.
High-skilled immigration is a different story. The academy of sciences' report finds that skilled immigrants are an unambiguous positive for both educated and uneducated American workers:

Several studies have found a positive impact of skilled immigration on the wages and employment of both college- and non-college-educated natives. Such findings are consistent with the view that skilled immigrants are often complementary to native-born workers.

In other words, if the U.S. lets in engineers and programmers and researchers from China and India and Cameroon, it’ll raise the wages of U.S.-born tech employees and service workers alike, and create new jobs for everyone.


This is good news, because U.S. immigration is rapidly shifting toward the highly skilled, even without any change in official government policy. In most states, the average new immigrant is no longer a laborer from Mexico, but an educated worker from Asia.


That means that the days of immigrants competing down Americans’ wages are over. The current mix of immigrants is beneficial for the jobs and wages of the native-born. To choke off this inflow with xenophobic attitudes, legal restrictions or frightening anti-immigrant rhetoric would be a self-inflicted wound for the U.S. The current system is benefiting everyone