How Does Immigration Impact American Labor?
Immigration has had both positive and negative consequences for the U.S. economy. It benefits some groups of Americans and harms others. The benefits flow primarily to affluent Americans while the costs are mostly borne by low-income Americans. It is a regressive policy, just like tax cuts for the wealthy or right-to-work laws. Progressives who support low-wage workers should be able to find common cause with the advocates for immigration reduction.
Three basic facts about immigration undergird its economic impacts. First, immigrant inflows into the U.S. labor market are very large. Immigration accounts for over half of labor force growth. Such large numbers inevitably mean that immigration has had large effects. We can argue about what those effects might be, but we cannot pretend that they have not occurred.
Second, immigrants are especially likely to have low levels of education and skills. About 30% of all foreign born workers (and about 60% of those from Mexico and Central America) do not hold a high school degree. Illegal immigrants are even more likely to have low levels of education. While many immigrants are highly educated, the large share with low levels of educational attainment concentrates their impact in the low-wage sector of the labor market.
Third, immigrant workers are spread throughout the occupational distribution. Less than 2% of all foreign born workers (and less than 4% of those from Mexico and Central America) are in agricultural occupations. The largest shares of foreign workers are in production and construction occupations. Workers from Mexico and Central America are also especially likely to be in buildings and grounds maintenance, transportation, and food service occupations. Immigrant workers are not isolated in a separate labor market. The assertion that immigrants “take jobs that Americans don’t want” is a myth.
The upshot is that immigrant workers increase job competition for American workers, and drive down their wages and employment opportunities. According to Professor George Borjas of Harvard University, immigration from 1980 to 2000 reduced the weekly wages of all native workers by about 4%. The greatest negative impacts were on high school drop-outs, black and Hispanic workers, and young workers.
There is also good evidence that immigration has decreased the employment of these groups of American workers. According to Professor Andrew Sum and his colleagues at Northeastern University, a one percentage point increase in a state’s labor force caused by immigration results in a 1.2 percentage point decline in the employment rate of 16-24 year olds, and a decline of twice that amount among African Americans of that age group. Professor Sum has also shown that almost all of the job growth between 2000 and 2004 went to immigrants. Young workers, minority workers and workers without a high school degree have unemployment rates that are much higher than other workers. This is the opposite of what one would expect if low-wage occupations faced labor shortages, as the advocates for open borders often argue. In fact, the U.S. already has an excess supply of labor in low wage occupations — that is why they continue to pay such low wages.
These figures on the impact of immigration on the wages and employment of American workers might seem small (though a 4% wage reduction can significantly reduce living standards for people with low earnings). But immigration creates a number of offsetting trends that blunt the measurement of its effect. For example, the negative consequences of immigration tend to wash out over time as workers adapt and the labor market adjusts. The workers most adversely affected by immigration in a particular locale may move or drop out of the labor force. Immigrants may be attracted to locales that offer higher wages, obscuring the correlation between immigrant growth and wage decline. All of these factors make it difficult to measure the true economic impact of immigration.
Immigration also creates economic benefits. By adding to our labor resources, it increases our capacity to produce goods and to generate income. The major recipients of this additional income, aside from the immigrants themselves, are the employers who hire them and the high-skill workers who work alongside them. Immigration can also increase consumer choices and expand markets. If it stimulates growth, it may also stimulate investment (though an increase in the availability of very low-wage labor is usually associated with a decline in investment in labor-saving technologies). Immigration may help keep jobs in the U.S. if it increases our competitiveness with respect to labor costs.
Like the labor market impact of immigration, the fiscal impact is also characterized by pluses and minuses. Because immigrants have lower incomes and larger families than natives, they tend to use more social services, particularly public education and public hospitals. They also tend to pay less in taxes, resulting in significant fiscal deficits at the state and local levels. But the opposite is true at the federal level because immigrants often pay social security taxes but fail to collect benefits. The overall fiscal impact of immigration appears to be negative, at least in the short-run, but not large relative to total government borrowing.
Because immigration creates both benefits and costs, its aggregate economic impact is surprisingly small. Those who argue that immigration will destroy the economy, and those who argue that immigration will save the economy, are both wrong. Immigration is both bad and good for the American economy. The problem from a progressive perspective is that the negative consequences of immigration fall on the shoulders of those least able to bear it: low-wage workers, minority workers and young workers. Like international flows of capital and commodities, international flows of labor add to growth but also increase job competition, particularly for workers without specialized skills. Progressives who are critical of other aspects of globalization should apply the same analysis to immigration.
Steven Shulman
Professor of Economics
Colorado State University
